Mr Holsten, you have also been working in Germany since your acquisition of Stahlgruber GmbH last year. How do you rate the European dismantling market?
I rate it as attractive. The European car parc is enormous, and the high age of vehicles provides for a lot of opportunity to provide a strong value proposition to the repair and parts replacement markets. Some quick observations that we have – the yards are typically smaller here in Europe, the operators likely have a larger focus on scrap materials than on parts sales, more exporting in Europe, more of a DIY focus in Europe than a DIFM (do-it-for-me), and the auto insurance industry is less of a factor in Europe than the US.
What distinguishes the European market from the US market?
The primary difference in my view is that the US market is far more focused on the value of the parts that are dismantled, whereas I find many European players to be concentrating mainly on the scrap value that can be derived from a car, whether it is late model or an ELV. As a general rule of thumb, US industry participants are likely operating on a larger footprint than European contenders, and that is likely due to more availability of land in the US, at less expensive costs. Another factor weighing on the business models in the two markets, is that the US automotive insurance industry has focused for at least two decades now, on incorporating used auto parts, from dismantlers, into the repair of auto’s involved in an accident, as a means of reducing costs, ensuring quality repairs, and being competitive on their premiums; in Europe, that really has not happened to the same degree as the US. With this higher demand for quality used parts in the US, dismantlers are enabled to pre-dismantle parts they will see demand for, and inventory the parts into electronic cataloguing systems, and that is not always happening in Europe.
What particular challenges do you see for the dismantling market in general?
In Europe, I believe the largest challenge near-term is the low level of demand for late model parts recovered from salvaged vehicles. More demand for these valuable and quality parts would push up the value of salvage, improve the profitability of the industry, and would benefit the sustainability contributions of the industry; with the hierarchy of waste management being “reduce, re-use, and recycle,” a significant improvement can be made by pushing these parts from being a “recycled product” to a re-used product, and through added remanufacturing in the market, even more product can be moved into the re-use category. Longer term, and worldwide, I think the challenge for the industry will be to alter business models to address the impact from more collision avoidance technology, the likely shift to more electric vehicles in the car park, plus the impact of autonomous driving. Obviously, these changes will flow into the market over a couple of decades, allowing the industry to alter their business models over a long period of time
End-of-life vehicle recyclers are increasingly complaining about the difficulties involved in processing composite materials. How do you deal with this trend?
In terms of composite materials, we are just beginning to see somewhat immaterial quantities in the damaged cars that we buy in the US, so it really has not been a factor to date. I suspect that the European dismantlers are likely ahead of the US in how they manage the product, so an opportunity for us to take operating practices from Europe back to the US
Which business promises more growth? The spare parts business or the recycling of individual material fractions?
Focusing solely on Europe, I suspect that the dismantling and shredding industries are doing a pretty good job on the overall recycling of auto’s, and the question to be answered is really “how much is enough?“ So, while continued improvement in technology, and actually applied technology, is working well regarding individual fractions, I think it is the spare parts business that should be growing faster. Perhaps most importantly, the spare parts market needs to generate more alternatives to be more relevant. A higher quantity AND quality of used parts need to be readily available for consumers, at prices that provide an attractive value proposition, for both the do-it-yourself customer, as well as the professional do-it-for-me repair shop. The opportunities for higher volumes of used part sales are huge.