Business

Friday, Aug 28 2009 06:27 PM

Junking the clunkers: Recycling yards wait to see impact of sales incentive

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    By Alex Horvath

    Alex Horvath / The Californian "Wreckers" makes his home at Louie's Auto Wrecking and found this Ford Crown Vic as a suitable home at the South Union lot.

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  2. 2 of 5

    By Alex Horvath

    Alex Horvath / The Californian "Wreckers" makes his home at Louie's Auto Wrecking and found this Ford Crown Vic as a suitable home at the South Union lot.

    click to expand click to collapse
  3. 3 of 5

    By Alex Horvath

    Alex Horvath / The Californian Lionel Juarez and Jorge Solas remove a radiator from a "Cash for Clunkers" automobile at Louie's Auto Wrecking.

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  4. 4 of 5

    By Alex Horvath

    Alex Horvath / The Californian "Wreckers" makes his home at Louie's Auto Wrecking and found this Ford Crown Vic as a suitable home at the South Union lot.

    click to expand click to collapse
  5. 5 of 5

    By Alex Horvath

    Alex Horvath / The Californian Owner of the business Kurt Cornelius and his nephew, the manager Kenny Cornelius pose in fornt of some 30 Cash for Clunkers the business is recycling at Louie's Auto Wrecking off South Union Ave.

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BY JOHN COX, Californian staff writer jcox@bakersfield.com

Work is literally piling up at Louie's Wrecking Yard on South Union Avenue.

Owner Kurt Cornelius has taken to stacking vehicles two high as his dismantling crew pulls euthanized engines and valuable parts from the 40 or so Cash for Clunkers trade-ins that have come in from new car dealerships around town.

If need be, the one-acre yard can hold the 300 more clunkers Cornelius hopes will arrive over the next several weeks as dealers get paid for the vehicles and turn them over for recycling. And that would be very good for Louie's.

"It keeps us busy. We were running low on stock," he said. "Let's just say nobody's going to get laid off this year."

Such confidence is welcome in an economic slowdown. But it's not universal, even among auto recyclers dealing with what some thought would be a federally subsidized boon to business.

Like other aspects of the sales incentive, the recycling end of Cash for Clunkers has caused considerable uncertainty. A rule change over the past month encouraged dealers to hold on to trade-ins longer than had been allowed initially. So revenue estimates are iffy at best.

On top of that, there are question marks surrounding the program's ultimate profitability for wrecking yards, scrappers and pick-a-part businesses.

While no one's complaining yet, at least not loudly, it is unclear what impact all the trade-ins will have on the market for used parts, let alone where prices will end up given the smaller number of people still driving older cars.

On the positive side, recyclers' used engines could become more valuable, given that nearly 700,000 vehicles were traded in under the program, and the engine inside each one had to be destroyed.

"It's one of those things. I think it's going to be a while to figure out and really put a good analysis to what's happened," said Michael Wilson, executive vice president of the Automotive Recyclers Association, a trade group based in Virginia.

This much seems certain: Recycling the clunkers will be profitable for some businesses more than others. And nobody in the industry is necessarily going to lose money under the program.

The dollars and cents of recycling the clunkers holds some margin for scrappers. They pay dealers between $75 and $300 or so per vehicle, and are in some cases able to sell the parts and metal for as much as $1,000.

Wilson said self-service "pick a part" dealers may make out best because they don't have to dedicate labor to dismantling the vehicles, which must be pancaked within 180 days of their receipt by a recycler.

The program has been a "great plus" for Golden State Metals SA Recycling Co., said purchasing agent Isaac Garcia.

The company typically gets dismantled cars, which it sells for scrap metal, where prices have slowly begun to recover from a low late last year. But in this case, Golden State is also getting cars that can be harvested for more valuable material.

"For us personally, we're not making a whole lot of money off of it," he said. "It's just a lot of material we're able to scrap out."

For a large company like Chicago-based LKQ Corp., which owns the Pick Your Part brand, Cash for Clunkers is "an uptick but it's not huge," corporate spokeswoman Sarah Lewensohn said. The company bought 441,000 vehicles last year, she added.

Even so, she said the company has been "pleasantly surprised at the quality of vehicles that have been turned in."

And that brings up a good point: If nothing else, consumers may reap a benefit of used but working alternators, plush auto upholstery and undinged doors.

Also, some scrappers point out that the incentive wasn't designed for them; it was created to spur new car sales and retire gas guzzlers in favor of more fuel-efficient vehicles.

Still, with the program in its final stages, the focus now turns to auto recyclers who themselves look to new car dealers.

For the most part, dealerships have chosen to hold on to clunkers until they get paid by the government, which has been slower than expected in issuing rebates of up to $4,500 for qualified trade-ins.

Dealers whose trade-ins don't qualify won't get paid, and so they have an incentive to hold out, said Brian Maas, director of government affairs for the California New Car Dealers Association.

When they are ready to turn over the clunker, they have some leeway in choosing which recycler to deal with, though it must be government certified to participate.

In some cases, longtime relationships play into the decision: Dealers often buy parts from wrecking yards for installation on used cars for sale. In some cases, though, they sell to the scrapper with the best reputation for cleaning up the cars' toxic chemicals.

"We want to go with the company's that's going to dispose of them best," Barber Honda sales manager Brad Gonzales said.

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