Select Committee on Trade and Industry Appendices to the Minutes of Evidence


APPENDIX 1

Memorandum by the Ford Motor Company

THE ECONOMIC IMPACT OF THE END OF LIFE VEHICLES DIRECTIVE

I.  INTRODUCTION

  Ford Motor Company welcomes the opportunity to submit its comments on the economic impact of the End of Life Vehicles Directive to the House of Commons Trade and Industry Select Committee.

  Ford Motor Company submission is on behalf of Ford Motor Company UK, Jaguar Land Rover, Volvo Cars and Mazda.

  Ford Motor Company is the biggest employer in the British Automotive industry employing around 39,000 people.

  Ford Motor Company supports the submission made by the SMMT and has been actively involved in the analysis and preparation of the SMMT submission. Ford Motor Company comments must be seen as complimentary to the SMMT submission.

II.  KEY FEATURES OF THE ELV DIRECTIVE

  The ELV Directive aims to reduce the amount of waste from end of life vehicles. In particular, the ELV Directive includes the following main provisions:

    —  Member States must ensure that ELVs can be scrapped by authorised dismantlers or shredders, who must meet tightened environmental treatment standards from the outset;

    —  Member States must ensure that economic operators (this term includes producers, motor vehicle insurance companies, dismantlers, shredders, recoverers, recyclers) establish adequate systems for the collection of ELVs from the outset;

    —  Member States must ensure that the last owners/holders are able to deliver their vehicles free of charge to authorised treatment facilities. It also allows Member States to stipulate that the delivery is not fully free of charge if the end-of-life vehicle does not contain the essential components of the vehicle.

    —  Member States must ensure that producers (vehicle manufacturers or importers) will meet all or a significant part of the costs of this free take back for ELVs having no or a negative market value. This responsibility commences at least from 1 July 2002 for all new vehicles put on the market after this date and at least from 1 January 2007 for all vehicles put on the market before 1 July 2002.

    —  Member States must require economic operators to attain reuse and recovery targets by 2006 (85 per cent) and 2015 (95 per cent).

III.  GENERAL FORD MOTOR COMPANY COMMENTS

  Ford Motor Company urges the UK government to take into account the following basic principles in considering the implementation of the ELV Directive into UK law:

    A system which implements the free take back of ELVs and other obligations in line with dates included in the ELV Directive (other EU countries have indicated that they will adhere to the dates stipulated in the ELV (Directive).

    A system, which avoids the obligation for producers to book one-off reserves for the historic car park.

    Financial responsibility for producers not exceeding 50 per cent of the ELV take-back costs.

    Financial responsibility for producers to be limited to ELVs with zero or negative value.

    Flexible system to allow competition between treatment operators and to minimise the ELV costs and a mechanism which will ensure the lowest cost solution for ELV treatment.

    The last owner must be responsible for delivery of the ELV to an authorised collection point.

    Any system must have audit proof processes.

    Any system must be easy to administer and must be transparent.

    A system which does not require existing producers to pay for orphan brands, as the economic entities that benefited from the life of the vehicles are the original producer or distributor, the UK government insurance companies and the repair network.

IV.  UK GOVERNMENT OPTIONS

Option 1—Individual Brand and/or Collective Brand ELV Schemes

    —  Producers are legally responsible to set up ELV networks for their own brand.

    —  Producers have the option to create their own treatment network or contract with authorised operators.

    —  Producers have the option to create an alliance with other producers (collective network).

Option 2—Permits/Tonnage Targets ELV Schemes

    —  All facilities holding a permit must take back any ELV.

    —  Each producer will have to meet a tonnage target (recovery/recycling/reuse).

    —  The tonnage targets are set by producer either according to current market share or number of vehicles de-registered in the previous year.

    —  Each producer must purchase "Vehicle Recovery Notices" (VRNs) to justify the tonnage target at year end (VRN trading on the open market is another option).

Option 3—Combination Option 1 and 2

    —  Option 2 to be applied to the historic car park (tonnage targets—VRNs).

    —  For "new" vehicles, each producer/importer to pay a bond into an individual or collective fund.

    —  Each producer is allowed to determine the level of the bond with auditing arrangements to safeguard against under-setting the bond.

V.  FORD MOTOR COMPANY COMMENTS ON UK GOVERNMENT OPTIONS

  Option 1 is close to a free-market ELV network system because producers have the flexibility to set up both collective and brand specific ELV network systems. It also allows producers to contract with selected treatment operators. This will enhance the control on cost and material flows.

However, Option 1 places an unacceptable high financial burden on Producers.

    —  Producers are required to book one-time reserves for the historic car park; the reported profit and loss account will be adversely affected, as will the creditworthiness of the balance sheet. Loan covenants breaches may as a consequence arise, trigger immediate debt repayment, higher financing costs or both. This effect, plus the crystallisation of the liability, could very possibly result in insolvency.

    —  Producers are liable to meet the costs for all ELVs while the ELV Directive obliges producers to bear all or a significant part of the costs of taking back ELVs with zero or negative value.

    —  Producers are financially responsible for ELVs of orphan brands.

    —  Producers have to bear all the costs of setting up collection systems whereas the ELV Directive places this burden on all treatment operators; cars are being collected today without the intervention of producers.

