Memorandum by the Ford Motor Company
THE ECONOMIC IMPACT OF THE END OF LIFE VEHICLES
Ford Motor Company welcomes the opportunity
to submit its comments on the economic impact of the End of Life
Vehicles Directive to the House of Commons Trade and Industry
Ford Motor Company submission is on behalf of
Ford Motor Company UK, Jaguar Land Rover, Volvo Cars and Mazda.
Ford Motor Company is the biggest employer in
the British Automotive industry employing around 39,000 people.
Ford Motor Company supports the submission made
by the SMMT and has been actively involved in the analysis and
preparation of the SMMT submission. Ford Motor Company comments
must be seen as complimentary to the SMMT submission.
II. KEY FEATURES
The ELV Directive aims to reduce the amount
of waste from end of life vehicles. In particular, the ELV Directive
includes the following main provisions:
Member States must ensure that ELVs
can be scrapped by authorised dismantlers or shredders, who must
meet tightened environmental treatment standards from the outset;
Member States must ensure that economic
operators (this term includes producers, motor vehicle insurance
companies, dismantlers, shredders, recoverers, recyclers) establish
adequate systems for the collection of ELVs from the outset;
Member States must ensure that the
last owners/holders are able to deliver their vehicles free of
charge to authorised treatment facilities. It also allows Member
States to stipulate that the delivery is not fully free of charge
if the end-of-life vehicle does not contain the essential components
of the vehicle.
Member States must ensure that producers
(vehicle manufacturers or importers) will meet all or a significant
part of the costs of this free take back for ELVs having no or
a negative market value. This responsibility commences at least
from 1 July 2002 for all new vehicles put on the market after
this date and at least from 1 January 2007 for all vehicles put
on the market before 1 July 2002.
Member States must require economic
operators to attain reuse and recovery targets by 2006 (85 per
cent) and 2015 (95 per cent).
Ford Motor Company urges the UK government to
take into account the following basic principles in considering
the implementation of the ELV Directive into UK law:
A system which implements the free take back
of ELVs and other obligations in line with dates included in the
ELV Directive (other EU countries have indicated that they will
adhere to the dates stipulated in the ELV (Directive).
A system, which avoids the obligation for producers
to book one-off reserves for the historic car park.
Financial responsibility for producers not exceeding
50 per cent of the ELV take-back costs.
Financial responsibility for producers to be
limited to ELVs with zero or negative value.
Flexible system to allow competition between
treatment operators and to minimise the ELV costs and a mechanism
which will ensure the lowest cost solution for ELV treatment.
The last owner must be responsible for delivery
of the ELV to an authorised collection point.
Any system must have audit proof processes.
Any system must be easy to administer and must
A system which does not require existing producers
to pay for orphan brands, as the economic entities that benefited
from the life of the vehicles are the original producer or distributor,
the UK government insurance companies and the repair network.
IV. UK GOVERNMENT
Option 1Individual Brand and/or Collective
Brand ELV Schemes
Producers are legally responsible
to set up ELV networks for their own brand.
Producers have the option to create
their own treatment network or contract with authorised operators.
Producers have the option to create
an alliance with other producers (collective network).
Option 2Permits/Tonnage Targets ELV Schemes
All facilities holding a permit must
take back any ELV.
Each producer will have to meet a
tonnage target (recovery/recycling/reuse).
The tonnage targets are set by producer
either according to current market share or number of vehicles
de-registered in the previous year.
Each producer must purchase "Vehicle
Recovery Notices" (VRNs) to justify the tonnage target at
year end (VRN trading on the open market is another option).
Option 3Combination Option 1 and 2
Option 2 to be applied to the historic
car park (tonnage targetsVRNs).
For "new" vehicles, each
producer/importer to pay a bond into an individual or collective
Each producer is allowed to determine
the level of the bond with auditing arrangements to safeguard
against under-setting the bond.
V. FORD MOTOR
ON UK GOVERNMENT
Option 1 is close to a free-market ELV network
system because producers have the flexibility to set up both collective
and brand specific ELV network systems. It also allows producers
to contract with selected treatment operators. This will enhance
the control on cost and material flows.
However, Option 1 places an unacceptable high
financial burden on Producers.
Producers are required to book one-time
reserves for the historic car park; the reported profit and loss
account will be adversely affected, as will the creditworthiness
of the balance sheet. Loan covenants breaches may as a consequence
arise, trigger immediate debt repayment, higher financing costs
or both. This effect, plus the crystallisation of the liability,
could very possibly result in insolvency.
Producers are liable to meet the
costs for all ELVs while the ELV Directive obliges producers to
bear all or a significant part of the costs of taking back ELVs
with zero or negative value.
Producers are financially responsible
for ELVs of orphan brands.
Producers have to bear all the costs
of setting up collection systems whereas the ELV Directive places
this burden on all treatment operators; cars are being collected
today without the intervention of producers.
