The Recycling and Dismantling Industry of Scrap Cars: Urgent Change

——Interview with Gao Yanli, Vice President and Secretary General of China Material Recycling Association

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Power originates from Vision Emperor and creativity

2016-12-21 China Material Recycling Association Resource Recycling Magazine

Introduction: As of June 2016, the total number of cars in China was 184 million, with nearly ten million scrapped cars. From traditional recycling and dismantling models to traditional business methods, all aspects of the scrapped car recycling and dismantling industry need to be changed, and this change is urgent.

On September 19th, the Decision of the State Council on Amending the Management Measures for Scrap Vehicle Recycling (Draft for Soliciting Opinions) was officially released. The review department for scrap vehicle recycling business plans to change from the economic and trade management department to the competent department for scrap vehicle recycling and the environmental protection department, and the scrap vehicle recycling industry will no longer be included in the management of special industries.

In terms of the qualifications of scrapped vehicle recycling enterprises, the opinion draft weakens the specific requirements for registered capital, site area, and personnel in the current regulations, emphasizing that enterprises should have waste storage and treatment equipment and facilities that comply with environmental protection laws, regulations, and standards, professional technical personnel suitable for scrapped vehicle dismantling activities, as well as a sound internal management system and dismantling operation standards.

The biggest highlight of the opinion draft is that it allows the "five major assemblies" of scrapped car engines, transmissions, front axles, rear axles, and frames to be sold to remanufacturing enterprises, while in current regulations, they can only be forcibly returned as scrap metal.

Recently, the association conducted an exclusive interview with Gao Yanli, Vice President and Secretary General of the China Material Recycling Association.

Change is imperative

As of June 2016, China's automobile ownership exceeded 184 million units, ranking second only to the United States as the world's second largest. The period from 2006 to 2010 was a period of rapid growth in sales in the Chinese automobile industry and the initial formation of ownership. Based on the retirement period of about 10 years, the first peak period of automobile retirement may be expected in the coming years.

As the highest regulation in the industry, the State Council Order No. 307 "Management Measures for Scrap Vehicle Recycling" was issued in June 2001, playing an irreplaceable and important role in the development of China's scrap vehicle recycling and dismantling industry.

On July 19, 2010, the Legislative Affairs Office of the State Council attempted to make the first revision of the "Regulations on the Administration of the Recycling and Dismantling of Scrap Motor Vehicles (Draft for Soliciting Opinions)" in a public solicitation notice, but it was unsuccessful. The "Decision of the State Council on Amending the" Regulations on the Recycling and Dismantling of Scrap Motor Vehicles "(Draft for Soliciting Opinions)" released on September 19 is already the second revision of this regulation.

Specifically, the characteristic of the 2010 version of the opinion draft is the modification of the document name and the highlighting of "motor vehicles", including automobiles. However, this time the document name is once again clearly defined as "scrapped vehicles", which also reflects some subtle changes in industrial policies.

In addition, the September 19th version of the document once again reverted from "regulations" to "methods", which weakened the strength of the 2010 version in terms of regulations and caused many suspicions in the industry.

In this regard, Gao Yanli believes that whether it is a "method" or a "regulation", as long as it is a national regulation, it has administrative and regulatory effectiveness. In the absence of higher-level laws and regulations, this is the highest law that guides and regulates the development of the industry, and everything must be implemented in accordance with the requirements of the regulations.

In fact, for the industry, more attention should be paid to the content of regulations rather than their forms of expression - whether it is methods or regulations, they have equal binding force on the industry, and there are no obvious or essential differences in implementation, but the key still depends on implementation

Gao Yanli expressed that the industry's response to the publication of the draft for soliciting opinions is very strong and positive, and the most important thing is whether it is in line with industry reality, whether it is executable, whether it can be implemented in place, and whether each relevant functional department can fulfill their respective responsibilities.

The most important thing is that the industry must speak up and provide practical and feasible opinions and suggestions. Overall, the industry welcomes this version of the solicitation draft

In fact, the implementation of Order 307 has been a bit too long -15 years have passed since its establishment, and the development and changes of the entire industry can be attributed to "changing the world".

