Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 80 - 99)

TUESDAY 23 OCTOBER 2001

MR CHRISTOPHER MACGOWAN, MR PAUL EVERITT AND MR STEVE FRANKLIN

Linda Perham

  80. You have noted that the DVLA needs to introduce a better system for de-registration, and I think we would all agree with that. How do you see the Certificates of Destruction working?
  (Mr Macgowan) The Certificate of Destruction is absolutely crucial to the whole process. Again, this is absolutely in Paul's area and, if you do not mind, I will ask him to specifically answer that question.
  (Mr Everitt) Clearly aside from the abandoned vehicle problem, which we think needs best addressing by DVLA and actually tightening up the registration and de-registration process, the Certificate of Destruction is important to sign off the responsibility of the final owner and also to track the vehicle through the treatment chain so we can know at the end of the day how many vehicles have been treated, how much has been recycled, how much has been recovered, etc., etc. We believe that there should be a two stage Certificate of Destruction. One, when the final owner hands over the vehicle to a treatment facility to signify, if you like, that the owner has acted responsibly. Second, when the vehicle is actually destroyed. We were somewhat amused and somewhat alarmed to find in the consultation document it talks about whether or not we think vehicles should come back on the road after a Certificate of Destruction has been issued. There does seem little point in issuing a Certificate of Destruction if those vehicles can come back on the road. We absolutely need a foolproof system to ensure that once a vehicle is handed in there is clear proof that that vehicle has actually been put beyond use and, therefore, that is a two stage process.
  (Mr Macgowan) Although we are appearing before you in an automotive context, and rightly so, I think that Option 4 has the great benefit of being an option that would apply to other sectors as well. We do think there are people who are talented at dealing with the destruction of product and, therefore, Option 4 gives us this opportunity, hence the Certificate of Destruction. Although we are talking to you today in an automotive context, we actually believe that this type of approach will end up being appropriate for other sectors when eventually they too find that they are in line for their particular ELV legislation which undoubtedly will come and come across many other sectors.

  81. At what point would the last owner of the vehicle get the Certificate of Destruction? Would they get it from the dismantler or when it is finally shredded?
  (Mr Everitt) Under our option they would have to get it from DVLA. Basically they would get a receipt from the authorised treatment facility and once the paperwork had gone through the shredder would sign off the documents to DVLA and the DVLA would issue the Certificate of Destruction.
  (Mr Macgowan) That was why I thought there was some confusion earlier on about when does a vehicle become an ELV. It is terribly, terribly clear when a vehicle becomes an ELV. It becomes an ELV at the point that depollution starts. It is when that first thing occurs, that is when a vehicle becomes an ELV, no doubt about that.

  82. The DVLA is currently doing a trial of electronic systems and I do not know what you think about that but it certainly sounds a better option than paper at the moment, does it not?
  (Mr Macgowan) The DVLA, as you know only too well, is involved in a number of electronic transmissions. For instance, 75 per cent of all cars when they are newly registered, it is an electronic process now. They are geared up to look at that kind of process and the pilot programme looks to be very good. It is absolutely crucial that de-registration works and is seen to be effective. Under our Option 4, the combination of an effective de-registration process, coupled with our ability to come to the party from 2002 in terms of underwriting costs, will result in the abandoned vehicle problem, which is a social problem that we all struggle with, being reduced, we believe.

  Linda Perham: I welcome that.

