Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 60 - 79)

TUESDAY 23 OCTOBER 2001

MR CHRISTOPHER MACGOWAN, MR PAUL EVERITT AND MR STEVE FRANKLIN

Richard Burden

  60. I would like to ask about option four that you have put forward. It draws quite a distinction between the responsibilities of dismantlers compared to shredders. Could you explain your view on the grounds on which an authorised dismantler could reject an ELV?
  (Mr Macgowan) In just the same way as is currently the case. We are dealing with approximately 1.8 million vehicles a year. At the moment, a dismantler is in a position to either say, "Yes, I will deal with this vehicle" or not. We believe that is a market force at work. Our view is that in establishing what the value of the vehicle is it is far better to leave it to the market place to decide, rather than to have some independent body trying to decide whether a vehicle on somebody's lawn, as you said earlier, is or is not worth something. Leave it to market forces. A dismantler sees two opportunities in the value of a vehicle when it appears to be coming to the end of its life either in the sale of parts from it or in the sale of base metals from it. Those are two things that are very clear. Therefore, a dismantler has that option to decide whether he or she wishes to accept that vehicle. After all, that is what is happening at the present moment. The vast majority of people in this country are highly responsible in dealing with a vehicle when it comes to the end of its useful life. They look through the Yellow Pages or at their local paper and phone up and establish where they can dispose of this vehicle. A dismantler will be able to say, "Yes, I will offer you £50 or £100 or whatever." That is a market force at work. He has the option to either say, "No, I do not want it" or, "I do want it." That is the thrust of our option four. The market decides what is the value of this vehicle.

  61. The dismantler makes a commercial judgment about that. That does not mean that the end of life vehicle or the vehicle that may be an end of life vehicle ceases to exist. It is still there in the possession of the end user. What is the responsibility of the end user? Presumably, if a particular old car, 20 or 30 years old, fails its MOT, the owner has taken it along and been told, "Look, guv, we cannot do anything with this. You will have to get rid of it", and it is really not working, what does the end user do with it? Does the end user have to stand the cost of hawking round dismantler after dismantler to be told, "It is not in our interest"? Who stands the cost of that?
  (Mr Macgowan) There is no hawking of anything round anybody. The situation we have today is regularised. After all, today a few phone calls are made to establish where I can place my end of life vehicle. As our colleagues from the Retail Motor Industry Federation said just now, I might be a dealer and I might take it in myself. Alternatively, I might be a shredder and deal with it in that way or I might be a dismantler. The great thing about our option four is that it does offer a market value to take over and a free take-back facility from 2002 which none of the other options does.

  62. Could I ask you the same questions I asked the Retail Motor Industry Federation? At what point does free take-back start? Does it start at the point when the vehicle is delivered to someone who takes it, the dismantler or the shredder, or does it start at the point of recovery from the end user?
  (Mr Macgowan) The ELV directive states that delivery must be at no cost to the last owner. All of the other Member States interpret that to mean that the last owner is responsible to deliver the vehicle to the place where it is going to go but then there is no cost. I hope that answers your question.

  63. If dismantlers reject ELVs, with what they consider to be negative values for them, why under your scheme are shredders obliged to take those vehicles?
  (Mr Everitt) The whole aim is that there should be somewhere where the owner can take their vehicle back free. Therefore, there has to be one player out there who has that obligation. The central theme of this approach is that the vehicle is going to the people with the best ability to extract value. Analysis that we have done shows a complete vehicle delivered directly to a shredder has more value than a hulk that has already been dismantled going to a shredder. The shredder is in the best possible position to extract the maximum value from that vehicle so it seems to us most appropriate that it is the least cost method of taking back vehicles at the end of their lives. By providing the obligation on a shredder, we supply him with a high quality flow of complete vehicles from which he can extract value and the motor manufacturer from 2007 is there to underwrite any deficit should that be the case.

  64. Perhaps we can move to underwriting. We have established that differentiating between vehicles having positive and negative values is not an exact science. They have a positive value to one operator and a negative value to someone else. You have drawn out the distinction between what may be in the commercial interests of a dismantler compared to the interests of a shredder. Could you explain the mechanism that you would see for being the final arbiter of that? The dismantler has made a commercial decision so he or she does not need an arbiter. When it comes to the shredder, who decides whether, to the shredder, that has a positive value or a negative value?
  (Mr Everitt) As we have set out in our proposals, there should be some independent assessment through government, not to determine whether a vehicle does or does not have a value, but to determine whether or not the shredding industry is or is not in deficit as a consequence of taking the obligation. It is not a judgment based on each and every vehicle that they process; it is a judgment on whether, after a period of time, from 2002 to 2007, that industry is able to profitably handle those vehicle. If they are, there is not a liability that manufacturers have to pick up. If there is a liability, we recognise that responsibility and will step in to ensure that free take-back is taken forward.