In this regard, Gao Yanli believes that this responsibility cannot be entirely attributed to any department: "China's economic development is too fast, and the industry situation is also changing too quickly. Some clauses may have become outdated even though they are still in the research stage, while others are too controversial and therefore cannot be launched as planned. However, on the other hand, this also highlights the rapid development of the industry. As an industry enterprise, we still need to enhance confidence

She emphasized that no matter what kind of policy is introduced, it is better than not - because Order 307 has become difficult to adapt to the rapid development of the industry, and even to some extent, it is already restricting the development of the industry.

Objectively speaking, the difficulty in introducing policies is also related to the rapid development of the industry - policies that have been solicited for a long time and discussed by experts are often found to be outdated before they are officially launched, so they have to enter a new round of solicitation

She pointed out that not many people can accurately predict the development situation of the industry in advance, and even a few experts gave seemingly bold but proven accurate conclusions at the time, which were not enough to affect the formulation of national industry policies.

The formulation of national policies must be based on facts and serve reality, so although there may be a certain amount of advance, it will never be too much. "She said," This is also a warning for the formulation model of national policies, and enough space should be reserved for the development of the industry and the advance amount should be fully considered

Regarding the five major assemblies that are the highlight and most controversial points of this opinion draft, Gao Yanli pointed out that there are two modes of release - conditional release and unconditional release.

Conditional release refers to the five major assemblies, such as old engines, that have reached their service life and are scrapped, can only be sold to nationally recognized remanufacturing enterprises

Unconditional release means complete release, such as the five intact assemblies and reusable components that were not involved in some accident cars, which can be sold to anyone completely without any restrictions

While suggesting unconditional relaxation of thresholds such as corporate qualifications, she admitted that achieving them in one step may still be difficult: "The specific implementation is likely a combination of the two

In this regard, Gao Yanli pointed out that research conducted by the China Material Recycling Association (hereinafter referred to as the Association) shows that not only remanufacturing enterprises and car repair shops are currently consuming second-hand parts, but car 4S stores are also one of the largest buyers: "4S stores mainly purchase non critical parts such as the four car doors, front engine hood, trunk cover, bumper, etc., but in large quantities

She admitted that among several scrapped vehicle recycling and dismantling companies she has recently inspected, it has been found that five major assembly warehouses have been built regardless of their scale and have been actively storing goods: "Some companies' warehouses, even suspected to date back a few years, can be described as everything is ready and only (the" Measures ") have been implemented

According to the association's statistics, the sales volume of second-hand automotive parts in 2015 was 570 million yuan. After the release of the five major assemblies in the future, the second-hand parts market will experience explosive growth. In this regard, she believes that this is not only a good channel to promote consumption, but also a certain role in driving the national economy.

Although Gao Yanli does not deny the existence of such incidents in some remote areas, she believes that it will never become mainstream and there is no need to worry about whether "assembly cars" will become popular after the release of the five major assemblies.

The automotive industry is one of the fastest-growing industries in China, and currently has achieved a complete industrial chain of high, medium, and low end configurations. Automobiles have already entered ordinary people's homes as daily necessities, so not many people will disregard the safety of their own and their families to use those assembled cars without safety guarantees

In this regard, she emphasized that with the legalization of the five major assemblies entering the market, the value created by the remanufacturing and reuse of automotive parts is not much lower than that of illegally assembled vehicles, and it is a reasonable and legal operation. I believe that enterprises themselves will also make choices.

For example, the overall quality of scrapped cars in Beijing is the highest in the country. Many scrapped cars have even passed the annual inspection of that year, and these cars can be used as second-hand cars in terms of quality. However, once accidents or disputes are discovered after the scrapped cars are sold, the relevant enterprises will be severely held accountable. Moreover, the profit from selling the entire vehicle is not more or even less than selling parts, so it is not worth the loss economically

She emphasized that regardless of the final regulations, the most important task for the association at present is to seize the time to develop relevant industry standards, prepare for the opening up of parts sales, and promote the recycling and reuse of scrapped automotive parts.

Before the end of the year, there will be 5 standards for the reuse of components and reused parts, which will be announced through the National Standards Committee Association standards. For example, what standards are required for remanufactured products to be considered qualified, or a system for accountability and traceability of sold products that are substandard will be developed with the introduction of national policies

For example, the reuse of four doors and two covers - which is not a critical component, and its usage cost is much lower than that of repairing after severe damage. More importantly, it reduces the waste of resources and is a good thing to get more with one action

She revealed that the formulation of these standards referred to the successful experiences of major circular economy countries such as the United States, Europe, Japan, and South Korea. Based on soliciting a large number of opinions and suggestions from industry enterprises, she will introduce national standards with international advanced standards in combination with China's actual situation.

