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Auto dismantlers operate in an environment where many of their competitors as well as some of their customers are among the largest and most powerful companies in the world. The salvage and dismantling experts offer components that can compete with OEM parts made directly by the world's automakers, many of which can be found in the upper tier of the annual Fortune 500 survey.

At the same time, many of the salvaged components are purchased by auto insurance companies, several of which make appearances of their own on any "who's who" roster of corporate America.

In this land of giants, these family businesses are finding new ways to stay viable, often by sharing information, cooperating on joint marketing efforts or through the more traditional merger and acquisition route.

A tepid consumer economy combined with vehicles that are lasting longer can both help and hurt auto recyclers, according to Bob Hoffmann of Quality Replacement Parts (QRP), Schofield, Wis., a co-op with several dozen member companies.

Much as in the scrap industry, auto recyclers need generated material (in their case, scrapped or totaled cars) before they can have a product to sell.

Galvanized steel and greater attention to the quality of mechanical systems are giving cars longer life, Hoffmann notes. "Cars are staying on the road longer, with some 150,000- and 200,000-mile cars out there," he remarks. "It used to be that no one wanted to drive, or certainly buy, a car with 75,000 miles on it, especially if rust was starting to set in."

A new form of competition for totaled automobiles is coming from exporters, who are having success selling the cars to buyers in nations such as Mexico and Russia, where dealers can repair and re-sell them without having to meet the stringent safety and emissions requirements of the United States, according to Hoffmann.

On the other hand, motorists who wish to keep their current models running rather than enter the new car market can provide a portion of the overall market for recycled automobile components.

Cutthroat competition among auto insurers is another wider economic factor that is affecting auto recyclers. "They are competing hard in terms of keeping premiums down and looking to hold repair costs down," notes Hoffmann. "The term they use is 'claim severity.' If they can keep severity down, perhaps by sourcing more affordable recycled parts, then they are in a better position to keep premiums down and remain competitive."

Joe Holsten, CEO of LKQ Corp., Chicago, agrees. "Every major insurance company is focused on increasing their use of alternative parts. They're keenly focused on managing the cost side of their business, even more than in the past."

On the competitive front, auto recyclers continue to face competition from the makers of new OEM parts, who would rather have 100 percent of the market. Hoffmann says that in some markets, these efforts are getting help from auto dealership owners who are establishing delivery fleets and parts warehouses in different parts of a metropolitan market to blanket a wider geographic zone.

The variety of factors has still provided auto dismantlers with a market that is good for the resale of their parts--if they can procure enough totaled automobiles to harvest usable components for late model vehicles.

Interestingly, air bags are playing a role in the supply equation. "Air bag deployment means a car is more likely to be declared totaled because of the high cost to replace them," notes Holsten. Two air bags deploying will almost certainly tilt an adjuster toward declaring a car as totaled.

"Five years ago, the number of cars on the road with two air bags was far less; now most have two," says Holsten. This may be why statistics show the percentage of crashed cars declared as totaled rising from 8 percent to 9 percent in the late 1990s to 12 percent to 13 percent this year.

STICKING TOGETHER. Although the David-vs.-Goliath aspect of family businesses competing among corporate giants might be fun from a distance, in the trenches many auto recyclers are taking steps to make it a fairer fight.

QRP has offered a remedy through its co-op arrangement, according to Hoffmann. The co-op arrangement can provide smaller companies with access to a wider network of parts and access to other helpful information, while still allowing company owners to remain independent.

In 2004, QRP has added new member companies and also introduced a service called QRT, a towing program that can allow the small member companies in bring in vehicles from a farther distance than they may otherwise be able to reach. Hoffmann says part of the way QRT works is by arranging "backhauls" so that network member tow truck drivers will have a vehicle to tow in both directions. "It opens up the buying of salvaged vehicles to a wider geographic range," he notes. The towing companies bid to haul the cars to QRP members."

# posted by Medical Information : 2:36 AM