Salvaging a profit from old vehicles

CARS PROGRAM

Star Tribune (Minneapolis)

MINNEAPOLIS —As a car crusher rumbles in the background, waiting for its next victim, Tony Faust stands at the end of his dusty salvage lot looking upon rows and rows of scrapped vehicles, counting the ones marked “C4C.” Those “cash for clunkers” now total 25, but he expects to process as many as 500 before the program ends.

“It’s hard to say how many we’re going to get,” said Faust, co-owner of Viking Auto Salvage in Northfield, Minn.

Faust, like many other local yard owners who were expected to be big winners from the cash-for-clunkers program, is now trying to squeeze even the smallest of profits from the old gas guzzlers, which car owners were quick to scrap in return for federal money.

Normally, when salvage yards take in a scrapped car, they pull out the engine and any other highly valuable parts, then lay the car out in the yard for sometimes more than a year — until its less-valuable parts are all stripped — and it’s finally crushed and sold for scrap metal.

But the popular cash for clunkers program, officially called the Car Allowance Rebate System act (CARS), has junked that system with tight federal restrictions that complicate the process while speeding up the time line for salvage yards.

Though CARS has boosted new-car sales, the old clunkers don’t easily turn a profit for salvage yards because, generally, their parts are not very valuable. Most of the clunkers coming in are older SUVs and pickup trucks, and parts from those types of vehicles are not as valuable as parts from newer, damaged vehicles salvage yards buy from insurance companies, Faust said.

“We’re not chasing these things because they’re just not that valuable to us,” he said.

The hurdles are many, scrap-yard owners say. Clunkers arrive at the junkyard with dead engines, which under CARS rules were already destroyed by the dealer by replacing the oil with a combination of sand and sodium silicate.

Salvage yards that take in clunkers, besides registering them with the state, have to register with the federal government twice: once when they receive the vehicles and again when they are recycled.

According to the CARS act, salvage yards are allowed to hold onto the clunkers for only 180 days. Faust said he holds onto a regular scrapped car, one not coming from the clunkers program, for 400 days. He lets them sit in the yard in case any of the parts are needed down the road.

And the last chance to make money off the vehicle — when it is crushed into scrap metal — also is iffy. The price for scrap metal is fairly low now, and some in the industry worry that the sudden injection of clunkers into the market will drive down steel prices even more.