Scrap metal. The phrase may not mean much to you, a pistonhead who takes pride in his ride. But scrap is one of the most lucrative industries in the car business today. That old junk car in the neighbor's yard that would have been lucky to get $50 seven years ago is now going for over $200– on the steel content alone. When you throw in the recyclable platinum, aluminum, copper and lead into the mix, the revenue on an average junker is anywhere from $350 to $600 per vehicle. This inflation has implications for both the average Joe and the entire American automobile industry.
The environmental benefits of this market for dead cars are obvious. Vehicles that were once put out to pasture– with toxic fluids spilling into the soil and the surrounding landscape– are now, thankfully, a rarity. Companies are draining, crushing and recycling aluminum and copper radiators. Old batteries now go for $15 in many areas of the country. Even the rims that were once left on the beasts of old are being recycled and re-used by everyone from GM to the People’s Republic of China.
In short, simple economics has motivated both mature and developing automotive markets to do what environmentalists have been calling for over many decades: clean-up the remnants of our past consumption.
The other far smaller benefit to recycling is local, or, to put it another way, industry-specific. The American scrap dealer buying all that leftover refuse is making some serious cashola. China has a nearly insatiable appetite for industrial junk, and they are far from alone in that demand. Japan's scrap iron and steel prices rose to $460 per ton this week. This competition for any old iron is putting some immediate money back into the hands of the recyclers. These local business’ neighborhood communities are enjoying the benefits of record prices for copper and steel. Many recylcing companies are investing in new technology.
Unfortunately, the seller’s market for scrap pretty much leaves everyone else in the proverbial lurch. Despite the current downturn in automotive sales, worldwide demand for car-building commodities has not, and can not, be satisfied by recycling. Commodity prices are still soaring. And that means that today's automakers have to juggle three not-so-pleasant options: raise product prices, find new ways to reduce their costs (usually through “design improvements”) or simply accept a lower level of profit. Others in the automotive food chain are even less lucky.
For low-income consumers, the high prices for raw automotive materials trigger far worse consequences. For starters, rising raw materials prices have forced some parts makers to the wall; they can’t simply pass on their costs to the manufacturers. (This is what precipitated GM's and Chrysler's recent attempts to sue and seize the assets of many of these faltering firms.) We’re already hearing reports of replacement part shortages due to the American Axle strike. The harder it is to get low-cost replacement parts for your car, the less it’s worth.
Meanwhile, long term, rising commodity prices hit manufacturers hard. How do you justify selling cars whose loss levels are getting worse by the day? This is not an easy question to answer. You can only sell your products at a loss for so long. Whether or not you believe any of the domestic carmakers are on the brink of disaster, the lack of affordable raw materials certainly helps speed these embattled automakers towards bankruptcy.
Needless to say, that possibility would whack American consumers but good. A bankrupt automotive company has virtually no responsibility to anyone. You want the warranty honored? Too bad. You want parts now? Hold on a sec/minute/month/eternity. While it is certainly true that a bankrupt automaker would continue to do business, the chain of customer responsibility (such as it is) would be severely damaged. And the customer would literally pay the price.
If you think that I'm being alarmist, keep in mind that I've literally seen thousands of Daewoos stuck at auctions– for years on end– because the courts had to decide their rightful owner. Even today, few cars in the market are worth less in their market segment than a Daewoo. All things being equal, there are few events that can hurt a car owner more than bankruptcy (hence Detroit’s unwillingness to consider the nuclear option).
So we’re living in a new world, where old cars are less of a blight on the landscape but car owners and car makers face significant new risks. It’s no wonder Toyota’s heading to Africa for new sources of exotic metals and a GM exec was convicted of commodity related fraud (that cost GM some $80m). In this business, it's no longer the one who owns the gold that rules. It's the one who owns the steel, copper, lead, petrochemicals and lithium.
In New Mexico and Arizona (and maybe other places) metal theft is rampant. Thieves are even climbing onto the roofs of houses and cutting out the copper coils for peoples air conditioners and swamp coolers. And junk dealers in NM, at least for now, do not have to verify where their scrap came from. So metal thieves can run to the local junkyard anywhere in NM and make some quick cash on any scrap metal, especially copper. I believe that the state of NM is working on a law like one in AZ where scrap yard operators must verify where their scrap came from (legally).
A friend of mine was building a house in Phoenix, AZ and copper thieves got his copper pipes and cable from the construction site.
