Adam Małyszko, CEO of the Association of Car Recycling (FORS) in Poland provides Auto Recycling World with his opinion of the car recycling industry over the past twelve months and where the industry is headed in 2022.
The car recycling industry achieved record results in many countries around the world last year, both in sales volumes and profits generated. This is largely the result of huge price hikes for steel scrap, aluminium, copper, chemical elements retrieved from catalytic converters and the increased demand for used parts. The last factor is closely related to the reduced production of new cars.
The rapid increase in the prices of raw materials meant that all companies that had accumulated stocks could generate high profits from their sale. Moreover, in countries where the parallel growth of a huge grey economy is not an issue and owners of end-of-life vehicles are aware that such waste needs to be properly stored and processed, the fact that higher compensation would be paid for a vehicle submitted for dismantling was much welcome. Where the grey economy continues to be a (very) significant challenge, legitimate car-recycling businesses have had to swiftly adjust the prices offered for the cars they receive to – ironically – those offered by the grey economy. Failure to pay taxes and avoiding many other legal obligations translate to lower costs compared to legally compliant businesses. Nevertheless, everyone profited from the increase in raw material prices in 2021. So much so that today even carmakers themselves are considering investing in car recycling.
Limiting the re-use of parts
Every year, we dismantle newer and newer vehicles packed with electronics. Increasingly, despite excellent parameters, some parts cannot be installed into another car due to electronic protection. This problem is likely to get worse over the years. It will be most quickly acknowledged by countries where the share of electric cars is the highest. Electric cars will pose a significant challenge for the industry in the future. The industry’s lack of experience in this segment means that its future is full of uncertainties. To a large extent, we will likely be dealing with a market similar to the electric-engines-recycling market, which is large, but only in the area of raw materials and negligible for spare parts. If an electric car cannot be repaired after an accident, neither new nor used parts will be needed.
Therefore, the safest route for the car recycling industry will be to dismantle the parts and process the materials found in cars. Already now, recipients of waste from vehicles are demanding ever-higher fees for the collection of unwanted waste: tires, glass, plastics, operating fluids, etc. I believe many companies will try to recycle unwanted car waste as an additional business opportunity. International cooperation in sharing technological and organisational know-how will be much needed for this.
A panacea for the big unknowns?
According to experts, changes to the regulations governing car recycling in Europe and beyond are necessary – changes that will reduce the grey economy, facilitate the reuse of parts and increase the profitability of legal dismantling stations. This, in turn, will positively affect the industry’s ecological footprint. In principle, I agree with such opinions. After the last 25 years of lawmaking and enforcement, however, I know that the industry alone will not develop this business without a solid technical and organisational background and sound knowledge of the market. The regulations say “don’t steal”, but so what, if, while writing this article, I am watching a video where a single thief steals nine catalytic converters from nine vehicles parked in a parking lot, uninterrupted, thus depriving the cars of their environmental protection devices. Will the owner of the stolen catalytic converter repair the car by installing a very expensive, original, new catalytic converter, or will he or she use a different solution, a cheaper one, but far less efficient when it comes to harmful CO2 emissions?
Motivated by regulations, manufacturers of new cars put a lot of effort and significant investments into reducing CO2 emissions. Unfortunately, much of this effort can be invalidated by thieves in a matter of minutes. Finally, an end-of-life car without a catalytic converter is often 50% less valuable.
What will 2022 bring for the industry?
The money provided between 2020 and 2021 by the governments of many countries under various types of financial aid instruments and the increase in raw material prices have resulted in very high inflation, not recorded for years, hence the need to increase salaries. The car recycling industry may, therefore, struggle to keep companies profitable this year. Vehicle dismantling is primarily based on manual labour, and the cost will continue to climb. In 2022, we may be dealing with the opposite of what we are dealing with today. Raw materials prices will most likely stabilise or decline. One example of an upcoming trend is catalytic converters, the price of which dropped sharply in the second half of 2021.
Much depends on the pandemic, the global political situation and sales and production volumes for new cars. However, the costs of car dismantling will undoubtedly increase significantly. It will be ever more difficult to access a relatively cheap workforce, which is of key importance in the car recycling industry. The cost of retrieving parts will be higher and, in many cases, will exceed the cost of a new part. This single fact alone will make the dismantling of good parts unprofitable in specific categories; hence, they will not be offered for sale. Another factor that may affect the market for used parts is the increase in transport and distribution costs, esp. on popular internet platforms. After nearly two years of the pandemic, customers have become much more accustomed to online shopping, which also confirms the huge demand for drivers of courier companies, i.e. professional drivers who will be lacking in many countries.
2022 will certainly be different from 2021. It will be crucial to closely monitor the conditions for conducting business in the car recycling industry in a given country, as they change from day to day. Rush decisions, driven by the dynamics of the pandemic, may turn out to be of key importance for the industry. Last but not least, the industry should prepare for a situation where costs may exceed revenues for some time.