Select Committee on Trade and Industry Appendices to the Minutes of Evidence

APPENDIX 11 (Continued)

Memorandum by Charles Trent Ltd

  Alongside this, a more detailed estimation of the specific costs incurred in attaining Article 6 Annex 1 compliance was made for each of the operations visited. This allowed the CARE group to calculate the potential costs associated with each of the individual businesses in reaching the required infrastructure standards (the so-called "fixed" capital costs), as well as the costs of handling each ELV (the so-called "variable" costs). Careful extrapolation of this data, we believe, also provided a good estimate of the potential industry-wide Annex 1 compliance costs.

  Examination of the data generated during the study led to a very clear realisation of how some businesses were able to survive processing certain types of ELV, whilst others were not, and why the incidence of abandoned vehicles is so high. In brief, the study demonstrated that there was a very significant cost attached to processing an ELV to annex 1 standards, and that those businesses that were surviving in the sector were able to do so either by not complying with infrastructure requirements, not fully processing the vehicles, subsidising the loss-making nELVs with profitable category B pELVs, or category C/D vehicles or any combination thereof (and often all four).

  On the basis that ELV processors worked to certain minimum standard (removed and recycled tyres, batteries, fuel and engine/transmission lubricant) we estimated the current net cost of ELV processing to be just under £2/ELV (taking into account revenue from scrap metal sales, Table 3). However, it is widely acknowledged that the majority of the ELV recycling industry does not even attain this level of processing, despite the fact that these are often legal requirements. What this means is that such operators have an economic advantage over those that process their ELVs more comprehensively (and are more tightly regulated).

  The cost of processing ELVs to Annex 1 standards rises sharply (Table 4), to almost £40/vehicle. In the absence of payment for this service, and an effective "policing" regime for operational standards, the ELV disposal industry will stop processing these vehicles. Furthermore, it is also important to bear in mind that this £40 figure does not include the fixed (capital) costs and overheads associated with establishing and running an ELV processing centre (Tables 7, 8 and 9).

  The figures in Tables 3 and 4 do not take into account revenue from spare part sales. Never the less, we believe this to be very small indeed. Although there is a large "old" car population to be supported by spare parts, it must be remembered that the vast majority of such cars are "serviced" by new parts and that ELVs are scrapped because some major problem has arisen—either mechanical or structural (or both). This obviously limits the value of the vehicle. In the absence of significant spare parts sales from these vehicles, there really is no value in the vehicle and hence dismantlers that wish to continue handling these ELVs are forced to levy a charge on the last owner, hence the high numbers of abandoned vehicles.

  In view of the arguments currently being put forward by car manufacturers (that there is sufficient profit in the sale of spare parts from old vehicles to subsidise the costs of processing to Annex 1 standards) we have analysed our own sales of spare parts from the most common ELVs. The results are shown in Table 6. The list of ELVs included in Table 6 is identical to that generated by the CARE group and the DVLA. Engines were used to exemplify this, as these are the single greatest revenue source for vehicle dismantlers. Unfortunately, at the time, we were not able to link each engine sold to a particular vehicle in our records. The significance of this may be that the components sold actually originated from insurance category B vehicles (ie pELVs) rather than nELVs (pELVs contain a wide spread of vehicle ages—reflecting the make up of the vehicle population). In other words it is quite feasible that the only "serviceable" components originated from ELVs that had become ELVs prematurely as a consequence of accident damage (rather than the normal wear and tear). If this were the case, then nELVs might actually yield no useful parts at all.

  The data clearly shows that a very small proportion of components were sold, an average of 2.8 per cent. In other words, over 97 per cent of these vehicles had no value in terms of spare parts. The average price for these units was £95 (+VAT) yielding a gross income of £5,035 (+VAT), equating to £2.64/ ELV processed. However, in order to sell each engine 35 ELVs had to be examined, the engines tested, drained of fluids, removed from the vehicle, cleaned, shelved, inventoried and then provided with a minimum 3-month refund/ replacement guarantee. All of this for just £2.64! This is precisely why we have to charge for the disposal of ELVs.

  Despite the fact that we, as a company, do not sell many components from these vehicles, there almost certainly is a demand (of some level) for these parts. However, this demand is satisfied by those (often unregulated/poorly regulated) vehicle dismantlers that continue to operate to low/no standards. After all, those of us in the industry know who our competitors are, how they operate and what they charge. A more uniform and consistent regulatory system and more rigorous enforcement, coupled to greater accountability of the last owner, could throw a completely different light on the situation.

