Paradigm Shifting 2020 - Automotive Recyclers Association
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Shifting
AUTOMOTIVE RECYCLING
Paradigm
2020
Industry Forecast
and Challenges
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– Recycled Original Equipment ™
™
Shifting Paradigm
– Recycled Original Equipment ™
FORECAST
OF AUTOMOTIVE RECYCLING
Professional automotive recyclers are experiencing rapid shifts
on an all encompassing level, from business model, data integrity,
aquiring inventory, customer expectations and more. The industry’s
response to these challenges are determining its future.
By Caryn Smith
T
he automotive recycling industry has of the critical role that recycled original equipment man-
a rich 76-year history serving a vital ufacturer (OEM) parts play in today’s automotive repair
role in the world’s recycling efforts,” market has proved difficult, but that is something the
says Jonathan Morrow, M & M Auto ARA is working to change.
Parts, and Immediate Past President
of the Automotive Recyclers Associ- Position of Strength
ation (ARA). “Automobiles are the “The professional automotive recycling industry is being
most recycled consumer product in squeezed on all fronts – from OEM repair standards, sup-
the world today. As an industry, we have always endured pression of scrap prices, and too many unlicensed opera-
change and it has made us better. In my lifetime, I have not tors,” says Scott Robertson Jr., Robertson’s Auto Salvage
experienced a disruption, particularly in the U.S., that has and ARA’s First Vice President. “We need to differentiate
rocked our industry’s core the professional auto recy-
more than the ones being cler from illegal operators
experienced today.” who taint our image. The
Auto recycling as a quicker we do this, the
business model remained better.”
largely unchanged until OEM Repair Guide-
the late twentieth-cen- lines and Position State-
tury digital boom. With ments contribute to
CARYN SMITH
computerization and the industry misperception.
rise of e-commerce came Directed at mechanical
industry-wide innova- and collision industry
tion, expansion, and profitability, growing to $32 billion repair processes, these documents often outright pro-
in U.S. annual sales. It also brought higher levels of com- hibit the utilization of genuine OEM recycled auto parts
petition, consolidation, and pruning of the industry. Sal- in repairs. Concurrently, while 2015’s Fixing America’s
vage acquisition and recycled auto parts sales now reach Surface Transportation (FAST) Act included a provision
beyond physical locations into cyberspace and have dras- requiring car manufacturers to provide automotive recy-
tically increased head-to-head competition between auto clers with original equipment (OE) parts data for recalled
recyclers, as well as with global players as the industry components, OEMs continue to deny auto recyclers access
expands into more countries. to that data – even though it
With time now measured by the speed of light, it is IS provided to all other related industries.
requiring forward-thinking automotive recyclers to retool These two issues combined – as well as a drop off in
their business strategies in just about every way. interchange numbers – are major obstacles for auto recy-
The most critical issue facing the industry is miscon- clers largely in the U.S. market.
ceptions of its importance and inner workings, which has OEM REPAIR GUIDELINES: The intent of OEM repair
led to overarching policies that could severely impede guidelines are to determine procedures sanctioned by
business. Educating consumers and industry stakeholders automakers to make sure that any technician performing
To Reprint, Publish or for Expert Quotes, please credit the Automotive Recyclers Association/2019 Automotive Recycling Magazine. // 2
™
– Recycled Original Equipment ™
FORECAST
“As an industry, we need to find
common ground on parts grading
and quality control to change the
perspective on using recycled
OEM parts within the
collision and repair
industries. We all must
send the correct quality
iStockphoto.com/gustavofrazao
part, as described, on time.”
