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Monday, August 10, 2009

Program No 'Clunker' For Scrap Yards, Towing Companies

Here's the story from Crain's Detroit Business:
With a second round of funding approved for the cash for clunkers program, local car dealers, auto salvage yards and towing companies say the first round has been a boon for business.

The small businesses, which have all had a bad first half of the year, are reporting increases in activity.

Among the biggest beneficiaries of the program so far is Jeff Wojtylko, owner of Taylor Auto Salvage Inc. in Taylor.

In the week and a half between July 29 and late last week, Taylor Auto Salvage picked up about 900 so-called clunkers, or nearly 10 percent of the 10,000 vehicles it purchased last year, Wojtylko said.

The availability of vehicles for scrap spurred him to call back eight employees he laid off in November, bringing his employee ranks back to 18.

Taylor Auto is paying dealers the scrap value of the cars plus a premium for the value of the resalable parts and paying a tow service to move the clunkers, Wojtylko said.

Once the vehicle engines have been disabled by the car dealers, auto recyclers drain oil, gas and coolants from the vehicles, remove batteries, cut catalytic converters and remove mercury switches.

Taylor Auto then puts the cars on its lot so customers can come in with their own tools and remove, for a price, any parts they'd like. The lot holds only 1,000 cars, so the oldest 50 vehicles get crushed each day.

Wojtylko initially put the company's employees on a 60-hour work week, but now has them working 72 hours to keep up with the dismantling and crushing demand.

Other auto recyclers say they've begun to pick up clunker vehicles, but the majority of vehicles promised to them by dealerships are sitting on dealer lots, awaiting government approval.

“Some dealers are getting approvals faster than other dealers, and some are taking a gamble the government will pay them back and taking a risk” by having clunkers towed to auto recyclers in advance of final approval, said Brad Horton, owner of U.S. Auto Supply in Detroit.

U.S. Auto Supply has received about 60 cars since July 29. Horton expects his company to eventually get 300 to 500 clunkers from the program when it gets rolling this week.

The company pays dealers a minimum of $50 for each vehicle, which then gets stripped of fluids, batteries, switches and parts for resale before being crushed for scrap.

A1 Auto Salvage and Scrap in Ypsilanti had been losing money since last September as people held onto vehicles amid decreased scrap prices, said co-owner Jim Burns.

Burns is hoping for an additional 300 cars through the program by the end of August, which would add up to about 500 more tons of steel than the company would normally take in, Burns said.

That could mean an additional $80,000 of gross revenue, minus the scrap price paid to dealers and towing fees, he said.

A1 Auto does not pull parts off of vehicles but instead scraps the vehicle except for aluminum wheels.

Working in tandem with dealers and auto recyclers, some local towing companies are also seeing some benefit from Cash for Clunkers.

Wilk's 24 HR Towing & Recovery Inc. in Taylor has been picking up 20 to 30 clunkers a day since the program began, said owner Brigitte Wilkinson.

“This has put me back in a better income frame now that my flatbeds are moving again,” she said.

Wilk's saw its business fall to about three to five vehicles a day early this year from about 15 to 20 vehicles daily late last year as scrap prices dropped, she said.

The company's annual revenue of about $400,000 had fallen by more than half, year to date, prompting Wilkinson to lay off half of her eight truck drivers.

But new towing demand associated with the cash-for-clunkers program has enabled her to bring back three, she said.

“There's been such a dramatic increase in revenue. ... I'm hoping this continues,” Wilkinson said.

Sherri Begin Welch: (313) 446-1694, swelch@crain.com

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