It is reported that at the invitation of the European Association of Automobile Manufacturers, a Chinese expert team organized by the China Material Recycling Association will visit Europe for inspection in the near future, to prepare for the introduction of the "Management Measures for Scrap Vehicle Recycling", and the transformation of the industry is imperative.

Urgent Change

Although the delayed implementation of fund subsidies and the renewed failure of the "Measures" have cast a shadow over the industry, reality shows that these unfavorable factors have not truly affected the recycling and dismantling of scrapped vehicles, and the overall market situation is much better than expected.

In 2015, the recycling and dismantling volume of scrapped motor vehicles in China reached a historic high, reaching a new high in the first three quarters of 2016- surpassing over 5%, and it is expected to be higher than last year throughout the year.

In this regard, Gao Yanli pointed out that as of the end of June, the number of motor vehicles in China reached 285 million, and the total economic output is growing day by day, while the living standards of residents are constantly improving. The combined result of all these factors is that regardless of whether the country receives subsidies or not, the number of scrapped cars is still increasing.

For example, Tianjin Xinneng Renewable Resources Co., Ltd. recycled and dismantled 59000 scrapped cars in the first three quarters of this year, setting a new historical high in the country. It is expected to exceed 90000 vehicles throughout the year

At the same time, she also agrees with the huge role played by financial subsidies: "After the cancellation of subsidies in Shandong Province, which was second only to Beijing in terms of car recycling in 2015, the national ranking in the first three quarters of this year has dropped to 15, and the top 50 recycling enterprises in the first three quarters have also decreased from 8 to 1

She pointed out that for provinces with high fluctuations in recycling volume such as Shandong and Zhejiang, there may be a "spending more than enough" effect: "For example, some cars that can still be scrapped or reported for scrapping later are scrapped in advance due to government subsidies

In fact, the subsidy for scrapped vehicle recycling is only a temporary incentive measure by local governments, and has not been institutionalized or long-term. It is only determined based on actual situations and needs, except for Beijing.

Beijing has been providing continuous subsidies for the recycling of scrapped vehicles since 2009, but its high subsidy of 8000 yuan per vehicle before 2015 was unmatched by other provinces and cities; even if it dropped to 6000 yuan in 2016, it is beyond the reach of other places

In addition, compared to 2015, the number of motorcycles recycled this year has significantly decreased, indicating an increase in the proportion of cars among scrapped motor vehicles.

Gao Yanli believes that, in addition to financial subsidies, one of the main reasons for the decline in the number of motorcycles is the continuous increase in "anti motorcycle" measures across the country, which has led to a decrease in the absolute number of motorcycles. In addition, in recent years, the replacement role of electric bicycles for motorcycles has become increasingly significant, and the number of new motorcycle vehicles entering the market has also continued to decrease.

Time flies, 15 years have passed since the release of State Council Order No. 307 on the Management Measures for the Recycling of Scrap Vehicles. Nowadays, the mindset of the industry is greatly different from that of the past. For issues related to industry interests such as dismantling qualifications and environmental protection, we can also face them with a more peaceful attitude.

Compared to before 2009, the focus of the industry has undergone significant changes, with topics such as' qualification control 'and' regional control 'no longer being the focus. The focus is more on environmental protection, safety production, and other aspects, and the overall understanding of the industry has significantly improved

Some companies do not want to make progress, do not develop well themselves, but do not want other companies to enter the industry, and only want to earn monopoly profits under the protection of the state. This is absolutely not feasible

Some companies have also proposed measures such as controlling the number of companies in the same city, but this is actually a manifestation of fear of market competition. We welcome all enterprises interested in entering the scrap car recycling, dismantling, and renewable resource industry. The future is to achieve survival of the fittest through full competition, and never protect backward enterprises and production capacity

The scrapped vehicle recycling and dismantling industry used to implement 'approval before construction', but now it is' construction before approval '. As long as the built factory meets relevant requirements, any enterprise can enter this industry

At the same time, she also admitted that although the scrapped car recycling and dismantling industry is not a low-profit industry, its profits are indeed limited, and this is also the reason why few large enterprises outside the industry have ventured into it so far: "Large steel enterprises and automobile manufacturing enterprises in the upstream and downstream have obtained qualifications, but so far their operations have been average, and some have not even organized production

Regarding this, Gao Yanli suggests that although the industry will no longer be subject to "qualification" management, it is necessary to raise the threshold for industry entry, especially in terms of environmental protection and safety production.