– JOEY COX
auto repairs understands what it means to fix the vehicle President/Treasurer. “We have perfectly good quality and
correctly, according to the manufacturer. They inform safe OEM parts in our inventory. Consumers and repairers
collision and mechanical repairers on what an OEM need a viable parts alternative, and we have historically
allows or disallows in the repair process, across the model provided it with success. Studies show that vehicle owners
lineup. The underlying intent to mitigate the risk of a bad whose auto is five years or older typically do not buy new
repair has resulted in blanket statements that have affected replacement cars. Fixing their car is the best option.”
the automotive recycling industry. Guidelines are sanc- OEM RECALL PARTS NUMBERS: Recalls are rising with
tioning only the use of “new” OEM auto parts in repairs, no end in sight. More than 32.7 million affected vehicles
and explicitly restricting the use of “recycled” auto parts, were accounted for in recalls mandated by the National
which are lumped together with “aftermarket” parts. Highway Traffic Safety Administration (NHTSA) in 2018.
Furthermore, it comes as no surprise that the OEM Another estimated 159 “voluntary manufacturer notice”
Position Statements, which state their general policies and campaigns affected a minimum of 14.5 million vehicles.
positions, do not even acknowledge recycled auto parts This translates to one in four vehicles on U.S. roads with
and the fact that they are genuine OEM parts. at least one open recall.
“This restrictive language is detrimental to the entire “ARA continues to work through our valued congres-
auto recycling industry,” says Morrow. “Where does sional partners to gain access for automotive recyclers to
that leave professional automotive recyclers dedicated OEM parts data that was afforded by law in the 2015
to harvesting quality recycled OEM auto parts for FAST Act,” says Delanne Bernier, Vice President of ARA
reuse? Without profits, our businesses cannot sustain the Government Relations. “This data is critically important
important work of dismantling and recycling end-of-life to their business and the safety of consumers.”
vehicles.” Once received, the parts data will easily populate the
The average vehicle on the road is now 11.8 years, and auto recyclers’ inventory management systems in real-
manufacturing of replacement parts by OEMs continues time and be available electronically. In automotive sales,
for an average of four years after a vehicle’s production. cars now have a unique set of parts; therefore OEM parts
What is the plan for OEMs to make available the necessary numbers are attached to a car’s Vehicle Identification
“new” parts on these older cars? Negating the use of “recy- Number (VIN). With the VIN and access to OEM parts
cled” auto parts leaves those vehicles exposed to premature numbers, an auto recycler can easily identify what parts
insurance total loss status. Consumers are left without the on a repair vehicle are recalled, and remove those parts
economical choices that recycled auto parts provide. from their inventory.
“We are working diligently to create positive relation- Instead, auto recyclers must rely on labor-intensive pro-
ships and educational opportunities with the automotive cesses to accomplish this same task. Because auto recycling
manufacturing community to help them understand that inventory management systems utilize industry-unique
our industry has millions of dollars of their original OEM interchange numbers that do not match OEM parts num-
parts in inventory – quality products to be used safely in bers, recyclers must ask the customer a series of qualifying
the repair process,” says Sandy Blalock, ARA’s Executive questions to accurately identify the parts needed. Once
Director. “We want to build an understanding that we are identified, they reach outside of their data-driven system,
true partners to OEMs, especially as blockchain looms on to such places as the NHTSA and OEM websites, to find
the horizon.” recall information before selling any parts.
“We are not the OEMs’ adversary,” says Marty Hollings- With tight repairer cycle times, delivery schedules and
head, Northlake Auto Recyclers Inc. and ARA’s Second Vice high quality expectations driven by insurance companies,
To Reprint, Publish or for Expert Quotes, please credit the Automotive Recyclers Association/2019 Automotive Recycling Magazine. // 3
™
– Recycled Original Equipment ™
this time-consuming process is viewed as a negative cus- delivery standpoint,” says Mike Kunkel of Profit Team
FORECAST
tomer service experience. Receiving OEM parts data Consulting, “and buying enough of the right vehicles that
would resolve this and ensure consumer safety. make money is a challenge.”
INTERCHANGE: OEM parts information includes inter- “As an industry, we need to find common ground on
change data – assigned numbers that link parts to the vehi- parts grading and quality control to change the perspec-
cles they fit, which could be multiple makes and models. tive on using recycled OEM parts within the collision
This data has historically been given to auto recyclers and repair industries. We all must send the correct quality
by automakers. Several car manufacturers have ceased part, as described, on time,” says Cox.
to provide interchange for new models and the trend COST OF DOING BUSINESS: Margins are shrinking and
is growing. “Our industry is about interchangeability. costs are rising, and it is driving some automotive recy-
Having that disrupted would be a big challenge,” says clers to sell or close, and compelling others towards inno-
Bill Stevens, Fenix Auto Parts, at a recent industry event. vative growth.