  The above data does indeed suggest that there is a considerable amount of work that needs to be accomplished (and hence cost entailed) in the appropriate disposal of ELVs. Evidence also supports the notion that there is not (under current circumstances) a significant income, for those ELV processors operating to high standards, from spare parts originating from such nELVs.

  Above and beyond the direct-vehicle associated costs, however, is the cost entailed in actually establishing and operating (to Annex 1 standards) an ELV processing facility. Table 7 shows some of the major costs involved. As can be seen these are not insignificant. As we are still awaiting clarification as to what exactly constitutes an impermeable surface, we have included costs for concrete and the only other impermeable surface that we know the EA has approved to date—Teram. This basically consists of a (1.5mm thick) high-density polyethylene membrane laid underneath a layer of compacted hardcore.

  In terms of vehicle depollution, to the standards specified in Annex 1, we believe that efficient depollution can only be accomplished by having proper equipment suitable to do the job in question, and by having the vehicle inside a building. Very few scrap yards, shredders, and vehicle dismantlers have any depollution equipment or buildings. Our own experiences and observations of other existing operations clearly demonstrates that it is not possible to rigorously depollute a vehicle out of doors for much of the year in the UK. The whole idea is to ensure that fluids are drained, without significant spillage, into appropriate containers in a safe manner. We must also be firm in dictating that staff cannot be expected to work under conditions, and performing actions, that have clear Health and Safety (although this isn't strictly within the remit of the ELVD) and environmental implications.

  At present, the only depollution equipment available for processing large numbers of ELVs is manufactured by an Austrian company SEDA. Unfortunately this is very expensive (typically £50,000 per unit), but it does address many of the practical concerns with regard to functionality, performance, efficiency, Health and Safety and environment. Along with GW & G Bridges Ltd, we were the first company in the UK to install this equipment 18 months ago.

  Data in Tables 7 and 8 suggests that it would not be unrealistic to expect a class A ELV processor (shredder/scrap yard) handling about 6000 ELVs annually to have to invest between £130,000-£350,000; a class B processor handling about 200 ELVs between £110,000-£225,000; class C handling 3500 ELVs between £120,000-£840,000.

  Whilst these are extremely large sums of money for small businesses, it must be pointed out that much of this work should already have been undertaken in years past, in order to comply with the existing waste management legislation. The fact that these businesses have managed to avoid these costs to date simply reflects the inadequacies of current regulation. In actual fact, the larger more professional businesses in this sector have put many of these requirements in place. We would like to emphasise yet again that these should be regarded as the minimum environmental requirements for operation and must apply to all businesses that handle/process ELVs. It cannot be right that these rules apply only to the larger operators. We realise that many small businesses will find it difficult to make these levels of investment, but there will be plenty of opportunity for other businesses (of all sizes) to emerge/develop.

  Interestingly, Table 9 shows the effects of the different infrastructural scenarios upon the fixed cost/ELV processed. Obviously, high levels of investment for small operators handling relatively few ELVs results in a higher unit cost, but this cost falls the greater the number of ELVs processed. This also reinforces the need for legislators and regulators to fully understand the potential effects of setting standards too high. At the highest cost level indicated this could result in a fixed cost/ELV of over £1,000 (at this level the variable costs appear almost negligible). On this basis, if car manufacturers are to be made financially liable for "their" ELVs (and leaving aside the three options outlined in the consultation document) presumably they will be seeking out large efficient operations to minimise the unit cost for ELV disposal.

  Whilst we have already invested to the highest standards indicated above (and having already shouldered the cost burden would naturally like to see everybody have to operate the same standards that we do) we are sufficiently realistic to understand that there needs to be some degree of practicality, economic reality and proportionality in setting and enforcing operating standards.

  Taking into consideration the total combined fixed and variable costs involved, we currently think that a disposal charge in the region of £75-£100/ELV is not unreasonable. Of course, this applies to the ELV once it has been delivered to the processing facility and includes no collection/transportation cost. To our knowledge the UK Government's view has always been that the "free take-back provision" of the ELVD is interpreted as, in effect, free acceptance at the processing centre. It has only been very recently that the view has emerged (from DEFRA) that this should be interpreted as free collection from the last owner. We are strongly of the opinion that delivery of an ELV to the "authorised treatment facility" should be the responsibility of the last owner (although making manufacturers responsible for free collection could reduce the incidence of abandoned vehicles).

