September/October 2006
The auto recycling and scrap processing industries are two sides of the same recycling coin, with many shared interests and challenges. the Automotive Recyclers Association’s George Eliades is a great advocate of bringing the two industries even closer.
By Kent Kiser
What do scrap processors really know about the U.S. automotive recycling industry? Sure, they know that auto recyclers sell used car parts. They also know that auto recyclers are important generators of all types of scrap—from car hulks to catalytic converters to lead-acid batteries. That’s probably about it.
There’s so much more to the industry, though. It’s a $25 billion-a-year business—the 16th largest in the United States—with 46,000 employees and a $973 million payroll. In short, auto recycling is a significant, well-established industry that’s been around since just after the first car rolled off the assembly line—and it has been an essential supplier of scrap to processing yards for just as long.
Though the auto recycling and scrap processing businesses are undeniably different, they face many of the same challenges. For instance, auto recyclers and scrap processors can both find it difficult to secure insurance, hire and train qualified employees, maintain compliance with environmental regulations, and meet customers’ quality expectations. Both also face stiff competition for raw material and challenges regarding mercury switches in retired vehicles. You could say the two industries are siblings in the larger recycling family.
George Eliades knows this, which explains why one of his goals as executive vice president of the Automotive Recyclers Association is to forge stronger bonds between the two industries and their trade organizations. “We have a great relationship with ReMA right now,” he says. “And I think the cooperation between auto recyclers and scrap processors is much, much better because some of the previous suspicions and misunderstandings have been cleared up. We need to cooperate and improve communication so we can help our respective industries as much as possible.”
Eliades knows a lot about helping industries. That has been his focus throughout his decades-long career as a certified association executive. In 2003, after years of leading other associations and serving as an association consultant, Eliades accepted the top post at ARA. He assumed the reins during the recession that was battering the auto recycling and scrap processing industries at that time.
“When I came in, ARA was in the red,” he says. “My goal has been to stabilize the organization and clearly define its focus so we can improve our services to members and help them increase their profitability.”
ARA has made much progress in the past three years, Eliades says, noting that the association is again in the black and is rolling out several new, innovative programs. “I think our members are pleased with the way things are going right now and the direction we’re taking,” he says.
Currently, ARA has about 1,000 member companies, Eliades notes. From the association’s headquarters in Fairfax, Va., he oversees a full-time staff of five and another six part-time employees who are spread out in various states, including Virginia, Texas, Florida, and Massachusetts. The association plans to increase its staff soon to keep up with the industry’s growing needs, he says.
Eliades is understandably bullish on the future of ARA and the industry it represents, seeing great potential for both. In July, he took a break from his busy schedule to discuss the industry’s current state, its future prospects, and how ARA is helping its members succeed in the 21st century.
What are the biggest issues facing auto recyclers?
The five biggest challenges are salvage, insurance, education and training, air bags, and mercury switches.
Finding reasonably priced salvaged vehicles is a huge problem for this industry. So many old cars are being exported, and many of them are being purchased by unscrupulous buyers who will pay almost anything to acquire them. For instance, some people will buy salvaged cars just to get the vehicle identification number, which they put on a stolen vehicle to get a clean title. Also, a lot of vehicles exported from the United States wind up in the hands of criminals. To combat this illegal behavior, ARA is working closely with the North American Export Committee, a group of law enforcement officials in Canada, the U.S., and Mexico.
Insurance is also a big issue for auto recyclers. More than a year ago, the largest provider of workers’ comp coverage for our industry stepped back. The company elevated its minimum annual premium, thus eliminating a lot of renewals. So there’s a big need to secure workers’ comp insurance. Toward that end, we’ve been exploring the idea of forming a captive insurance company that would offer competitive workers’ comp insurance to qualified auto recyclers.
Education and training is another large problem. The reality is it’s hard to find good, skilled labor. We’re trying to offer training that will improve the skills of our members’ employees and, in the process, improve the efficiency of each company.