  65. Would that assessment be an assessment of the industry or a company by company assessment within the industry?
  (Mr Everitt) We would assume it would be on the basis of the industry. The whole thrust of option four is a free market approach, as far as it can be within this kind of regulated environment. The dismantlers are free to take or not take. If they take, that is no longer anyone's responsibility because that is a positive value vehicle. If there is a deficit before we come in, there is to be a level of competition between the shredders and the dismantlers so they improve and become more efficient. If we set up a situation—which is the fear—that essentially we just pay a subsidy to ensure this work carries on, that is not going to improve the industry and it is not going to make it more efficient.

Mrs Lawrence

  66. In option four you mention that the shredders have an obligation. As soon as an obligation comes in, the market that your option four is based on is immediately non-existent. It is an obligation; therefore, the market element has gone. You mentioned that the industry would underwrite any deficit but clearly there is not going to be a great clamour, one would not have thought, of individuals to set up as shredders when the potential to make a living has to rely on a deficit being met. How can you be sure, for example, that there is going to be capacity in shredding to deal with the large volume of vehicles that are not coping elsewhere in the system?
  (Mr Macgowan) The point that we are trying to underline is that there is not a large number of shredding companies in the United Kingdom so it is not a proliferation of companies and it is a competitive market. In the same way as the motor industry deals with other organisations up and down the supply chain to encourage them to be competitive, we think the same rules should apply to those shredding companies, so market conditions prevail, but we have a responsibility, should there be a deficit, to step in. Put another way, we do not think it would be at all acceptable for the United Kingdom to interpret the legislation by just saying to manufacturers, "You must pay a shredder £X for every vehicle." What possible incentive is there for the shredding industry to become more competitive under those circumstances? They can just sit back and take the money. It is just the way in which you look at it. We want to encourage a competitive, efficient shredding industry.

  67. You do not think there will be an impact on capacity?
  (Mr Macgowan) No.
  (Mr Franklin) Shredders take pretty much all of the vehicles that reach the end of their lives today.

Linda Perham

  68. Under this option, if I have a wreck of a car outside and I want to get rid of it and I am phoning dismantlers and they all come on and say, "I am sorry, we cannot take this", would there not be a growing culture of people thinking they cannot be bothered with this? Once it became known that shredders under your option had to take vehicles, would people contact shredders direct and say, "I am not going to bother with a dismantler"? Would it lose the dismantler and the whole industry business if people thought they could dispose of something to whom they knew had to take it?
  (Mr Macgowan) We do not think that will happen because that is not what happens at the present moment. People are interested in any value for their old wreck and they would like to get that value. That value is most likely to come to them from a dismantler. The overwhelming desire would be to pick up the phone to a couple of dismantlers and get a price for your vehicle. That would be the natural thing to do.
  (Mr Everitt) The dismantler would be encouraged to seek your business. If the consumer has an easy route, maybe they will take it and that would be great for the shredding people because they will get a volume of vehicles, but if the dismantler wants to be in the market then they have to be more proactive in ensuring that those people who have those vehicles know that there is someone available to them who may well pay them. It is an incentive for them to take a more proactive role in the market place.

Richard Burden

  69. Can I ask a question around the concept of the complete vehicle because, as I understand it, you say that shredders would have an obligation to take back the vehicle providing it was complete. I understand that you do not want someone else in the chain to rip off the valuable bits and present the shredder with something that has little or no value to them. What is the definition of complete? Is there not a potential loophole there? We are dealing presumably with very old vehicles which have all sorts of things missing from them probably just in the course of wear and tear and so on. The shredder says, "It is not worth my while doing this one" and will cherry pick by saying to the end user, "This is not complete. It is your problem." What would be the safeguards on that?
  (Mr Macgowan) With our option four, we have come from the point that the central thrust of this directive, as you know, is to reduce the amount of waste product that goes to landfill sites. Therefore, the object of the exercise is to make certain we do that. Clearly, the completeness of a vehicle is crucial. It is obviously very, very important. It is an area that my colleague has been addressing.
  (Mr Everitt) It is a valid point because under the Directive we have tried to encompass what it requires and the Directive equates to largely complete. The only way the manufacturer has to pick up responsibility is if the vehicle is largely complete. That has been passed on in the terminology for the shredding. At the moment, we are still in discussion and have been in discussion for some time with government to discover what some of these phrases will mean. Clearly from that point of view "largely complete" means maintaining and still having the large components that have value: the engine, the catalytic converter, the gearbox.
  (Mr Franklin) Just to reinforce that, what we have said is that it must have all its major body component parts and it must be in a rollable condition, you must be able to push it along if it will not start.