  Although we have considered the costs of site infrastructure and depollution, we have not examined (in detail) the potential cost implications of removing glass and plastic (nor airbag neutralisation) which are also specific requirements of Annex 1. Although this could prove expensive for ELV processors, it will have beneficial aspects for shredders in that it will not only open up the possibility of large scale commodity material recovery/recycling (generating additional revenue streams) but will also reduce the amount of non-metallic material they have to dispose of (and hence lower landfill costs). These issues we will have to deal with at a later date, in our response to the consultation document. However, we would like to conclude this section by reiterating two points.

  The elimination of the significant "grey/ black market" for used spare parts within the dismantling/ garage industry would go some way to reducing the number of negative value ELVs for which producers would be responsible in the first place. There are literally millions of relatively old cars still on the road and a significant proportion of spare parts for these vehicles are purchased second hand. If reputable, well regulated dismantlers are not receiving this business, where is it? Much is cash in hand, with no records kept. If vehicle dismantlers were able to generate income for these older vehicles, then there would be a reduced overall cost associated with handling them and the public would be charged less for disposal. This would lead to a much reduced incidence of abandoned vehicles. We suspect that elimination of this invisible trade will also provide the Treasury with significant additional income. What this really says is that the de-registration system for cars needs to be radically overhauled and the arguments about the cost and complexity (and degree of success in the short term) is not a good enough reason to delay it any longer. Alongside poor regulation of ELV processing sites, we believe this is one of the main reason why our Devon ELV processing facility proved unsuccessful and had to be closed.

  One of the other arguments, that contraction of the ELV disposal industry will lead to job losses is, we believe, non-sense. It will probably just result in a re-distribution of jobs. At the moment there are not enough good quality vehicle dismantlers. The closure of unregulated dismantlers and careful control over exactly who is allowed to dispose of ELVs will open up areas of the country for professional operators to fill. The economics of ELV transportation will likely kerb environmental damage. We have already experimented with establishing remote ELV processing centre and have joint plans with the Uks largest ELV disposal business to develop these further—if the appropriate conditions exist. The opportunity for growth and expansion will provide many employment opportunities—and employees will be working under much better working conditions. We, for example, would like to see our business develop along the lines of a dealership quality operation—where everything is under cover, is clean, warm and bright. But investment of this type is not feasible under the existing uneven playing field—it would be financial suicide. All of this would bring significant and obvious environmental benefits.


  Although we are not best placed to estimate the potential costs incurred by the other automotive industry sectors, we do, of course, recognise that some of these are likely to be enormous. However, although there will be a significant cost to, for example, car manufacturers in the early years, we think this is likely to decline somewhat as: disposal operations and processes become more efficient (probably driven by a contraction of the disposal industry); the effects of design for recycling become more apparent; and markets develop for the recycled materials (which must be stimulated by the manufacturers by applying pressure to their suppliers).

  On a simplistic basis, if we assume (for arguments sake) that there are currently about 1.8 million ELVs in the UK and that 300,000 (largely the category B pELVs) of these have a positive value (and hence have no disposal cost liability to car manufacturers) then the total annual cost to the car manufacturers in the UK for ELV disposal could be in the region of £150 million (at a total unit cost of £100/ELV). The manufacturer with the largest current liability (based upon current ELV arisings) would be Ford, with about 25 per cent of all ELVs annually (although this would fall in line with their decline in market share of new car sales). This would equate to an annual cost of about £38 million in the UK alone. Obviously the cost would be greater if manufacturers were made liable for collection. Conversely, costs would be lower if liability was split between manufacturer and consumer, or if during subsequent years larger and more efficient processing operations developed. For example, we have made detailed projections for our own Company based upon additional multiples of 3000 ELVs annually (up to a maximum of 28,000 ELVs) and this suggests that the overall unit cost could fall to as low as £12/ELV.

  There are also many other aspects that we have not covered that will entail significant costs. One such example is planning permission. This is already proving a problem for most of the other sectors of the waste management industry and is likely to become more so, both in terms of costs and time delays incurred.

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