Other challenges include enabling automotive recyclers to be able to sell nondeployed [original equipment manufacturer] air bags and removing mercury switches. ARA just announced its new Air Bag Protocol, which we believe will enable the reuse of perfectly recyclable nondeployed OEM air bags.
There’s a lot of pressure to get mercury out of the environment. Like ISRI, ARA is a signatory to the U.S. EPA’s new Memorandum of Understanding, which establishes a voluntary, nationwide mercury switch removal program. This program, I believe, will encourage many others to capture mercury switches to help save and protect our nation’s land and water resources.
Are you happy with the resolution of the mercury switch issue?
I believe the Memorandum of Understanding is a good, workable solution. We didn’t get everything we wanted—nobody did—but something is better than nothing. We’re not unhappy, but we could have been made happier.
For us, one big issue was that auto recyclers should receive a fair rate to remove mercury switches. If you take your car to a dealership and ask for a switch to be removed, you’ll be surprised how much it costs. Yet we’re expected to remove them for under $1 per switch in the MOU. It takes us as much time as it takes the dealer, plus you have to know where to find the switch in the first place, which isn’t always easy. There’s considerable preparation and labor involved in removing switches.
Another critical issue for us was that automakers would hold auto recyclers harmless for the collection and disposition of the mercury switches. The liability issue is something everybody wishes to avoid. The good news is that the automakers have agreed, in effect, to indemnify automotive recyclers who participate in the program from the point of recovery to delivery.
So overall, we want to solve this problem, we’re committed to doing it, and our members are collecting switches—whether they’re getting paid a fair rate for the work or not.
What trends are shaping the auto recycling industry now?
There’s more consolidation in the business. Auto dismantlers are buying each other, plus companies outside the industry are stepping into the business. For instance, you’ve got scrap corporations like Schnitzer Steel Industries integrating backward into auto dismantling.
There’s also definitely a move toward the self-service, you-pull-it auto dismantling yards, in which customers are allowed to enter the yard and pull the parts they want. Labor costs, the tight labor market, and the potential for greater profits are driving a lot of companies to do that or consider doing it.
On the horizon, our industry is wondering about the impact of hybrid vehicles [on vehicle recyclability]. Other trends include ongoing design changes that auto manufacturers are making to their new vehicles. One example is boron steel, which is much stronger and much lighter than regular steel. Carmakers are using other new materials to build lighter, safer cars and achieve higher fuel efficiency. All of these material changes affect the auto dismantling industry.
Have automakers made any changes that have improved automotive recycling?
Though our communication with automakers has improved on this issue, there are additional design changes we’d like to see. For example, it would be helpful to have petcocks under the radiator, the engine, and the fuel tank so we could drain 100 percent of the fluids. We’d like a way to blow out the brake system. We’d like to know where various components—like boron steel and mercury switches—are located in vehicles. Also, put all the gas tanks on the same side of the car. That would make it easier for recyclers during processing.
We understand, of course, that automakers have to make tough decisions. Take gas tanks as an example. Should they use metal or plastic? Metal is easier to recycle, but if they need to make the car lighter, they may opt for plastic. They have to consider many factors, including material cost, environmental impact, and government requirements. This is not as simple as many people think. But we’re making progress, thanks in part to the work of groups like the Vehicle Recycling Partnership, whose members include ARA and ISRI.
Does the auto recycling industry, like the scrap industry, struggle with safety issues?
Actually, we’ve been very fortunate in that regard, though there are still safety hazards in our business. Fire is always a possibility where torches are involved. Some recyclers inventory a lot of scrap tires, which can be a fire hazard as well as a breeding ground for mosquitoes and rats.
Dismantlers also need to be well-informed and careful about processing hybrids. In those cars, you have to know not to touch anything that’s orange because those parts are extremely hot. Plus, hybrids have a 240-volt battery, as opposed to a 12-volt battery in a traditional vehicle. A 12-volt battery can give you a shock, but a 240-volt unit can kill you. So employees need to understand how to process hybrids properly and safely. Overall, though, our industry is in good shape on the safety side.