Option 2 has a number of disadvantages from an
operational and business point of view:
The tonnage target setting process
will be very complex and likely inaccurate. The material content
of every vehicle varies widely based on items such as the engine,
transmission and options. In addition, the real ELV weight differs
from the weight at type approval due to additional waste in the
vehicle and different liquid levels;
The VRN system will not create any
incentives for re-processors to invest in new ELV treatment technologies
in order to become more efficient. The risk is high that re-processors
will restrict the supply of VRNs and keep the price high instead
of investing in R&D and new facilities; Hence, as the recovery
targets for ELVs will increase from 85 per cent to 95 per cent
and the re-producers have no incentive to invest, the VRN system
will increase costs without having the desired effect of increased
The VRN system will result in trading
and speculation of VRNs as "commodities" which will
make it difficult for the car industry and treatment operators
to plan the future financial condition of the business; careful
financial planning is a major condition for negotiating loans;
for example, the price for PRNs in the packaging industry has
fluctuated in its first year by more than 50 per cent;
The VRN system will generate significant
added costs due to increased bureaucracy. For example, the PRN
system for the packaging industry requires a minimum of 3 per
cent to 5 per cent of revenue as overhead costs in addition to
high administration costs linked to reporting requirements; the
monitoring costs for the ELV treatment in the car industry will
be significantly higher than in the packaging industry due to
(i) higher recovery targets85 per cent and 95 per centvs
50 per cent in the packaging industry, and (ii) the need to treat
a much higher number of material compositions compares to the
packaging industry (only paper, glass, aluminium, steel and plastic);
The disadvantages of option three
(tonnage targetsVRNs) with regard to the historic car park
are the same as listed under option two. In addition, the VRN
system in option three will require a one-time reserves for the
historic car park as the VRNs are clearly linked to past sales.
Option three with regard to "new"
vehicles (bond/levy system) will increase operational process
complexity due to the bond administration. It will also drain
cash (or reduces credit lines) from producers ten plus years earlier
than necessary. This cash (or credit line) would be dormant instead
of being used productively for the UK economy and the development
VI. FORD MOTOR
Ford Motor Company believes that none of the
Government options is satisfactory either from a financial, operational
or business point of view. Therefore, Ford Motor Company urges
the Government to consider new options. The options described
hereunder has all of the advantages of option one and overcomes
the disadvantages of options one, two and three.
1. Key Features of New Option Four
Last owner/holder has the responsibility of
delivery a vehicle intended for destruction (ELV) to an authorised
dismantler or authorised shredder.
An authorised dismantler has the option whether
to accept or reject the ELV. If the authorised dismantler accepts
the ELV, it has to accept it free of charge from the last holder/owner.
ELVs accepted by authorised dismantlers are presumed to have a
"positive value" as the parts will be resold. Hence,
producers and importers have no financial responsibility for these
ELVs. Attachment one includes a list of responsibilities to be
fulfilled by authorised dismantlers.
Authorised shredders have the obligation to
accept all ELVs directly from last owners/holders free of charge
but only if the vehicle in complete (core parts must be present).
The authorised shredder will increase their business and revenue
as they will be able to treat more ELVs and importantly more complete
ELVs than today. Attachment one includes a list of responsibilities
to be fulfilled by authorised shredders.
ELVs delivered by authorised dismantlers to
authorised shredders need to be contracted directly between dismantlers
and these shredders. Producers and importers have no financial
obligation on these ELVs.
Any vehicle delivered to an authorised dismantler
or shredder is considered to be an ELV when the treatment process
(de-pollution, dismantling, shredding . . . ) starts.
In the event of an assessment of a deficit for
processing complete ELVs at authorised shredders (a deficit occurs
when the costs in processing complete ELVs as per the ELV Directive
are not covered by the total revenue derived from complete ELVs),
each producer must organise free take back for a set number of
vehicles, in accordance with the methods it judges appropriate.
The number of vehicles to be taken back by producers
when such deficit has been determined, could be the number of
brand specific ELVs or alternatively could be set by the government
on an annual basis for the next twelve months based on the formula
A*B (A is the prediction of total ELVs to be scrapped in the year
in question less ELVs of orphan brands and B is current market
share of the producer/importer).
Under any circumstances, the certification of
deficit will be made by an independent third party jointly appointed
by producers, importers, authorised shredders and government representatives.
If a deficit is determined for the authorised
shredders as described above, the government will share the costs
of organising free take back for all vehicles (as previously communicated
to vehicle manufacturers by the government).
The producers may delegate to appropriate bodies,
to authorised dismantlers or to authorised shredders, the above
obligation based on mutual agreement.
Insurance companies as economic operators are
required to organise their own take back systems for vehicles
under their control according to the method they deem fit. Producers/importers
have no financial responsibility for these ELVs.
The reuse/recycling and recovery targets have
to be met by the treatment operators on average for the totality
of the ELVs processed on an annual basis.
2. Advantages New Option Four
Option four allows the last owner/holder to
freely decide at which authorised treatment operator he returns
Option four allows the last owner/holder to
deliver a vehicle to an authorised dismantler/shredder at no cost
as a result of the vehicle having zero or negative value.
Option four promotes a free-market driven ELV
network system as in option one.
Option four uses a market mechanism to distinguish
between ELVs with positive value and those with negative or zero
Option four encourages competition amongst treatment
Option four shares the burden with all treatment
operators including producers.
Option four ensures that producers assume their
financial responsibility (all or significant part of the take
back costs)with government participationwhen a deficit
Option four avoids the obligation for producers
to book one-time reserves for the historic car park, if the number
producers are responsible for is set by the Government annually
as described earlier.