Why would auto dismantlers tow away their own profits?

Jan 01, 2009 | 11:02 AM |

The roller coaster that carried shredded auto scrap to $125 a long ton from $605 in four months buffeted other passengers beside scrapyards and mills. Auto dismantlers, who supply shredders with most of their vehicles, were whipsawed as well.

The predominant function of such companies, at least in normal times, is to remove useful parts and components from defunct vehicles for sale. Hulks may sit in a yard for 90 days to three years, waiting to be cannibalized. A typical revenue ratio would be 70 percent from parts and 30 percent from shredders buying what's left. But not in the 2007-08 run-up.

"Everybody got greedy on the scrap," said Joey Devereux, vice president at Available Auto Parts, Decatur, Ill. "Late-model yards stopped obtaining late-model salvage (for parts). They kept buying junk cars to keep the process going at the shredders. It was such huge profits, very quickly. They should have been buying half-good cars and half-scrap cars. For a lot of guys, now that they're having to rely on parts sales again, there are some hardships coming. They let their inventories dwindle."

Many parts may not be removed immediately. The typical strategy is to leave a defunct vehicle in the yard until someone wants to remove a piece of it to repair a similar vehicle still on the road.....