What are the biggest regulatory or legislative challenges ahead for auto recyclers?
Scrap tires, stormwater, and fluid recovery are all important issues. Our goal is to get 100 percent of the fluids out of retired vehicles because fluids can lead to stormwater problems, hazardous-material issues, and more. That’s why we’re pushing for design changes in new vehicles. That’s also why we’re proposing a study on fluid recovery—to get closer to that 100-percent recovery goal.
What are ARA’s greatest challenges as an association?
For one, we want to increase the number of ARA member companies because that will give us more clout and enable us to benefit the industry more.
We also need to generate more nondues revenue so we can keep our membership dues at a reasonable level while still funding new activities that the industry really needs. To achieve that, we need to increase the number of members and develop other sources of revenue.
Another problem for us—like all associations—is getting more volunteer participation in committees and leadership roles. A lot of our members simply don’t have the time. They operate small businesses, so devoting a lot of time to the trade association is quite a commitment.
For our industry to truly survive, our strength and power must come from numbers and unity. If you look at the big industries, they all support their trade associations avidly because they work. The associations help make the road wider. They help the whole industry, not individual companies. Trade associations are very valuable. Those that have the funding and the staff to aggressively address the issues are the most successful.
I’d especially like to generate more interest in ARA among small businesses. Big businesses tend to understand the benefits of an association. If smaller businesses would make that leap and support their industry association, like ARA, they’d not only strengthen their association but also help themselves in the process. I’d like them to realize that not being an ARA member is a handicap to their business. I haven’t found the magic answer to that challenge yet, but I’m sure working on it.
Tell me about ARA’s Certified Automotive Recycler program.
The CAR program and its related Gold Seal distinction are quality endorsements for our industry, sort of like the Mr. Goodwrench label for auto repair shops. CAR firms exhibit consistently high quality in operating their businesses, meeting environmental requirements, and providing customer service. The CAR program focuses on the environmental and business elements, while the Gold Seal program deals with customer service. Currently, about 25 percent of our members—just over 250 companies—participate in the CAR program, and about 50 percent of those firms are Gold Seal operators.
We recently unveiled a new version of the CAR program. One change is that members no longer have to go through ARA to find an environmental professional to do the audits required under the program. Instead, members can hire their own auditor who may be local, less expensive, or more convenient. We’re trying to make the program easier for members and save them money at the same time.
What ARA programs are you particularly proud of?
We’ve got several programs that are outstanding. Certainly the CAR and Gold Seal programs are two of them. We’ve developed a new protocol for nondeployed OEM air bags that’s going to be a wonderful program because it will help our members sell recyclable OEM air bags.
We also have a program with Location Management Services that’s enabling some of our members to receive tax rebates or credits if they operate in certain commercial zones. One member received a rebate of more than $100,000, which was like winning the lottery because he had no idea his company was eligible.
We’re encouraging our members to grade their parts and use ARA’s damage codes because the only way insurers see their parts is in a written description. In this vein, we’re working to get repair shops and recyclers on the same page and speaking the same language regarding damage codes to prevent miscommunications and misunderstanding.
The problem is that estimates are generally written based on repair time. We believe the variables [in estimates] can be limited if damage is defined by unit amounts, with a unit representing the damage that can be covered by a credit card-sized object. The repair shops and recyclers can both relate to this. Obviously, one inch of damage at the door handle area is going to be more serious than a one-inch hole in the door panel itself, but we believe parts grading and use of the ARA damage codes will put everyone on the same page and increase the acceptance and use of quality OEM used parts.
I’m proud of our annual convention, too, because it gives members a chance to network, exchange information, and learn from each other. Our magazine is the best it has ever been—we’ve got it up to 60 pages and people are giving us a lot of positive feedback on it. Our education and training programs have been outstanding in recent years, and our Education Foundation just launched a new training and certification program in March. Our Scholar-ship Foundation is awarding 40 college scholarships to deserving young candidates this year. Also, as I mentioned, we’re trying to put together a captive insurance company, and we’re working to get legislation passed that will enable members to buy more salvage.
