of End-of-Life vehicles

Transcription

1 Economic study on the management of End-of-Life vehicles SUMMARY Direction Industrie Département Prévention & Valorisation des Déchets Responsable du suivi ADEME : Eric Lecointre 1

2 Background and aims The publication of directive n 2000/53/CE of the European Parliament and of the Council of 18 September 2000 on end-of-life vehicles (ELVs), modifies the current framework for dealing with them at European level, in particular through the imposition of detailed targets for reuse and recovery (article 7) : reuse and recovery rate: 85% by 1 January 2006, 95% by 1 January 2015; reuse and recycling rate: 80% by 1 January 2006, 85% by 1 January In France it is estimated that around 80% of the average weight of ELVs is currently recovered, by organisations whose activities are self-financing : Dismantlers: between 2000 and 3000 operators, of whom between 900 and 1200 have obtained operating permits. Dealers and distributor networks. Shredders: around 40 plants belonging to twenty or so companies, with the largest (CFF Recycling) handling two thirds of national shredding capacity. In France, publication of the act concerning construction of vehicles and disposal of ELVs, making particular provision for handing ELVs to approved dismantlers, or collection facilities set up by manufacturers (article 4), as well as the free take-back of ELVs by operators (article 5), could destabilise the economic balance of the industry. Against this background, ADEME wished to establish an objective analysis of the economic situation within the industry in France and its predicted development in the short and medium term. Presentation of the study This study was commissioned and financed by ADEME. Following a tender, the project was awarded to ERNST & YOUNG. The direction, development and finalisation of the study were overseen by a steering committee composed of representatives from the Ministry for Ecology and Sustainable Development, from the Ministry for Industry (DiGiTiP), from ADEME, and of representatives of professionals from within the industry. The Steering Committee met six times between September 2002 and April Much discussion about the study took place between the members of the committee and representatives from ADEME and ERNST & YOUNG. The members of the Steering Committee were invited to express their comments and opinions on the final report. These remarks entirely the responsibility of the respective organisations concerned are included in an appendix to the report. 2

3 Methodology The initial phases of the study were devoted to a functional analysis of the costs and revenues of each sub-system of the ELV industry, essentially dismantling and shredding. Work focussed on the development of a tool, which was subsequently used for compiling the data collected on site from a sample of 25 dismantlers and 5 shredders. The selection criteria for this sample were defined with the Steering Committee for the study. Subsequent phases of the study initially dealt with analysis of the compiled data, the determination - in collaboration with the Steering Committee - of key factors in the development of how the industry deals with ELVs. This was followed by the setting up of a simulation tool enabling 5 and 10-year forecasts to be made in the form of scenarios, taking account of the expected development of the selected key-factors. Analysis of the costs and revenues of ELV dismantling The analysis of results obtained for dismantlers must take account of the following : monitoring the economics of the industry is complex, given that most of those involved do not have analytical accounting that allows ELV activities to be considered separately (these cover collection, depollution and dismantling of ELVs, sales of stripped second-hand parts and sale of the dismantled body shell to a shredder). In fact, many associated activities coexist with those involving ELVs in all the businesses audited (sales within the industry of accident-damaged cars, sales of new parts, etc.). In the majority of cases, the absence of benchmark sale prices or traceability systems makes it impossible to link parts sold to ELVs processed during the same fiscal year. For the same reasons it is a complex task to evaluate stock. The data obtained on the time it takes to dismantle a vehicle vary widely. 3

4 DISMANTLING Sample audited Operating costs ( /ELV) Average % costs Minima Maxima Transport costs on purchases (internal and external costs) % Purchase of ELVs % Staff costs % General expenses % Depreciation and provisions % TOTAL OPERATING COSTS Operating revenues ( /ELV) % revenues Sale of goods resale of second-hand parts % resale of body shells % Sale of services 5.2 1% TOTAL OPERATING REVENUES Operating result for demolition ( /ELV) The data obtained from 25 dismantlers in France (see table above) lead to the observations below : The results for ELV dismantling activities are sometimes negative. Negative balance sheets are rarely directly based on operating accounts produced, but are often due to reprocessing various cost-centres and revenues, in order to separating the proportion related to ELVs. Sales of ELV body shells to shredders rarely represent more than 5% of total operating revenues. Further analysis carried out according to capacity (number of ELVs processed annually), to the proportion of ELVs coming from insurance companies and to the proportion of turnover linked to ELV activities, leads to the following comments : Small firms (processing fewer than 1000 ELVs per year) generally show a positive result on ELV activities, whereas businesses with a higher capacity show a deficit for this. The proportion of ELVs coming from insurance companies is the main factor determining the average ELV purchase price. Labour costs increase significantly in proportion to the number of ELVs coming from insurance companies. This growth reflects the increased amount of administration time required for these ELVs, as well as greater dismantling time for ELVs coming from insurance companies. 4