“The industry is rapidly moving towards web-based The bottom line: It costs more now to make less on
search tools,” says Joey Cox, Cox Truck & Van, Inc. recycled parts. “The labor market is competitive, the cost
“Recycled parts and interchange numbers are essential to of staffing and benefits has risen rapidly. The cost of sal-
effective auto repairs. It is imperative that we get the data vage is staggering compared to the past,” reflects Shannon
from automakers, especially for interchange.” Nordstrom, Nordstrom’s Automotive Inc. and chair of
ARA’s Certification Committee. “Recyclers that do not
Turning Obstacles into Opportunities smooth out the inefficiencies in their businesses will have
While position statements, parts numbers, and inter- a hard time finding consistent profitability and put their
change are overarching concerns, other aspects of busi- business at risk.”
ness contain roadblocks and doors of opportunity. Tightening expenses and learning to direct income
With e-connectivity, auto recyclers compete for effectively is the key to longevity in today’s current
product (salvage cars) on a global scale at significantly marketplace.
increasing prices. They experience more competition
for parts sales and higher customer expectations. Positioning for Growth
Where business relationships ruled the past, the new With an open mind, progressive auto recyclers are
deal makers are: product availability, price, time of working to identify, inventory and sell more parts by
delivery, and product delivered as expected or better expanding beyond the traditional top parts. They are
(i.e.: little or no damage). This is driving down profit establishing core recovery programs, and other profit
margins and forcing the industry to unify under standard models. As assemblies contain more parts, auto recyclers
process and procedures. are selling more items separately, such as electronic sensors
COMMERCE WITH AN E: The days of parts orders by or LED lights – all to boost their bottom line
phone are quickly coming to an end. Electronic parts “The market is changing, the types of parts we are
procurement is growing as a primary communication selling are changing, and we continue to refine and inte-
from buyers – and eBay and Amazon are the platforms grate our level of detail on inventory to match the new
to watch. Smart auto recyclers maximize online accurate demand for parts that were not common to sell in the
parts descriptions and show multiple parts images to set past,” says Nordstrom.
customer expectations. Recyclers unwilling to comply “The drift between large and small recyclers will con-
with this level of detail are at risk. tinue to widen,” says Kunkel. “Those in the middle will
“Our industry is behind, but it is headed the right way,” be at risk. We will see growth among multi-site operators,
says Stevens. “The way to get the client to call you is to especially regionally. Parts trading networks will be a key
correctly explain [online] that you have the part. Then the to success for some.”
phone rings.” In fact, trading groups, where a network of recyclers
PROCESS & PROCEDURE: As an industry, auto recyclers agree to standards and share inventory to fulfill orders, are
are maverick entrepreneurs. “While we all sell recycled trending. “I think being in a trading group to have access
auto parts and process scrap, our industry has many dif- to more parts is a great way to meet customer demand,”
ferent business models. What we really need is to adhere says Cox. “The facilities willing to work together makes
to basic standards and processes to insure our overall sus- growth possible and affordable.” For smaller yards, it is
tainability. Much of this is tackled in ARA’s certification a way to continue to compete with larger multi-location
programs,” says Robertson. facilities, and not fall short of customer expectations.
Ultimately, as long as a recycler has product, price, TRAIN TO GAIN: More advanced vehicles, such as
delivery, and parts as described in place, it levels the electric battery hybrids, will force higher levels of safety
playing field between large and small operations. But and training for auto recyclers’ employees. ARA Univer-
many are scrambling to catch up. “The ability to con- sity (arauniversity.org) is the premier training platform
sistently duplicate what we do from a production and that helps progressive recyclers educate their teams.