Mrs Lawrence

  83. I was very interested to hear what you said about the idea of a two stage Destruction Certificate and I was going to raise two points, one of which you have addressed which was the abandoned vehicles. Can you give an outline of why you think it would help on that? The other is the potential perhaps for cut and shut vehicles, dealing with that as a problem. Have you looked at the possibility of a two stage Certificate having a positive impact on preventing that?
  (Mr Franklin) I will take your second point first, the business of cut and shut vehicles. The Vehicle Crime Act is also very much dependent on the Certificate of Destruction and it is very clear that they do not want vehicles to come back on the road once a Certificate of Destruction has been issued. A lot of the vehicles that you see as abandoned are also untaxed, unregistered, probably uninsured, and there are over one million of them. There are very compelling reasons, other than just the ELV Directive, for these vehicles to get themselves into the system and be recognised: congestion charging in London, speed cameras, etc., all sorts of associations with crime that could be linked to these vehicles. The CoD is vital and a better de-registration and registration system.
  (Mr Macgowan) As regards why we think that Option 4 will address a matter which is not actually part of the ELV Directive—People often say to me "is this Directive all about dealing with abandoned vehicles?" It comes into it but, as you know, it is all about reducing waste going to landfill sites primarily. Funnily enough, I was coming into the office this morning and I passed on the Seven Sisters Road a vehicle that has been sitting on the Seven Sisters Road pavement certainly for the best part of a week as far as I am aware. It is actually a fairly modern vehicle and, although I am not a complete expert in end of life vehicle values, I would say it has a value. At the present moment there are all kinds of problems in dealing with that vehicle: the local authority is overstretched, etc. Our option offers the possibility of market forces coming into play and an enterprising dismantler driving past that same vehicle would see that and say "there is an opportunity for me there, I could arrange to get that vehicle gathered up. I will contact the police, I will contact the local authority, there is a value in that vehicle" and if he or she is enterprising, which they will be because of competitive forces, there will be an incentive to do something about it from the industry end. Frankly, we believe that is the greatest single merit in our option, that market forces will be encouraged in that area. We cannot guarantee that it will sweep away what is a ghastly social problem. As my colleague says, on so many of these vehicles the owner has no intention of insuring it, doing anything with it at all. I do not think any of us have a magic wand to wave on that but we do think that our option will reduce abandoned vehicle problems.

Mr Berry

  84. I can see the attraction of Option 4 but I can also see the particular attractions to yourselves. In one sense your proposal lists a range of responsibilities for dismantlers, shredders and so on, but could you clarify for us in a bit more detail what the responsibility of manufacturers would be under this regime?
  (Mr Macgowan) I think that the responsibility of manufacturers has been in place for a long, long time. I mentioned that Steve is with our Vehicle Recycling Unit at the SMMT. This is an area that we have been working on for donkey's years, as have manufacturers. We believe that we are meeting our responsibilities already by basically designing vehicles that are fit for reverse manufacturing. We believe that we are in the process already. We think that this legislation, when we absolutely have to and want to—a very important point I would argue—meet our obligations are there for all to see, there is no wriggling on this issue at all. The point is that there is in place a mechanism for dealing with old vehicles and we would just like to see that sector, ie dismantlers and shredders, really being looked at in just the same way as we look at component manufacturers who supply things to us, dealers who do a fabulous sales job for us. We would like to see those companies being as subjected to market forces as, for instance, component manufacturers are, as opposed to being mothballed in some legislative cocoon where there is no incentive on them to do anything at all other than sit there and mop up these cars.
  (Mr Franklin) Just to add some of the other things the motor industry is doing, although I think Chris has ably described most of them. We are actively engaged in the design for recycling. That also includes as part of the Directive to eliminate heavy metals, which we have got to do by 2003. That is an enormous cost and task because we have to do it to current vehicles, not just new vehicles coming on stream. Anything that is currently produced and sold from 2003 onwards will have to meet these very vigorous requirements and, frankly, we are unsure no matter how much money we spend that we are going to completely meet them, but that is our obligation to try. We are already marking component parts so they are easily identifiable and making things more easily detachable when it comes to the dismantling stage. As of 2005 it is a requirement in the Directive once again that we will have to type approve a vehicle to say that it is 95 per cent recyclable. There is a massive amount of work that is happening in the technology centres of the industry. There are still things we can do in the collection network, going back to the other end. We would probably have a responsibility to make people aware of where they can take their vehicles, maybe there will be a hotline that people can phone and we could help and assist in the publication of that.

  85. How, under your Option 4, do the dismantlers and shredders get paid properly and efficiently, speedily?
  (Mr Macgowan) In terms of if there was a deficit after a period of time?