There are similar problems in environmental protection, but this is a hard indicator - companies that fail to meet environmental standards must be eliminated, and further protection is to protect those backward enterprises. In this regard, the state has strict control, and in the future, this will also be a red line that cannot be touched

It is revealed that the inspection team of the Ministry of Environmental Protection is currently conducting the strictest environmental inspections on relevant provinces such as Hebei and Shanxi. Among them, several environmental unqualified enterprises in Hebei may become the first cases of the scrapped vehicle recycling and dismantling industry revoking its "qualification certificate for scrapped vehicle recycling and dismantling".

In the "Classification and Management List of Environmental Impact Assessment for Construction Projects" implemented since June 2015, the original category of car dismantling in waste resource recycling, processing and regeneration projects has been updated to the category of waste cars in waste resource (including biomass) processing and recycling projects, and it is required to submit an environmental impact report; However, currently only 5% to 10% of enterprises in the entire industry have completed environmental impact assessments, which is a significant gap from national environmental protection requirements.

Gao Yanli pointed out that one of the main causes of air pollution is undoubtedly the large number of cars, but the root cause should be the poor quality of car fuel. The role played by yellow labeled cars and scrapped cars in it is not as large as imagined: "Compared to the huge number of cars, the number of yellow labeled cars and scrapped cars is negligible

In addition, in addition to environmental pollution issues, safety production will become the next focus of inspection: "In the future, traditional barbaric car dismantling such as manual hammer smashing and acetylene cutting will be prohibited

In this regard, she pointed out that although many dismantling enterprises have built tall and beautiful factories, they do not have many modern equipment and still rely mainly on manual dismantling. In actual dismantling, open-air operations are still basically used. One of the important reasons is that the toxic and harmful gases brought by acetylene cutting are difficult to discharge.

Our next priority is to 'extinguish the fire' and prohibit open flame operations, "she emphasized. In the future, we will increase the application of mechanized equipment, and manual operations will mainly be used for precision disassembly.

In fact, although refined dismantling projects have long been the goal pursued by dismantling enterprises for transformation, very few have truly been achieved. At present, the profit model of the scrapped vehicle recycling and dismantling industry is still single, mainly focusing on selling scrap steel. The value of many parts has not been deeply explored, and the direct reuse rate of recycled parts of scrapped vehicles in foreign countries can reach 35%.

This requires solving the problem of dismantling scrapped vehicles with numerous brands and types faced by the same dismantling enterprise. The dismantling equipment is required to have a high degree of flexibility, and can automatically or quickly adjust workstations, tools, or working parameters for different types of vehicles, thereby ensuring high work efficiency under the premise of flexibility.

Whether it is precision disassembly or flexible manufacturing of disassembly equipment, it is necessary to have the disassembly manual provided by the automobile production enterprise that has the most knowledge of automobiles as the prerequisite. But so far, Chinese automobile manufacturers have not provided any automobile disassembly manuals.

Gao Yanli revealed that the parent manual for dismantling scrapped vehicles currently used in China is provided by the European Association of Automobile Manufacturers. Although its content can keep pace with Europe, it is limited to European brand cars and has significant limitations.

The information is very detailed - for example, how many steps are required to disassemble a certain component, and what tools are required for each step. Even laymen can clearly understand at a glance, which brings not only technology but also profits to China's scrapped car dismantling industry. In the past, the things that were dismantled with a hammer can be sold for 200, but now the refined disassembled parts can be sold for 5000

However, the European version of the dismantling manual does not include hybrid and electric vehicles that represent the future development trend of automobiles. Although the two have not yet entered a large-scale scrapping period due to time constraints, the number of scattered accident vehicles and other vehicles that need to be scrapped is increasing. In this field, there are not only no regulations, but also scrapped vehicle dismantling companies do not have any experience, resulting in frequent accidents in actual operations.