To Reprint, Publish or for Expert Quotes, please credit the Automotive Recyclers Association/2019 Automotive Recycling Magazine. // 4™
– Recycled Original Equipment ™
FORECAST
“Recyclers that
do not smooth out
the inefficiencies
in their businesses
will have a hard time
finding consistent
profitability and put
iStockphoto.com/gustavofrazao
their business at risk.”
– SHANNON NORDSTROM
The platform is undergoing enhancements in the coming recyclers; it is processes and procedures to ensure recycled
year, and as of September 1, 2019, ARA University is auto parts are properly handled in dismantling, inventory,
available 24/7 to all ARA direct members as an exclusive storage and shipping. A universal set of standards for con-
member benefit. sistency in quality, delivery, and expectation will ultimately
“This is essential to our existence,” says Robertson. bring more opportunity.
“Our industry needs continuous training of our employees. “Certification is a long-term commitment. The industry
It is a key piece in separating the professional automotive must adhere to the basic CAR standards,” says Nord-
recycler from unlicensed operators. The quicker we differ- strom, who leads the ARA’s initiatives. “We should not
entiate ourselves, the better. ARA University offers quality, only follow the CAR as a baseline effort, but embrace
relevant certification classes for our employees. Trained procedures that assure the highest quality of results – the
and educated employees help everyone.” ARA Gold Seal standard. Certification has its highest
Vehicle advancements: Auto recyclers still have time to impact when a 3rd party audit is in place, which Gold Seal
understand advanced collision avoidance technology, but requires.”
not much. NHTSA says, “Self-driving vehicles are a future “It is not easy,” Nordstrom continues, “but the commit-
technology concept rather than one that you’ll find in a ment is necessary. As a main proponent of certification,
dealership in the next few years. … A variety of technolog- my company – and others like Cunningham Brothers in
ical hurdles must be overcome before these types of vehi- Rustburg, VA who achieved Tier 1 GM Supplier status for
cles could be available for [wide] sale in the United States.” excellence in service – are leading by example to create
They estimate a slow roll-out from 2025 to 2035, mostly consistency in operations.”
focused in the Asia Pacific region. “As more advanced standards and processes are cur-
Yet, advanced driver assistance systems (ADAS) are the rently being written, I urge any auto recycler to see if
ones to watch now. The ADAS are poised to increase from they are a match to your business model,” says Robertson.
around $32.5 billion in 2018 to over $74 billion by 2025, “A chain is only as strong as it’s weakest link. We are all in
according to Global Market Insights, Inc. Again, only this together. ARA has made the certification process more
those recyclers who maintain savvy training systems will streamlined to enable all recyclers to participate, which will
capitalize on this market. helps both individual business and our entire industry.”
CERTIFIED FOR SUCCESS: Certification is rising to a It is becoming more evident that auto recyclers who
necessity for auto recyclers, yet it is still seen by most as come together, stay educated, and share industry best
a hindrance. When common standards are embraced, practices with each other are best positioned for future
the industry will receive more widespread acceptance as sustainability and growth.
a mainstream auto parts provider. As more collision and “While it certainly isn’t obligatory to be a part of a
mechanical repairers are required by OEMs to be certi- larger group such as ARA to succeed,” says Morrow,
fied, it makes sense that parts suppliers will require sim- “with all the obstacles coming our way, I believe for my
ilar qualifications. business that it definitely helps to unify with others. It
ARA is establishing global standards to replace the NSF provides us benefits that pays residual income in the form
program, recently withdrawn from the marketplace. Yet, of best practices and protection from those who could
since 1994, ARA has offered the Certified Automotive diminish our prominence in automotive repairs.”
Recycler (CAR) and Gold Seal programs for the highest
credentialing to automotive recyclers. Caryn Smith is the editor of Automotive Recycling magazine,
Certification is not about manufacturing for automotive and covering the automotive recycling industry for over 20 years.
To Reprint, Publish or for Expert Quotes, please credit the Automotive Recyclers Association/2019 Automotive Recycling Magazine. // 5You can also read