  86. Yes.
  (Mr Everitt) At the moment we are looking at a situation where we are looking for a flexible system so that manufacturers will look to take up the responsibilities implied by their brands in a variety of different ways. It may be that certain manufacturers, certain brands, will want to step in and say "Okay, we are going to set up our own collection network because our particular vehicles have some special value". Others will just look to step in and say "Fair enough, we will hand over the money". At this moment we are not looking to be too prescriptive at this particular stage. Clearly at the moment we are in the relatively early stages of discussions with the dismantlers and the shredders as to how we can best make this work.

  87. Arguably your proposal really passes the burden of responsibility—I have not even said it yet. Is that a guilty conscience?
  (Mr Macgowan) Not at all.

  88. I can see the economic logic of Option 4, I am not asking being dogmatically hostile but you are passing a substantial part of the responsibility, notwithstanding what you said about your obligations, from big business to what are essentially small businesses. I asked the question how do they get paid when they need to get paid quickly and you said "we will need to be flexible about it".
  (Mr Macgowan) With respect, we would not come before this Committee unless we had a fair, high level of accuracy in what we have said. We have got an independent consultancy who have done a study which indicates that even with the increased costs of having to depollute these vehicles shredders are making, and will make, a return. All we are saying is why should this industry of ours be saddled in this one area with a position that ignores market forces? We work in an industry, as our Chairman is prone to remind us on a very regular basis, where market forces must be at work and they must be at work in this area as well and we should not be denied that opportunity.
  (Mr Everitt) I do not think there is any suggestion that there would be any reason why we would not want to ensure that works speedily. Essentially we were in a position where we were looking at the three options put forward by Government and found them not totally satisfactory and have acted reasonably speedily in drawing together an alternative that does meet most of the requirements certainly the manufacturers have put down and we believe will meet the requirements of dismantlers and shredders as well.
  (Mr Macgowan) In just the same way that there has been a huge amount of information around on what the cost of this is all going to be we have obviously, as you would expect, been involved in a huge amount of work on typical costs. We have seen extraordinary figures like £300, £400 and our research indicates that the typical cost is £45.

  Mr Berry: I note your comment on market forces. Thank you.

Sir Robert Smith

  89. You talked about reverse engineering earlier, trying to build in recyclability. We heard in earlier evidence about how quite a valuable car involved in quite a major accident, both airbags go off, is an economic write-off. Is there any work that is being done in the industry to try to reduce that step function that a minor accident becomes a major economic write-off?
  (Mr Franklin) It is a problem with modern day cars that things like an airbag could render it a write-off. The form that the insurance industry uses takes 60 per cent of the pre-accident value of the vehicle and if repair costs come to more than that then it is a write-off. Clearly this is where those types of vehicles move down a few echelons and, rather than being repaired in authorised dealers, start being repaired in some other area. The question as to whether automotive companies can do something about it, I think somebody suggested that we have cheaper airbags. As an airbag deploys it causes damage to the trim around it which means you may end up replacing more than just the airbag. This is a feature of one of the conflicting obligations that the motor industry has to design recyclability, meet safety requirements and all the other obligations it has upon it. Obviously these things are constantly looked at.

  90. So it can move down market and come back in?
  (Mr Everitt) Yes.

  91. You have given an option where maybe this question from your point of view does not make sense because you see it as a no cost option, but if there are costs to be met for processing ELVs, how do you see they could be allocated between the manufacturers and others? Ford have come up with the idea that 50 per cent should be picked up by them. Does your Association have a view as a whole?
  (Mr Macgowan) Clearly Option 4 illustrates that when there is a cost, if there is a cost, at the end of the whole shredding process the industry will pick that up. As regards individual companies, yes, I am sure they do have their own variations on a theme. I seem to have mentioned a specialist company once or twice, I will not do it again, but companies like that do not believe they have to worry about a cost at all. Option 4 has total manufacturer support, including the financing of it.

