No Boom For The Recyclers

Tweet

For the first time in anyone's memory, bad economic times haven't meant boom times for the automotive aftermarket. Historically, sales of used car parts have been countercyclical with new car sales. Not now. Apparently, the recession is striking too deeply. Car owners are holding on to their vehicles longer -- the average age of cars on the road now is about seven years, the highest figure since the early 1950s -- but are postponing all but the most urgent maintenance and repairs. Higher gasoline prices have meant fewer miles traveled. That has meant fewer accidents, and, therefore, fewer wrecks in the salvage pools, and less demand for replacement parts and sheet metal. In fact, business is so slow at some body shops that some managers now have the time to attend car auctions and bid against salvage operators for rebuildable wrecks. This, too, drives up the price of salvage.

Another challenge to the recycling industry is the trend to lighter "unibody" cars, both imports and Detroit's so-called alphabet cars. Critics liken them to a boxer leading with his chin: They crumple easily in collisions, are more easily totaled, and transmit more devastating damage to valuable engine parts. Eventually, body shops and recyclers will amass the expensive equipment and the skill to literally "yank" these cars back into shape, but for the time being, the latest of the late-model cars remain problematical.

There is also the specter of foreign competition. Some Far Eastern countries have begun to ship new sheet metal to the United States at cut-rate prices competitive with recyclers' sheet metal. According to Isenberg, the Japanese are building and selling new parts for luxury vehicles like Mercedes-Benz sedans for less than the price of used parts, although, so far, at no closer range than England.

Finally, with U.S. factories running at about two-thirds capacity, yard owners can hardly give their scrap metal away. Many are stuck with acres and acres of wrecks awaiting "the good days" and the good old scrap prices. Add it all up, say many thoughtful observers, and it is likely the industry will witness a major shakeout in the coming years. Some suggest that as many as half the existing yards may go under.