An analysis of the automotive dismantling industry in British Columbia

Executive Summary

Since 1964, the BC Auto Recyclers (B-CAR) have pursued industry excellence through innovation, technology, and environmental sustainability. Members of B-CAR are passionate about their industry and actively pursue their goals through participation in local, provincial, national, and international associations and organizations. Their most recent initiative is the commission of this study, which explores the evolution of the industry, highlighting its contribution and relevance to the economy and the environment while providing a detailed description and analysis of recent industry trends.

Automotive recyclers in the province of British Columbia are facing unique challenges in the years ahead that include:

• The management, delivery, and quality control of recycled parts;
• A declining percentage of recycled parts utilization in the collision repair process;
• The acquisition of salvage vehicles for parts disassembly;
• The proliferation of illegitimate operations and salvage brokering; and,
• Enforcement of environmental standards, legislation, policies, and the inadequate application of performance standards.

Recyclers throughout Canada and the U.S. face similar challenges, and each individual region and regional association are responding in different ways. B.C. is unique in that the majority of collision repairs in the province are administered through the government crown corporation, ICBC. ICBC administers 100% of all basic auto insurance, and 85% of all optional auto insurance coverage in the province. ICBC is also unique in that they own and operate their own salvage auctions, and thus, sell and control the majority of salvage sales in the province.

The automotive dismantling industry in B.C. represents over 1,100 full-time jobs and contributes $82,000,000 annually in GDP to the provincial economy. Quality recycled parts offer consumers a substantial value in savings, as well as reducing the provincial carbon footprint. However, in recent years, de-regulation, unfair competitive advantage and lax ICBC policies have resulted in a decline in recycled part utilization. As a result, the province has experienced a decline in the number of businesses that supply recycled parts to the collision repair industry.

Methodology

This paper will examine the evolution of the automotive dismantling industry in B.C., and analyze current trends in order to identify problems and recommend solutions. This paper has been designed to give the reader the widest possible overview of the automotive dismantling industry in order that he/she can contextualize the trends discussed in the analysis section of the paper.

The conclusions in this paper have been drawn from statistical data gathered from a number of verifiable and reliable sources in order to develop a clear picture of current market trends. The data on salvage sales was provided by ICBC, and it was used by MNP to produce estimates of the annual volume and value of sales. Estimates of the average cost of repair using second-life parts and OEM parts were prepared by MNP based on repair estimates by vehicle make and model from Audatex.

Research Findings

The data demonstrates that recycled parts utilization as a percentage of total parts utilized in insurance claims have been declining in proportion to the availability and access to fair market- value salvage. These declines are directly attributable to corporate policies and lack of government oversight, enforcement, and regulations. Further declines will ultimately place the future sustainability of the automotive dismantling industry in jeopardy.

Results and Conclusions

The revenue generated for ICBC from the sale of salvage is significant. From 2012 – 2014 revenue generated from the sale of salvage amounted to $182,948,555. During this period, on average, roughly 65% of the revenue was generated through the sale of rebuild designated lots. At this same time, costs for later model ‘DPO’ or dismantle purposes only salvage, has increased upwards of 14%. During this same period, the revenue generated through the sale of recycled parts has decreased. In short, operating costs, including the cost of salvage, have out-paced parts sales, resulting in many operations either closing down or altering the manner in which they conduct their business. In their absence, new operations have begun appearing with business models that rely more on the export and/or brokering of salvage to non-licensed buyers.

An analysis of parts requests on twelve of the most requested vehicles utilizing sixteen of the most requested parts from those vehicles demonstrates that for certain year, make, and model vehicles, their value in parts has a higher potential value in savings for the insurance policy holder than the additional revenue generated for those same vehicles designated and sold as a rebuild.

The evidence clearly demonstrates that procurement of alternative parts has increased despite a decline in recycled part utilization. Recycled part requests have risen substantially over the last several years while orders go unfilled due to lack of available parts and selection. The increased utilization of alternative parts is being filled by the aftermarket parts industry. These increases are attributable in part to improvements in the design, manufacturing, and delivery of aftermarket parts, but aftermarket parts certification has also contributed greatly to their increased utilization. The manufacturing of new OEM or aftermarket parts demands the extraction of the earth’s resources, whereas the availability of quality recycled parts demands access to fair-market salvage.

B-CAR members recognize that salvage procurement is an essential component to offering quality recycled parts. However, B-CAR also recognizes that developing and implementing a recycled part certification program in order to ensure the delivery of quality recycled parts is vital in order to maintain the integrity of the industry.

You can download the entire report HERE.