And a car parts theft ring was busted up not too long ago in Northern New Mexico. Imagine going into a restaurant and coming out only to find that your vehicle won’t start because someone stole the starter and/or alternator.
As the prices of commodities rises, so will the thefts.
Car parts for valuable collector cars are drying up all over the country because so many speciality salvage yards are simply saying “to heck with it” and having everything crushed, instead of waiting months/years/decades/never to get any money out of the old parts cars/hulks. Maybe new parts will be able to be fabricated, but this will make the collector car hobby unrecognizable because it will make it much more like it is in Europe; for the wealthy only. Until now, average American Joes can usually afford some kind of collector car if they want one. This may not last.
Bought a 2002 Daewoo Nubira in 2003 (after GM was forced to sell parts to Daewoo USA) at a huge Ford dealer in northern Ohio, the car had 25 miles on it, and was $7800 (about 1/2 MSRP). We gave our other car to our college age son, and needed a cheap 2nd car for ourselves, did not want someone’s used junk.
Actually, it was a gamble but it has been one of the best cars we ever had. Of course, it has no value on the market. But after we replaced it, we passed it to my parents as a runabout, then they passed it to our other son. 50,000 miles, very few problems, economical, and parts can still be had.
Ironic that a Daewoo seems to be a better car than a GM, Ford or Chrysler, but there you go.
Also ironic that GM buying Daewoo was the only smart move they’ve made in several decades.
If GM does go bust, SAIC and Suzuki still own part of GMDaewoo, so parts would presumably be manufactured and available via common car parts stores. (The Chevrolet Aveo is the only US market vehicle which is built by GMDaewoo).
If/when the Detroit 2.8 go bust, and leave tons of people without warrantees and factory parts, there will be a huge aftermarket of car parts. Probably Chinese and Indian, because by then, not much may remain of US auto parts manufacturing.
The huge increases in commodities is already speeding up a trend – moving production to low wage nations such as India, China, Mexico, Vietnam, Romania, etc. etc.
I have turned unwanted motorcycles into big bucks by parting them out. The frame weighs about 45 lbs, pure steel, and the local mill takes it. I had collected 1000 lbs of lead tire weights to make into shotgun pellets, I melted them down into ingots. When i decided to just get rid of it all I got 50 cents a pound for basically free material, the tire shops gave me 5 gallon buckets of weights for free.
Talk about production in other countries – We just replaced both toilets in our home with TOTOs. They are a Japanese firm, but the toilets themselves were made in Vietnam. American Standards were too expensive.
Great article. But I have to ask, what are other automakers doing about this? The same commodities-sourced parts crunch that you describe must be impacting them as well. If cost of materials is a problem for GM and Chrysler then it’s a problem for VW, Honda and everyone else. Maybe this explains why Toyota interiors have become so cheap lately.
My parents specifically requested TOTO toilets in their new home. They rave about them. To me they’re just another commode. Go figure.
Hyundai Kia, Toyota, Honda, Volkswagen Audi – everyone in the auto industry and virtually all manufacturing industries, are having a tough time with the commodities going up so fast.
Yes, William, I also noticed that all interiors are less “nice” than they used to be. Well, maybe the 2009 Hyundai Sonata is nicer than the 2007 my wife has – but the 2002 we had was nicer than the 2007. So Hyundai cut back, realized the error of their ways and improved their interior at least in their big selling car line.
Look what happened to the price of concrete starting a few years ago, when the Chinese started building the biggest dam ever seen.
There is a Chinese-American guy in LA who is making a fortune selling scrap cardboard to China. He buys cardboard from recycling centers and packs them into containers. He can ship them from Long Beach to China cheap because otherwise the ships and containers go back to China empty in order to pick up another load of Chinese made goods.
The Chinese love the scrap US cardboard because it is must higher quality (more fiber in it) than Asian paper. It can be remade into cardboard packaging 2 or 3 times for Chinese made products shipped back to the US.
Pretty clever.
I’ve noticed Toyota interiors have gotten much worse. The best were probably in the early 00’s, I remember sitting in an ’04 Solara and really being wowed by the quality. At this point a lot of auto makers are cheapening their cars where they can get away with it when they are exporting to the US.
dastanley,
In Detroit, a number of would-be thieves have been electrocuted trying to steal copper wire from live power lines!
Us main exports to china- pulp/wood, scrap metal. imports- everything from electronics until toys and clothing. imports from china- 10 times exceeding exports to it.
