With end-of-life vehicles (ELVs) in very high demand, recyclers are getting creative when it comes to purchasing and recycling these vehicles.
Whenever we jump on calls or virtual meetings today regarding the automotive recycling industry, the subject quickly turns to vehicle purchasing. With such a demand for catalytic converters at present, we’ve seen the prices for scrap cars rise by 30-35% a year. A lot of this has come from businesses who aren’t what we would call legitimate recyclers, but those who just want the converters for their precious metals, but in order to get them, often have to buy the entire car.
At ARC, we run an index for the Retire Your Ride and Car Heaven programs and based on the statistics we’ve seen, there has been a sharp increase in the price of scrap cars, with the prices people are getting for catalytic converters around double what they were a year ago. Another trend is the growing number of hybrid vehicles that are reaching end-of-life status. In the case of what we call full or parallel hybrids, by which the vehicle can run independently on the electric motor or internal combustion engine (ICE) and switch back and forth, it tends to take longer for the ICE to warm up and to get around that, OEMs frequently add more precious metal content in the converters on these vehicles to reduce the time for the exhaust to heat up and lower emissions output.
And because we are seeing more of these hybrids becoming available as ELV or salvage vehicles, there is very strong demand to acquire them for their precious metal content. Many of these buyers who are simply hunting for scrap cars, often don’t care that it is a hybrid vehicle or that specific protocols are needed to dismantle it properly and safely. They are also just figuring out that these hybrid batteries can have negative value and that could lead to dumping of these vehicles. But because they are able to purchase the vehicle for let’s say $300 and make the same amount in cash selling the converter and still have the vehicle hulk in their possession, they are trying to get their hands on as many as possible.
Yet there are other buyers who are also looking to play in the same sandbox, including scrap metal merchants and collision centres. On the scrap metal side, we’ve seen prices of both ferrous and non-ferrous metals remain robust during the pandemic and the value of flattened car hulks just keeps rising, as much as $50 per ton in a single week.
In addition, because the pandemic has caused many consumers to rethink purchase decisions such as holding off on buying a new car and keeping their existing one going, this has led to a chronic shortage of ELVs available in the marketplace.
So with more buyers and fewer cars to bid on – the price has only one way to go – up. And auto recyclers are unique in that they get their inventory to sell parts from ELVs and salvage vehicles. Thus the concern with where prices are going.
A further contributor to this has been on the total loss side, since with more people staying at home and fewer miles being driven, fewer vehicles are being involved in collisions, which means that there are fewer total losses. In fact, some of the salvage auctions report that vehicle volumes are down by 25-50% and even more in some cases.
Yet while volumes are down, there are still the same number of buyers showing up at these auctions bidding on these vehicles. In addition, we have also seen new buyers enter the market, including more collision centres, who aren’t looking at buying these vehicles for parts, but instead looking to repair them to fill in the downtime they are experiencing with fewer repair opportunities.
It all represents a perfect storm and in order to thrive in this kind of market, recyclers need to be very selective and very systematic. It’s a major reason why at ARC, we’ve been holding training sessions that focus on competing in this kind of environment and how to squeeze as much money as possible out of every single vehicle you acquire. There are times, when being able to provide guidance and a path forward is sorely needed and in the current economic climate, where virtually everything has changed and scrap cars are a hot commodity, the need to find that path has arguably never been greater.
Article first appeared in Autosphere April 2021