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
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
"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
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.
"We look at the parts potential, whether it's the starter,
the alternator, the door glass, a good motor or transmission.
When that factor is included, the scrap processor can't
compete," Devereux said.
But soaring scrap prices reduced the attention paid to
parts. During that period, he said, dismantlers were probably
getting half their revenue from shredders, not the usual 30
percent. "When a car came to the (salvage) recycler, they were
grabbing radiators, condensers, catalytic converters and the
aluminum wheels and then sending the (rest of the) car to the
crusher" for shipment to the shredder, Devereux said. "In less
than four or five days, that vehicle was gone."
That's not normal practice, he noted. "If a recycler buys a
nice piece of salvage, say at an auction, 12 or 14 months
minimum is what guys would hold the car for" when the situation
is reasonably normal. "If it's an above-average truck, it's
probably a three-year turn. Even something off the street is
probably a 90-day turn, maybe six months."
Aside from distorting the priorities of dismantlers,
shredders' high prices also diverted customers who normally
would have dealt with local auto yards, Devereux said. "The
shredders outbid us when the price was up. The advantage that
they had is, they had an actual scale. Knowing the exact
weight, they had a margin they knew they could work on."
Shredders recover the metal values of nonferrous parts on
the output side, grinding the mixed metals up and then sorting
by density. A few items avoid that fate, such as wheels.
"Shredders would pull out the catalytic converters. They will
pull the radiator and condenser in most cases. It gets them
more nonferrous in the long run. And they have to get the
batteries out, because lead is a real (pollution) problem,"
He remembers with chagrin the situation at the height of the
price cycle in the second quarter. "The shredders in
metropolitan areas were allowing John Q. Public off the street
and they're offering $200 a (short) ton. And he says 'This is
great' and tells his neighbor he should do the same thing."
Before the run-up, payments were normally $25 to $50 per
These days, dismantlers have refocused themselves on parts
and no longer have to pay top dollar for ordinary defunct
vehicles. But the after-effects of the roller coaster ride are
still being felt. "A huge number of cars got sucked out of the
system that should not have been sucked out of the system, due
to the fact that the price was so high," Devereux said.
Vehicles that had another year of decent service left in them
vanished from the road prematurely, so many vehicles that would
have entered dismantlers' lots in late 2008 and early 2009
won't be doing so because they were enticed out of service by
the briefly high prices.
Devereux said he would expect his 17-acre yard normally to
have an intake of 150 vehicles a month but the recent pace has
been 50, he said.
The collapse in the market was made clear during the
mid-September week when Congress was debating whether to bail
out the credit market. "In all the years I've been in the
business, I never remember a scrap processor not accepting my
loads. There were times when we went to sell our copper and we
were told, 'No, I'm not buying right now, I'm holding'." That
wasn't normal behavior for a slowdown. "They might tell you 10
cents. They might give you a ridiculous price you both laugh
about. But for them to not even quote, that was something
The Thursday when Congress was waffling on the bailout
"literally reminded us of 9/11. Business came to a screeching
halt. The scrap market jammed up. We immediately started laying
people off," cutting the payroll to eight employees from
But Devereux says he can remember worse. The current
situation isn't as bad as the early 1980s, when a stressful
environment was accompanied by high interest rates. "Your note
at the bank and your lines of credit were 20, 21 percent then.
When your money (from sales) stopped, you still owed 21 percent
on your obligations at the bank. Nobody's getting shut off or
having their notes called like you did in the '80s. This time
around we haven't been buying any equipment. We don't have any
large obligations at the bank and our rates at the bank are
still at historical lows."