In Detroit, a number of would-be thieves have been electrocuted trying to steal copper wire from live power lines!
They’re actually double-Darwin Award candidates. First for the obvious disregard for the damage done to flesh by large numbers of high-energy electrons. Second because many powerlines are made from aluminum, not copper.
Around here, they break into the base of street lights and steal the copper wire(s) inside.
Car parts for valuable collector cars are drying up all over the country because so many speciality salvage yards are simply saying “to heck with it” and having everything crushed, instead of waiting months/years/decades/never to get any money out of the old parts cars/hulks.
Don’t remind me Menno. I have a huge collection of photographs taken at a place called Minakers near Toronto. It was AWESOME. Anyway, they had at least 1,000 cars from the 20s to the early 70s. GONE! All of them. Brought in a crusher and one by one in they went. Stupid thing was there was tons of scarce glass (ie., the rear window of a 6 Charger) that was left in the cars and got mashed along with the metal. If you own a classic and need parts? Act soon.
The Cubans who make the parts for the American cars over there will be able to make real money once trade opens up. If it opens up. Of course, if it opens up, that will probably be the end of the living museum of classic American cars.
coupdetat you hit on a very important point in the car business these days.
If I were to sum up the automotive zeitgeist of our time it would be…
“Our goal is to make a cheaper product resemble a better one.”
We’re at a very strange point in the history of the automobile. The avalanche of innovation that had taken place during the last 20+ years seems to have slowed down considerably due to the ‘price’ factor’. I really see it in everything sent to the auctions these days but I’ll give you an example with Toyota that epitomizes the quote given above and the role commodities have within it.
Toyota’s ‘decontenting’ of their vehicles actually started out in the mid-1990’s due to their difficulties with the strong yen. When the 1992 – 1996 Camry came out this wasn’t as important of an issue. Toyota wanted to build a premium image and the Camry was heavily influenced by Toyota’s need to compete in the more upscale and luxury markets. During the early 1990’s Toyota was more concerned with offering world competitive products, and less concerned about containing cost. Ford shared the same attitude with the T-Bird and 96 Taurus, Honda refused to engage in incentive driven and fleet accounts to acquire the sales crown, and even Chrysler was benchmarking their vehicles with higher end models (the LH sedans and the 1996-2000 minivans were both very big leaps in terms of selling price and content).
But by the mid-1990’s Toyota wanted to get the sales crown real bad and they decided to ‘simplify’ their product by eliminating many new car buyers wouldn’t initially see or value. Sometimes it was something small like the lack of ornamentation on their engines or less durable tires for the new vehicle. However sometimes it was more pronounced such as the use of fewer moldings to isloate road noise or the overall quality of their stereo systems. What really ended up happening is that the level of durability in Toyota’s products gradually eroded…. to the point where it’s really hard to make the case that the Camry really is the best buy in the field.
I remember Car & Driver remarking in 1992 about the new Camy, “With a car like this, who needs a Jaguar?” Toyota’s goal at that time had been to instill such a high level of quality and workmanship in their primary products, that they were often as good as competitors that cost thousands more. This is what lead to the establishment of Lexus as a top notch luxury brand and the Camry as Toyota’s ultimate triumph in North America.
Now though it’s a completely different story. Commodity prices have grown by double digits over the past five years, and this is what separates a nice thick piece of wood in a luxury car from one that is wafer thin. It’s what makes the difference between a classic Mercedes that can last through the decades, and a contemporary Mercedes that can’t last through the year without some annoying or potentially devastating electronic problem. In the case of Toyota it lead to a serious decline in quality but they are far from alone in this. Everybody is trying to make their products cheaper, and better in the short term , which is all well and good until you realize that we’re revisiting the world of planned obsolescence that was the guiding force of the auto industry in the 1970’s.
I don’t think quality wise we’ll ever meet that nadir of automotive bungling. But I do think that a modern Camry or Lexus may have less of a chance of hitting the 300,000 mile mark than the ones that were built 15 years ago.
Whenever I touch the upper part of a dashboard, a door panel, or even a trunk of a modern day car, I see and feel firsthand the long-term effects of an industry that is experiencing serious bouts with inflation. The products offered are simply becoming less durable because circumstances are requiring less material and limited quality.
