John Kett, a Strategic Advisor and former CEO/President of IAA and Founder of JWK Consulting, reflects on the dynamic evolution of the auto recycling industry during his two-decade tenure. From the early digitization and globalization waves to the emergence of fully digital marketplaces, he contemplates the impact of EVs, which may revolutionize recycling practices and compel industry players to adapt to this transformative shift.
As I look back on my 22 years in the vehicle recycling ecosystem, it has been amazing to witness (and play a role) in the evolution of this marketplace. And it is even more exciting to look forward and try and predict whether the next phase will be more evolutionary. Or will a revolution take place?
First, the evolutionary phases
At the beginning of the 2000s, buying and selling damaged cars for parts or rebuilding had remained unchanged for the prior 25 years. Damaged cars were sold locally, either directly or through auctions, to dismantlers and salvage yards. The parts were then resold locally or scrapped. Sellers were focused on extracting some return without contemplating the true value of the vehicle and its components.
Then, the first wave of digitization and globalization occurred. Photos of damaged vehicles, along with rudimentary descriptions and other information, became available online. This increased the exposure of vehicles beyond the local market, and internet bidding, though limited, became available. Global buyers became interested in damaged cars in other countries, but the market was still dominated by local buyers and sellers.
In the 2010s, consolidation really took root, and larger players continued to grow through greenfield and acquisition expansion. Pools of capital from both public and private companies were put to work to take advantage of the benefits of expanding the pool of buyers using technology. Similarly, sellers of damaged vehicles, primarily insurance companies, also began to consolidate their claims organizations to achieve higher levels of efficiency and drive higher usage of used OEM parts to reduce costs. This put more pressure on the marketplace to improve information flow and performance, and more fulsome digital auction models emerged to further expand the reach and the reliability of a global marketplace.
The 2nd wave of digitization, which occurred over the last 5-7 years, has resulted in fully digital marketplaces, vastly improved information availability, more robust bidding capabilities, and greater trust by participants. Improved international payment and transportation solutions further reduced friction for global buyers.
Today, we have a truly global marketplace that provides enormous benefits to buyers and sellers. The path to this point has had its twists and turns and has evolved in a way that few would have imagined. However, we are at the beginning of a new dawn, and that is a result of electric vehicles.
Up until now, vehicles were made up of hundreds of parts, none of which constituted a majority of the value. The most efficient model for selling recycled parts was to sell the vehicle as a whole, and then the market participants would dismantle or repair based on demand and their expertise. Electric vehicles change that calculus. With fewer parts in total coupled with the outsized value of the battery to other parts on the vehicle, the evolved model just discussed could be turned on its head.
Will selling the entire vehicle at the beginning of the recycling process continue to be the most effective model? Could we see a model evolve where the battery is separated from the rest of the vehicle, and each takes different paths through the recycling ecosystem?
As Electric vehicles make up an increasing percentage of the car parc, recyclers, auctions, and any player in this ecosystem are going to need to rethink existing business models. Just as revolutionaries unseat those in power, not paying attention to this significant change in vehicles could result in some market participants being replaced.