Metal price slump slams auto salvage centers

| Thursday, Dec. 31, 2015, 8:55 p.m.

Grease and dirt don't bother Butch Battaglia after 40 years in the auto parts business. But he doesn't want his college-student son to follow him.

“I wouldn't put him in this,” said Battaglia, 54, who inherited his grandfather's auto salvage yard in Pittsburgh's West End with his brother Mike, 52. When they leave the business, he said, “it will be done. It will be the last generation.”

Once called simply “junkyards,” many independent auto salvage centers are closing, unable to contend with low steel prices, consolidations among larger players and competition from overseas buyers who drive up used-car prices in online auctions. In addition, business is hurting as fewer people are buying salvaged auto parts to do their own repairs because today's computerized cars often are too complicated for novice mechanics to fix.

The Pennsylvania Automotive Recycling Trade Society in Mechanicsburg estimates the number of yards in the state declined 38 percent to about 1,000 in the past five years.

“We're one of the very few left in the city,” Battaglia said.

Battaglia Auto's business has declined about 15 percent annually since 2013, he said. To cut overhead costs, the brothers recently laid off the two employees who ran their Sheraden warehouse, leaving five.

Falling steel prices mean consumers looking to sell cars to salvage yards get much less than they would have just 18 months ago. And salvage yards selling scrap metal make less money, said Michael E. Wilson, CEO of the Automotive Recyclers Association in Manassas, Va.

“Right now, the metals market has really fallen off,” he said. Scrap metal that used to fetch $300 per ton sells for about $50.

That means someone selling a junked car would get about $100, instead of $300 or $400 at last year's prices, said Mike Schmidt, a salesman at All Foreign Auto Parts, a full-service salvage yard in Lawrenceville.

Full-service auto recyclers have employees who remove parts from used cars to sell. Self-service shops, typically with more older-model cars, allow customers to remove parts they want to buy, and sell used parts to collision repair shops.

Parts sales help salvage yards cushion some of the losses from declining steel prices. But insurance companies are more likely to write off older cars that are significantly damaged in wrecks rather than pay to fix them, dulling the business that self-service yards get from selling parts to collision repair shops, said Tony Cristello, senior equity research analyst at the Automotive Aftermarket Group at BB&T Capital Markets in Richmond, Va.

Perhaps even more challenging is the shift from auto auctions at physical locations to online, with competition that includes overseas buyers.

“The overseas guys are paying top dollar because they're putting cars back on the road that should never be put back on the road,” Schmidt said.

The shift to online auctions means “you have folks from 170 countries bidding on that price of salvage,” said Wilson, who has watched cars go to Eastern Europe, the Middle East and Africa.

Full-service salvage yards buy most of their vehicles at auction. About 3 million autos that insurers declare total losses annually are sold through salvage auctions, Wilson said.

Widespread competition is not as difficult for a company such as LKQ Corp. in Chicago, the nation's largest used auto parts seller with yards across the country. LKQ utilizes automated processes that smaller companies cannot afford, said Gary Prestopino, managing director of Chicago-based Barrington Research.

Small operators should take advantage of their familiarity with customers, he said.

“I think that in more rural environments, they could do that. ... It's still a relationship business, too,” he said.

Kay Klos, executive administrator of the Pennsylvania Automotive Recycling Trade Society, thinks changing outdated perceptions of the industry would go far to improve business, especially regarding government regulations.

“The biggest issue we have is to get people to understand what our industry does,” she said. “We are recyclers. It's not just a junkyard on the side of the road. ... We are conscious of the environment, and we take every precaution to make sure we stay in compliance with the rules.”

Tory N. Parrish is a Tribune-Review staff writer. Reach her at 412-380-5662.

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