5 Analysis of the costs and revenues of ELV shredding The difficulties of economic analysis for the shredding industry derive from the fact that it is not currently possible to identify accurately the costs and revenues for ELV shredding : For one thing shredding tonnages are a mixture of metallic waste, including a variable proportion of ELVs depending on the business. Currently available monitoring tools do not enable systematic monitoring of incoming tonnages by source. Monitoring of product tonnages (leaving the shredder) do not allow quantities of ELVs shredded during this study to be separated from sales of ferrous metals and non-ferrous mix. For another thing, shredding is not generally the only activity of the businesses audited, but is complementary to others (trading in particular), which requires reprocessing using accounting data. SHREDDING Sample audited Operating costs ( / incoming tonne) Average % costs Minima Maxima Transport prior to arrival 4,9 5% 1,8 8,4 Purchase of materials 37,8 42% 21,0 51,3 Wages & salaries 6,3 7% 3,9 8,6 Disposal of shredder residues (SR) 9,6 11% 6,7 16,0 General costs 20,4 23% 13,3 29,4 Depreciation and provisions 10,9 12% 3,4 27,4 TOTAL OPERATING COSTS 89,9 81,9 101,6 Operating revenues ( / incoming tonne) % revenues Sales of materials - sales of ferrous materials 72,2 78% 66,3 78,7 - sales of non-ferrous materials 20,2 22% 13,1 26,7 TOTAL OPERATING REVENUES 92,4 86,1 95,7 Operating result for shredding ( / incoming tonne) 2,5-6,6 11,6 These results from the 5 shredders audited lead to the following observations : Results for two shredder plants were negative. For one of these, the deficit was due to reprocessing carried out on allocations for depreciation. The proportion of sales of non-ferrous metals was very significant (22% of total sales on average, but can be as high as 28%). The cost structures obtained were the same for most shredders audited, and the results in terms of absolute values varied little from one shredder to another. 5

6 The work carried out showed that operating results for shredding depends greatly on the unit purchase cost of each incoming tonne, which represents between 25 and 50% of all shredding costs. Factors influencing purchase cost are principally : Local competition conditions between shredders, which can lead to higher prices in local markets, especially where existing capacities are high. Conversely, the scarcity of shredding facilities in certain areas can allow shredders to limit the purchase price per tonne. The price of scrap ferrous metal, changes to which affect purchase prices for metallic waste, including ELVs. Negotiations between shredders (according to their needs at the time) and dismantlers (according to their ELV stock at the time). Results from simulations In order to produce 5 and 10-year forecasts on the economic balance of the industry, simulations have been carried out into changes to those factors considered to be determining by professionals from within the industry. For dismantling, four key factors were chosen : additional time for de-pollution and dismantling, costs for disposing of dismantled materials, additional income including recovering catalytic converters, changes to the market for re-used parts. The simulations performed (and compared to a baseline scenario) showed that: Operating results for dismantlers decrease, despite additional income from sales of catalytic converters, against a background of a stagnation / reduction in the market for re-used parts (baseline scenario). The application of the requirements of the ELV directive bring about a significant increase in costs for dismantlers linked to the increase in time needed for de-polluting/dismantling each ELV and the costs involved in disposing of waste and removing glass and tyres. Re-establishing a balance in the operating results for dismantlers requires an increase in the proportion of ELVs for which collecting can be invoiced / or a significant reduction in the average purchase price for ELVs. 6

7 For shredding, the selected key factors are as follows: the characteristics of complete ELVs, the characteristics of ELV body shells leaving dismantlers, depollution of ELVs by shredders, costs of disposal or recovery of shredder residues, changes in the price of scrap ferrous metals and non-ferrous metals. Changes to these factors will have consequences on the main variable for adjustments the purchase price of ELV body shells leaving dismantlers. The simulation model only concerns shredding activities and does not deal with post-shredding processes (such as heavy media plants). This perimeter applies to the audited activities of the 5 sample shredders. The simulations produced for shredding activity indicate that : Changes to the composition of ELVs and in particular the increase in the average weight of vehicles leaving dismantlers enable shredders to achieve operational balance on shredding activities over the next 10 years (baseline scenario). The application of the requirements of the ELV directive bring about a significant increase in costs for shredders (basically costs of disposal or recovery of shredder residues). A significant reduction in the average purchase price of ELV body shells is thus required to compensate for this deficit. De-pollution and shredding of a high proportion of complete ELVs enables shredders to earn additional income for a sufficient volume of ELVs over the next 10 years. Lessons learnt and ideas for monitoring the costs of ELV dismantling and shredding The main problems for monitoring the economic balance of the ELV treatment activity are the following : The notion of "ELV processing activities" must be made clear. Indeed there is no industry that exists solely to process ELVs, as the businesses concerned usually conduct additional activities. 7

8 - With dismantlers, processing ELVs forms a part of other activities such as sales of new parts, accident-damaged vehicles, second-hand vehicles, etc. - With shredders, shredding ELVs is carried out at the same time as shredding other metallic waste. Analytical accounting as well as a minimum of traceability enabling processing of ELVs to be isolated from other activities should be put in place to improve knowledge about the specific costs of processing ELVs. For shredders, rules on separate accounting for their various different activities will be applied in France as part of the act on disposing of ELVs. Shredders will thus very probably be obliged to implement analytical accounting. The methods for calculating deficit reports for shredders must be clearly defined. - Will the deficit be reported based on operating accounts that includes purchase costs or simply based on the costs of ELV shredding? Furthermore, should the deficit include the cost of transport between collection facilities and shredding plants? - Where a shredder records a deficit, it is possible for him to compensate for the increase in his costs by reducing the purchase price of ELV body shells from dismantlers. If shredders were to lower purchase prices of ELV body shells, dismantlers may be encouraged to sell more of them to export. Indeed taking account of the possibilities of transferring a deficit from one stakeholder in the industry to another must involve a requirement to calculate an overall deficit across the whole industry. 8