Linda Perham

  92. With Option 4 you are talking to Government sources about that, are you optimistic that will be accepted as a compromise at this stage?
  (Mr Macgowan) I think that in the meetings we have with the DTI and others they are very sensitive to the fact that they have no desire to implement this Directive in what is usually referred to as a gold-plated manner. I am optimistic that they will see merit in this option. In fairness to the DTI, their consultation paper came out relatively recently and, therefore, they will have only very relatively recently seen Option 4 in all its glory. We have got to give them time. It has the overwhelming benefit of doing two things. It has industry support, manufacturer support, and we believe deals with the position from 2002. That was our biggest worry, and is still our biggest worry, that the UK Government will in some way introduce this legislation in an aggressive way and a far more aggressive way than the way that, for instance, France and Germany appear to be thinking of now. I think we are optimistic that Option 4 will be given a very, very good hearing. It also has the merit of being the only sensible option on the table as far as the DTI is concerned right now.

Jonathan Djanogly

  93. It has been suggested that the costs of the ELVs could be built into the initial purchase price. What would you say to that?
  (Mr Macgowan) I do not think that is feasible. The Directive makes it quite clear that manufacturers must bear a significant part of all the costs of providing cost free take-back. Those Member States that have implemented schemes like an increased tax disc, that really flies in the face of the thrust of the Directive where the responsibility rests with the manufacturer. We understand that it does and we are not in any way trying to avoid that. Will manufacturers increase the cost of product to the consumer as a result? That is an accusation that is frequently made "Oh, it will just be passed on to the consumer", but the reality is that very rarely happens and, indeed, the prices across the whole of Europe, not just the UK, are under extreme pressure. What we try to do is actually make the people who provide a service to us more and more efficient so that costs go down and we can then become more efficient so that costs go down. I do not think that the idea of "Oh, well, we will just pass the cost on to the consumer" is viable. Firstly, it would be inappropriate under the spirit of the Directive and, secondly, it is just not realistic, you cannot just do that. There was a time perhaps 20 years ago when you could do it but not now, the cost pressures are downwards. That is why we want to see the shredders and the dismantlers subjected to that kind of market force which the rest of us are subjected to.

  94. Presumably also manufacturing sub-contractors would be expected to take up some of the cost? Have there been discussions going on on that basis?
  (Mr Macgowan) Yes. For instance, if you were to go today to any of the major component manufacturers you would find that they are already hugely involved and engaged in re-manufacturing. There are tonnes of components coming back which then get re-manufactured to as new condition and are subsequently used. That is where the investment has been. They are all involved and they too would like to see a competitive recycling industry so that they can keep their costs under control.

  95. So is it basically the manufacturers' view that as between the manufacturers and the sub-contractors, in other words everyone except the customer, everyone will take a bit of the pain? Is that what you are getting at?
  (Mr Macgowan) Yes, I think that is the reality. You know the wording in the Directive and we have to sign up to that. We want to.

Mr Berry

  96. Specifically on that point. Of course part of the cost will be passed on to the consumer, as your head of economics will advise you, it depends on market conditions. It is only in extreme circumstances that no costs will be passed on, which we will not go into in our conversation. Let us be clear about this. It is very kind of you to say that all of the costs will fall on the producer but in reality, unless the market is extremely poor and unless demand is incredibly price sensitive, part of that cost will be passed on to the consumer, that is how free markets work.
  (Mr Macgowan) I was trying to draw the distinction between the question I was asked as to whether or not a cost would be passed on to the consumer in the way, for instance, that is done in Denmark where they elected to increase the cost of the annual fee for putting a car on the road, the insurance cost, and that became a pot where a clear definable cost has been added to an insurance policy to cover this. I do not believe that is what will happen. I have no doubt you are right that some element of cost does stray through in the final analysis but not as a separate item.

  97. You accept, therefore, looking at who hands over the cash is no measure of who actually picks up the cost burden, that is all I am saying. That is the case, is it not?
  (Mr Macgowan) No, I do not believe that is the case.

  Mr Berry: Have a chat with Mr Everitt, I am sure you will find that it is.

Sir Robert Smith

  98. Can I come back to my question and clarify that when you are speaking for the whole industry of manufacturers you are talking about manufacturers picking up the whole cost?
  (Mr Macgowan) We are talking about sharing the cost.

  99. With?
  (Mr Macgowan) As we say in Option 4.


 
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