Low Inventory Impacting Auto Recycling

Used vehicle prices continue to climb, which is proving both a blessing and a curse for recyclers.

One of the most significant disruptions to the automotive industry in recent months has been the shortage of global semiconductors.

The impact has been a decline in new vehicle sales because OEMs are simply not able to build enough functioning vehicles to meet demand.

With less new vehicle inventory available, many new car dealers have been turning their attention to used vehicles. For us, as auto recyclers, this presents an interesting scenario.

For some time now, data has shown that the overall age of the vehicle fleet continues to increase. In the U.S., data from IHS Markit, puts the average age of a vehicle at 12.1 years, while in Canada, it is just shy of 10 years old.

Used vehicle surge

And as the vehicle fleet ages, there’s also been a very significant (and growing) demand for used vehicles. We’ve seen this reach a fever pitch recently as the shortage of new vehicles has put pressure on the used market.

And, not only is it dealers who are competing at the auctions for used vehicles but so are fleet businesses, particularly rental car companies who disposed of a lot of their inventories in Q2 last year as travel ground to a halt.

Rental vehicles are in such short supply today that those companies who do have them are charging premiums and in order to attract more customers, rental agencies are now buying older vehicles, just to have something on offer.

In fact, the pressure on used vehicles has become so great that even recyclers and associations like ours are getting calls, asking if we have vehicles, including ones earmarked for End of Life (ELV) status.

For us as recyclers, the ageing of the vehicle fleet and demand for older cars (five years and up) is in many ways, music to our ears, since that is “the sweet spot” our businesses tend to operate in.

Demand for used parts is way up, simply because there is a shortage of new parts, with collision repairers and mechanical shops looking to get their hands on every component they can, whether it is new or used.

Additionally, with the increase in scrap metal prices and also hot demand for items such as catalytic converters, the current economic climate offers some very good opportunities for recyclers.

Flipside

There is, however, a flipside to all this. If, as a recycler, you have a good supply of vehicle inventory, you’re currently in a very favourable position.

If you don’t however, it is becoming increasingly harder to compete against dealers and large fleet businesses that are looking for vehicles as the price for cars, salvage or otherwise continues to climb, even though, for each car, you’re likely to make more money per part than before.

Ultimately to be successful you have to be able to read the market and see where things are headed. External influencers, like COVID, rarely last but one thing is clear, the importance of understanding the supply chain.

Now is the perfect time for recyclers to be talking to collision repairers and mechanical shops since many of them currently have a bit more time and by focusing on those relationships, in many cases, recyclers can solve their problems relating to parts supply.

At the association end of things, we at ARC continue to look at ways to help our members optimize their operations and recognize those who are not only selling parts but also seeking out new business and building relationships.

Ultimately, no matter what happens in the economy it is the strength of the relationships and networks we have that ensures our survival and future growth. And in these unprecedented times, that is something we should all recognize.

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Steve Fletcher is the Managing Director of the Automotive Recyclers of Canada and the Executive Director of the Ontario Automotive Recyclers Association. You can reach him at steve@autorecyclers.ca

Originally published in Autosphere, 30 June 2021