Sunday, December 06, 2009

Cash for Clunkers = Fail: Part 2

More unintended consequences of Cash for Clunkers hits another part of the auto industry - salvage yards.

Last summer's Cash for Clunkers program has clogged auto salvage yards with a glut of trade-ins that are too damaged to drive but too good to be sent directly to scrap.

The less glamorous side of the auto industry is having trouble digesting the byproducts of the buying frenzy that put nearly 700,000 new automobiles on the nation's roads -- and took the same number off.

The future of millions of usable auto parts is in limbo as a critical deadline looms this winter under the federal program, which had unexpected success on the front end and its funding tripled to $3 billion.

Several salvage yards in the Roanoke and New River valleys are filled with valuable alternators, starters, air conditioning compressors, wheels, body parts, seats and other major interior parts.

But they are still connected to the 1,500 or so used automobiles traded in through the less-than-eight-week program that expired in August.

And many may go to waste if a federal deadline to conclude the program is not extended.

Apparently, there is a six month deadline for salvage yards to strip usable parts from the cars before they must be crushed or shredded. The problem? There were more cars traded than the salvage yards can deal with.

"There is absolutely no way that we can process these vehicles and recycle anywhere near their potential," he said.

He said the volume of trade-ins flooding the salvage industry is three times what the industry expected when it agreed to support the program and to process the trades within six months. With only four months left on many of the clunkers he bought, he's so far only covered his costs to buy the vehicles for about $225 apiece and get them towed to his facility.

Were these normal trade-ins, the unwanted vehicles could simply be sold to new owners. In this case, the engines were destroyed under a federal mandate to take relatively low-mpg vehicles off the road.

But virtually every trade is loaded with fully functional parts. This represents an opportunity that the auto recycling industry wants to tap -- if given enough time.

As it stands now, however, salvage yards say they can't possibly process the vehicles received under the clunker program by their deadline.

If the yards don't get an extension, the vehicles will have to be scrapped before there is a chance to take off all of the parts, cutting short the program's potential economic and environmental effect, Cunningham said.

The way they normally operate seems to be one factor:

While the obvious solution to the problem at hand might seem to be to strip the clunkers and put the parts on a shelf until a buyer comes along, few shops have the time and storage capacity for such a harvest.

They often keep their autos whole or mostly whole and remove a bumper, rearview mirror or the like when someone asks for them.

That makes sense. Most salvage yards are small operations - lots of land, but only a few employees - and stripping a vehicle for parts is pretty labor intensive.

And, of course, the biggest flaw in the whole program is still there, too.

According to Cunningham, "the real clunker junker smoker" is still going down the highway because its owner could not afford the payments for a new car.

What got traded in for the most part were "very nice cars, very above-average. I had Lexuses being traded in," he said. "Eighty percent of the cars that were traded in, easily, would have went straight into the wholesale market to be resold with absolutely no problem getting rid of them."

But without functioning engines and engine replacement forbidden by the guidelines, the industry has turned to what it calls parting the vehicles out.

Salvage yards are finding there's plenty of demand, but they need time for purchasers to show up. Many highlight their inventories on the Web and wait for a potential customer -- a mechanic or do-it-yourselfer -- to come through the door, call or send an e-mail.

People who could afford to own a Lexus were trading them in on the taxpayer's dime? Total. Fail.

Some other unintended side-effects?

Since 84 percent of the trades were SUVs or trucks, a supply glut could depress prices, he said.

In addition, taking 700,000 vehicles out of service is likely to somewhat reduce the demand for the very parts salvage yards now have in ample supply, he added.

Besides, the program didn't do what it was supposed to do, anyway.

According to Cross-Sell, a Lexington, Ky., automotive market analysis company, sales for August and September jumped 16 percent in the New River Valley and 3 percent in the Roanoke Valley, compared with last year.

However, the help was only temporary. Deep declines in sales continued at the program's close. For the first 10 months of the year, sales of new automobiles are down 21.5 percent in the New River Valley and 24 percent in the Roanoke Valley.

I'd like to see a graph of those figures. I bet August and September are just an insignificant bump on a steadily downward line.


1 comment:

Anonymous said...

Those scrap-yards are not, of course, thinking the situation through properly.

The solution is: Pull out the almost-entirely useless engine, strip out the identifying stuff (like the instrument panel-mounted VIN strip, the doorframe I.D. strip, etc.), then offer the whole damn thing for sale - sans title, of course. Either that, or stash it in the back of the yard somewhere, shred/crush a similar vehicle (identifying it on the books as the C-for-C vehicle), and part it out later, as needed.

Think the problem through, guys - Big Brudda Gubmint ain't livin' in your back pocket (yet, anyway) -