Due to their unfamiliarity with new vehicles, employees of a car dismantling company were hit off by high-voltage on-board batteries during the dismantling of an accident electric vehicle, and the removed batteries were unable to be further treated: "Similar very practical and urgently needed standardization issues, such as the treatment of waste gas bottles from natural gas vehicles, require close cooperation and assistance from the production enterprise

In this regard, she emphasized that as an important component of the circular economy, it is urgent to establish an extended producer responsibility system for automobile production enterprises: "This is a successful experience of developed countries such as Europe, America, Japan, and also a social responsibility that all Chinese production enterprises must bear

She revealed that the association had previously submitted its own revision suggestions to relevant departments such as the National Development and Reform Commission, and the industry was also very eager to reflect the extended producer responsibility system in the new Measures, but unfortunately it did not.

Gao Yanli stated that the introduction of the "Measures" will definitely promote the industry to move towards legalization and standardization faster and better. In order to cooperate with the introduction of the "Measures", the Ministry of Commerce is also revising the "Technical Specifications for Scrap Vehicle Disassembly Enterprises"; And the technological progress, environmental protection facilities, and safety production of industry enterprises will also be more perfect and complete.

The standardized system will run through the entire process of enterprise operation and management, as well as refined dismantling. The recycling price of scrapped vehicles will become more flexible and completely change the recycling pricing model. Component sales will become an important component of driving domestic demand

She emphasized that in the future, while improving the equipment, technology, and management level of the industry, we should encourage advancement and eliminate backwardness, ensuring that there is entry and exit, and that laws must be followed and violations must be prosecuted.

Gao Yanli believes that there are four major problems in the current scrapped vehicle recycling and dismantling industry: high production costs; The number of acquisitions is small; The price fluctuation of recycled materials sold is significant due to the long dismantling cycle; The acquisition of scrapped vehicles does not receive value-added tax invoices and cannot be offset against output tax. However, there are very few enterprises that can enjoy the new tax refund policy issued by the Ministry of Finance - the total industry tax payment in 2015 reached 609 million yuan.

As far as the industry itself is concerned, most dismantling enterprises lack information based permission management internally, and there is a common problem of outdated management level. There is no information based management system and advanced process oriented and standardized management concepts that are combined with the actual operation of the enterprise, resulting in lower work efficiency and higher operating costs of the enterprise

She pointed out that the ideology and management awareness of the scrapped car recycling and dismantling industry are still outdated, and this is also the biggest problem: "I don't want to make progress and do well, but I don't want others to come in and do well. I always want to set a threshold to keep others out, which is the most dangerous and unpleasant thought

In addition, the process of automobile scrapping procedures has always been handled through manual or even paper-based recording and statistical methods to complete the entire automobile scrapping procedure. This traditional work method has a high error rate, and frequent modifications occur after submitting information on the website of the Ministry of Commerce, which seriously increases the workload of the Ministry of Commerce system and scrapped vehicle dismantling enterprises, and also delays the completion of automobile scrapping procedures.

Regarding this, Gao Yanli revealed that a mobile app software developed by the China Material Recycling Association for self service car scrapping by citizens - the Recycle Home Scrap Car Mobile App - will be launched and put into trial operation in the near future, which is also the first app software in China to be applied to scrapped cars.

This work has received strong support from relevant departments such as the Beijing Municipal Commission of Commerce and the Beijing Public Security Bureau Public Security Traffic Management Bureau, and will be fully promoted by these departments, such as downloading this app directly from their official website

It is reported that the Recycled Home Scrap Car Mobile App also has functions such as second-hand parts retail, and is a mobile platform that combines service and commercial functions. The future market prospects are very broad.

Therefore, this emerging platform has also gained the favor of overseas enterprises: "The demand for second-hand automotive parts from Europe and America is very large overseas, and this project has received support from some automotive parts sales companies in the United States and Europe. In the future, the vast majority of second-hand parts may be exported

In the new era and environment, the scrapped vehicle recycling and dismantling industry is facing new requirements and management models. It should seize the opportunity to conduct research on green recycling, treatment, and industrial management models for scrapped vehicles, comply with the requirements of circular economy development, and follow a path that is in line with China's sustainable development

Gao Yanli emphasized that the industry urgently needs to change and must do so: "From traditional recycling and dismantling models to traditional business methods, all aspects need to be changed, and this change is urgent