So we’re proud of a lot of things were doing. This is an exciting time to be involved with ARA. I think we’ve got a bright future. We just need to improve industry awareness and understanding of what we’re doing and that activities like these just don’t happen without trade associations.
You mentioned a new air bag protocol. What is that?
It’s a training program in which members would have an employee become certified to remove nondeployed air bags. Essentially we’re training recycling technicians to properly remove and process the air bag and to be able to recycle it with ARA validation that the air bag was not tampered with in any way. Until now, insurance companies have shied away from installing nondeployed air bags from salvage vehicles because they don’t want the liability to shift from the automakers to themselves. If we can make sure the line of liability stays with the automakers, then insurance companies will start using these nondeployed OEM air bags. This will save them money and result in fewer total-loss declarations on cars. Plus, more insureds will be able to keep their vehicles.
How do you think the public views the car recycling industry these days?
I think we’re in transition. Until recently, people viewed us as junkyards. While there are still junkyards in the U.S., most car recyclers are not. ARA members operate the ultimate recycling facilities. Most of them are clean as a whistle. They have stormwater permits. They are compliant with the law. These guys are white hats. We’re trying to get more of the industry at the same level as the ARA membership.
I think that reuse is the pinnacle of recycling, and that is what our members are all about. They sell quality OEM used parts. In doing so, they preserve raw materials, save energy and landfill space, and enable consumers to save money by buying quality OEM-specification used parts. Our challenge is to increase awareness of the auto recycling industry and get the public to view the industry in positive terms and consider quality recyclable used parts as a viable, trustworthy alternative. Most ARA members are like Sears or Nordstrom in that, if a used part doesn’t work, they’ll take it back and replace it.
How would you describe the relationship between scrap processors and auto recyclers as well as their respective associations?
We have a great relationship with ReMA now. We’re closer now than at any time in the past. And I think the cooperation between auto recyclers and scrap processors is much, much better. Some of the old suspicions, some of the misunderstandings have been resolved. We need to cooperate. We need to work together to improve cooperation and communication so we can help your members and my members.
Earlier this year, ARA met with auto recycling associations from around the world. Can you discuss that event and the idea behind it?
More than 31 countries were represented at that event, which was a big success. The important accomplishment is that we’re improving communication and cooperation in areas of common interest. All of the countries involved are facing the same issues that we’re facing. We learn by networking with them and finding out how they’re addressing the problems.
We plan to continue these meetings, with the next one being held in Tokyo in April 2007. We’ll get to visit some Japanese auto recycling facilities and see some of the innovative changes they’re making.
What’s the idea behind ARA’s slogan, “When You’re Thinking About Used Parts, Think Green Parts”?
The green reference is all tied in with recycling. Reuse, recycling, protecting the environment is what we’re really all about. We want to encourage the public to help the environment by using more quality OEM used parts. We want people to view reuse as the ultimate form of recycling.
This applies to auto dealerships as well. Did you know that 48 percent of the profit at a car dealership comes from its service center? I tell [dealerships] that if they want to hold on to more business in the future, they should consider offering customers not only brand new OEM replacement parts but also quality OEM used parts. After all, if customers don’t want to pay for a new OEM part, they’ll go somewhere else. The dealership will lose that business. If the dealer offers quality OEM used parts as an alternative, they’ll keep the business.
I think most customers—especially those with older cars—would welcome the opportunity to have an alternative. And auto recyclers would welcome the market opportunity. After all, U.S. auto recyclers currently have about a 12 percent to 14 percent share of the overall parts market, so the potential for growth is obviously huge.
Kent Kiser is publisher and editor-in-chief of Scrap.
The auto recycling and scrap processing industries are two sides of the same recycling coin, with many shared interests and challenges. the Automotive Recyclers Association’s George Eliades is a great advocate of bringing the two industries even closer.