Steven Lang, if you touch a modern day car, and feel unsatisfied, you should have tried any Audi, VW or Skoda, or Seat car,or actually any modern car, for any company i know has raised the bar of material texture, and fit and finish. roundish, blobby shapes are replaced with precise smooth lines, that have much more precise alignment with other panels. Check Subaru Legacy, Check Hyndai i30, or Toyota Avensis. Check Skoda Roomster. For God`s sake Check VW Phaeton.Even Pocket sized Citroen C4 offers leather dashboard! Wake up, today even cheap end Hyndais have chromed, metallic interior door handles, leather steering wheels, seperatedly stamped emblems in steering wheels, seperate screens for A/C comtrols and airbags all over.And boomboxes, And chromed dash gauges, and digital screens with tpms, even in small Renaults. Have you seen the gaps between hood-bumper-headlights-fenders in early 90ies cars and 2008 models. See, even every Kia today has zero gaps there. BmW can`t offer that even today in their top notch 7 series.Not that they were able to do that years ago. Have you checked Acuras interiors now, and when they just entered the NA market? They even offered plastic door handles in top end lexuses, there was no navigation , heated steering wheel ultra-precise no -gaps buttons on dash or perverted HUD. Steven?
jurisb, you’re probably at least 5000 miles away from my neck of the woods.
You’re also comparing vehicles from 15 to 20 years ago to the ones sold today. Not much of a comparison. I’m looking at vehicles from 5 to 7 years and comparing them to today’s new releases. Other than the technologies mentioned the overall quality of the materials has indeed become cheaper and less durable.
This is another reason to move to smaller cars. Reducing mass in the cars gives you the same fuel efficiency gains as a lot of the fancy technologies out there, while also saving on increasingly expensive materials.
Thanks for the informative article. As you said, people who are interested in collectible cars are very aware of the threat the crushers pose.
Scrap is far from worthless. When I got out of school the first time and got a job as an auditor, I was assigned to an audit of a manufacturing firm. When the manager came up to review our workpapers, he gave us some grief because we hadn’t looked into controls over storage and disposition of scrap metal. He told us diversion of leftover aluminum, copper, etc. was a major opportunity for stealing from a factory.
Years later I saw in Japan people sifting through piles of junk, looking for salable materials. A friend who is currently living in a large city in China reports there’s no municipal trash collection; that’s done by people who go through neighborhoods and retrieve what’s discarded to get food for hogs, cans and bottles to recycle, etc. As has been said, one man’s trash in another man’s treasure.
Steven,
You always have such an interesting perspective that is highly valued here.
We are at an interesting period in economic history. Economists will tell you that the price of commodities — any commodity, even oil — may have peaks and valleys, but always declines over time.
The reason is that although the commodity may become scarce, human ingenuity to substitute or find other sources always overcame that scarcity. So when whale oil became expensive because we killed most of the whales, kerosene was substituted in lamps. Kerosene lamps were then replaced by electricity fired by coal.
But the last decade has been a real challenge to the theory, because the incredible economic development in China (as well as India, etc.) has created so much demand for raw materials.
Think about it: we have about 1 car in the US for every person. If China becomes as developed as the US is today (which they may well be in 20 years), that would mean a billion plus cars. There ain’t enough steel in all the junkyards in the world to supply just 10% of that number.
Interesting times.
SherbornSean :
Think about it: we have about 1 car in the US for every person. If China becomes as developed as the US is today (which they may well be in 20 years), that would mean a billion plus cars. There ain’t enough steel in all the junkyards in the world to supply just 10% of that number.
And there’s not enough oil in all of the world’s active fields to satisfy that same 10% of future demand.
One must wonder if we are headed for something more than just a “friendly competition” with China over the world’s resources. Can anybody else see the potential for physical confrontation and maybe even the use of military force (on either side…or both)?
Interesting times.
Indeed.
SL,
You make great points. IIRC, Toyota did a major study on the Dodge Neon and made all sorts of decisions based on that to LOWER the quality of many of their parts. That is about the time you say they were decontenting. Apparently, they had been over building a lot of parts, like their gas tank coatings that were likely to fail twenty or thirty years after the car was crushed.
Unfortunately for them, and their buyers, this is almost the same road I think our Domestics went down decades ago. Eventually the mind set poisons the process and the pendulum swings too far towards “cheap crap”. If it is not fixed immediately, they will be right where our guys are in a decade or two.
Has anyone seen the documentary “A Crude Awakening”? (available at Netflix) Its about whether the world may or may not be running out of oil. Even if we aren’t running out the world (China and India) is using more which is going to mean price increases.
This cannot be good news for the American car industries as they offer so few fuel efficient cars.