Option 2 has a number of disadvantages from an operational and business point of view:

    —  The tonnage target setting process will be very complex and likely inaccurate. The material content of every vehicle varies widely based on items such as the engine, transmission and options. In addition, the real ELV weight differs from the weight at type approval due to additional waste in the vehicle and different liquid levels;

    —  The VRN system will not create any incentives for re-processors to invest in new ELV treatment technologies in order to become more efficient. The risk is high that re-processors will restrict the supply of VRNs and keep the price high instead of investing in R&D and new facilities; Hence, as the recovery targets for ELVs will increase from 85 per cent to 95 per cent and the re-producers have no incentive to invest, the VRN system will increase costs without having the desired effect of increased material re-utilisation.

    —  The VRN system will result in trading and speculation of VRNs as "commodities" which will make it difficult for the car industry and treatment operators to plan the future financial condition of the business; careful financial planning is a major condition for negotiating loans; for example, the price for PRNs in the packaging industry has fluctuated in its first year by more than 50 per cent;

    —  The VRN system will generate significant added costs due to increased bureaucracy. For example, the PRN system for the packaging industry requires a minimum of 3 per cent to 5 per cent of revenue as overhead costs in addition to high administration costs linked to reporting requirements; the monitoring costs for the ELV treatment in the car industry will be significantly higher than in the packaging industry due to (i) higher recovery targets—85 per cent and 95 per cent—vs 50 per cent in the packaging industry, and (ii) the need to treat a much higher number of material compositions compares to the packaging industry (only paper, glass, aluminium, steel and plastic);

    —  The disadvantages of option three (tonnage targets—VRNs) with regard to the historic car park are the same as listed under option two. In addition, the VRN system in option three will require a one-time reserves for the historic car park as the VRNs are clearly linked to past sales.

    —  Option three with regard to "new" vehicles (bond/levy system) will increase operational process complexity due to the bond administration. It will also drain cash (or reduces credit lines) from producers ten plus years earlier than necessary. This cash (or credit line) would be dormant instead of being used productively for the UK economy and the development of VMs.

VI.  FORD MOTOR COMPANY PROPOSAL—NEW OPTION FOUR

  Ford Motor Company believes that none of the Government options is satisfactory either from a financial, operational or business point of view. Therefore, Ford Motor Company urges the Government to consider new options. The options described hereunder has all of the advantages of option one and overcomes the disadvantages of options one, two and three.

1.  Key Features of New Option Four

  Last owner/holder has the responsibility of delivery a vehicle intended for destruction (ELV) to an authorised dismantler or authorised shredder.

  An authorised dismantler has the option whether to accept or reject the ELV. If the authorised dismantler accepts the ELV, it has to accept it free of charge from the last holder/owner. ELVs accepted by authorised dismantlers are presumed to have a "positive value" as the parts will be resold. Hence, producers and importers have no financial responsibility for these ELVs. Attachment one includes a list of responsibilities to be fulfilled by authorised dismantlers.

  Authorised shredders have the obligation to accept all ELVs directly from last owners/holders free of charge but only if the vehicle in complete (core parts must be present). The authorised shredder will increase their business and revenue as they will be able to treat more ELVs and importantly more complete ELVs than today. Attachment one includes a list of responsibilities to be fulfilled by authorised shredders.

  ELVs delivered by authorised dismantlers to authorised shredders need to be contracted directly between dismantlers and these shredders. Producers and importers have no financial obligation on these ELVs.

  Any vehicle delivered to an authorised dismantler or shredder is considered to be an ELV when the treatment process (de-pollution, dismantling, shredding . . . ) starts.

  In the event of an assessment of a deficit for processing complete ELVs at authorised shredders (a deficit occurs when the costs in processing complete ELVs as per the ELV Directive are not covered by the total revenue derived from complete ELVs), each producer must organise free take back for a set number of vehicles, in accordance with the methods it judges appropriate.

  The number of vehicles to be taken back by producers when such deficit has been determined, could be the number of brand specific ELVs or alternatively could be set by the government on an annual basis for the next twelve months based on the formula A*B (A is the prediction of total ELVs to be scrapped in the year in question less ELVs of orphan brands and B is current market share of the producer/importer).

  Under any circumstances, the certification of deficit will be made by an independent third party jointly appointed by producers, importers, authorised shredders and government representatives.

  If a deficit is determined for the authorised shredders as described above, the government will share the costs of organising free take back for all vehicles (as previously communicated to vehicle manufacturers by the government).

  The producers may delegate to appropriate bodies, to authorised dismantlers or to authorised shredders, the above obligation based on mutual agreement.

  Insurance companies as economic operators are required to organise their own take back systems for vehicles under their control according to the method they deem fit. Producers/importers have no financial responsibility for these ELVs.

  The reuse/recycling and recovery targets have to be met by the treatment operators on average for the totality of the ELVs processed on an annual basis.

2.  Advantages New Option Four

  Option four allows the last owner/holder to freely decide at which authorised treatment operator he returns his ELV.

  Option four allows the last owner/holder to deliver a vehicle to an authorised dismantler/shredder at no cost as a result of the vehicle having zero or negative value.

  Option four promotes a free-market driven ELV network system as in option one.

  Option four uses a market mechanism to distinguish between ELVs with positive value and those with negative or zero value.

  Option four encourages competition amongst treatment operators.

  Option four shares the burden with all treatment operators including producers.

  Option four ensures that producers assume their financial responsibility (all or significant part of the take back costs)—with government participation—when a deficit is established.

  Option four avoids the obligation for producers to book one-time reserves for the historic car park, if the number producers are responsible for is set by the Government annually as described earlier.


 
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