Mr Hoyle

  70. It has got to have wheels on?
  (Mr Franklin) Yes, it has got to have wheels on.

Sir Robert Smith

  71. In your submission you say that there are 37 shredding sites in the UK. What would be the cost on the final owner of getting them to one of these sites, an average cost?
  (Mr Macgowan) The Directive, of course, is centred around the fact that consumers must have an option. They must find it reasonably convenient to, first of all, go to a dismantler and, if need be, to go to a shredder. Obviously it depends on the geography. The thrust of the legislation is that the end user will deliver to the point at which the vehicle is dismantled or shredded.
  (Mr Franklin) Shredders are very hungry machines and they have feeder yards around the country to allow the depollution to take place. The most likely scenario is that will take place at feeder yards. These are distributed all around the country and have arrangements with other yards. The exercises that we have done show something like 250 yards cover 95 per cent of the population.
  (Mr Macgowan) It has got to be convenient for the consumer to find a home.

Mr Hoyle

  72. You are a bit unlucky if you are in the five per cent.
  (Mr Franklin) You would have to double the amount of yards to cover another five per cent and it is one of those diminishing returns, unfortunately.

  73. It sounds like the sort of excuses cellphones give. I wonder what contacts and what relationships manufacturers have built up historically with different sections of the vehicle disposal industry, such as through CARE and ACORD?
  (Mr Macgowan) My colleague here actually runs the ACORD Initiative and would therefore be best able to tell you precisely what that relationship is made up of and the SMMT is responsible for it.
  (Mr Franklin) Over many years CARE and ACORD have had a very good relationship with all the other associations. CARE has done a lot of work in doing trials on dismantling and doing studies to see at what level of dismantling a vehicle extra material is gained from it and whether, in fact, it is better to go into the shredder room and make post shredder recovery. There is an enormous amount of work that has gone on. We have done trials that show the more you strip a vehicle you may only gain two per cent rather than going the route which is direct to the shredder.
  (Mr Macgowan) I think the technology is fairly well advanced and understood as to what is the most efficient way. Against that background it is the case that we have a responsibility to year on year produce vehicles that are more and more recyclable and I think the evidence is clear that we are doing that.

  74. What discussions have you had with other economic operators about how the Directive should be implemented?
  (Mr Macgowan) We have spoken to all of the parties involved.

  75. Everybody?
  (Mr Macgowan) Yes. Our discussions in some cases are at a very advanced level, others more recent. We are in touch with all of the economic operators.

  76. Have there been any conclusions out of that?
  (Mr Macgowan) No, I do not think so. Fundamentally we were somewhat disappointed with the consultation paper that the DTI put out because whilst the three options they put forward all have merit, and we are not in any way criticising any one of those options in particular, we just felt that there were some more imaginative solutions available, which is how, after many, months of consultation, we came to evolve Option 4.

  77. Can I just take you back to something you said earlier. You mentioned the worries about Rover, and I agree with you, but surely there ought to be some responsibility on BMW, they ought not to quite get away so easily?
  (Mr Macgowan) When I talk about the worries of Rover it has to be in the context of the fact that MG Rover Group is, as we all know, on an absolute successful path.

  78. Yes.
  (Mr Macgowan) And I would hate you to get the impression that I was singling them out as being vulnerable because that is not what I am saying. I am saying that there are companies like MG Rover that do have quite a large number of models in the vehicle parc for which they do have a responsibility, or would do under the terms of this legislation. I am saying that those companies that have a big percentage of vehicles in the parc, of which MG Rover is just but one, are obviously likely to be gravely affected. I do not think I am in any way in a position to comment on what happens to companies that have sold other companies. With due respect, I think you could get yourself into a terrible muddle trying to backtrack as to who owned whom over the years at what particular time. I suspect that this piece of environmental legislation has to rest with the current operators.

  79. I totally agree with that. The only thing I would say is that this sale did not take place too long ago when everybody knew that this was going to happen so hopefully BMW's responsibilities will be there.
  (Mr Macgowan) Yes.


 
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