Automobile Engine Recycling Industry and Market Opportunities

Automobile Engine Recycling Industry and Market Opportunities

Anurag Aggarwal, Brennan Avery, Loan Bui, Vivek Sridhar

SCM 5502

March 5, 2015

Table of Contents

Executive Summary        

Recycling and Remanufacturing Processes        

Engine Salvage        

Engine Remanufacturing        

Remanufactured v. New: Cost and Environmental Comparison        

Overview of the Industry        

Business Opportunities        

Overview of Concept        

Scope of Operations        

Location Preference        

Operations        

Warehousing        

Extending the Business        

References        

Executive Summary

        With the high volume of vehicles being recycled in the United States per year, there is substantial opportunity to salvage equally large volumes of individual parts and major components. An automobile engine can be cannibalized for parts, repaired to operational condition, or can even be remanufactured in order to function at a level comparable to a new engine. The remanufacturing of engines involves restoring engines to like-new condition rather than simply returning them to an operable capability. While Oklahoma itself has a relatively small to moderate engine remanufacturing industry in place, its low cost of business, central location in the U.S., and proximity to the strong remanufacturing economy of Texas make it a good location for a business focusing on the remanufacturing aspect of automobile engine recycling. In addition, given the current level of competition in Oklahoma, efficient business practices coupled with the establishment of integrated business processes and outsourcing of logistics may allow for our business model to emerge as a market leader. Our business concept involves sourcing remanufactured engines from remanufacturers and reselling them. By focusing on sourcing our engines from remanufacturers engaging in environmental practices such as minimum part replacement, our business may be able to set itself apart from other remanufactured engine sellers in Oklahoma and the United States as many remanufactured engines involve the less environmental maximum part replacement techniques used by high-volume factories.

Recycling and Remanufacturing Processes

Engine Salvage

The engine lifecycle has six major stages: material production, parts production, engine manufacturing, engine installation, use and service, and end-of-life management (Smith & Keoleian, 2004, p. 198). An engine’s end-of-life can take several routes. If an engine is in good condition, it might be repaired or remanufactured so that is can be sold to a vehicle owner, factory, or dealer. The alternative is for the engine to be salvaged for individual parts that can be housed, sold, or used in repair or restoration jobs.

In the recycling of automobiles, four main steps are involved: dismantling, crushing, shredding, and resource recovery. Dismantling pertains to the draining of fluids and the recovery of usable parts from the vehicle. The bulk of the car is then crushed in the processor and later routed to the shedder. Resource recovery refers to the process of sorting the ferrous, non-ferrous shredded pieces, and auto-shredder residue (ASR); afterwards, the ASR is disposed of while the metals are sent to mills for melting (EPA, 2012). The market for automobile engine recycling opportunities involves dismantling and the activities that follow.

        In the automobile engine recycling process, an opportunity exists at this initial vehicle salvaging stage for the collection and resale of dry (fluids drained) or fluid-filled engines. According to the Automotive Recyclers Association (ARA), the sellers of automobile engines are required to maintain documentation regarding the inspection of fluids and cases and the condition of the engine and major mechanical parts. Among other requirements, the ARA also requires specific descriptions, accurate condition, and information regarding the sourced vehicle in order for transactions to take place (2015).

        Following the initial extraction of the engine from the vehicle, the salvager has alternatives of selling the entire engine, salvaging and reselling engine parts, or exploring a value-adding business opportunity such as remanufacturing. Nevertheless, these options are not exclusive to the original upstream engine salvager; for instance, a downstream job shop could purchase an engine for restoration, repair, or further decomposition.

Engine Remanufacturing        

Remanufacturing is an option that involves the restoration of an old or broken engine to the “functional equivalent of a new engine at much lower environmental and economical costs” compared to manufacturing an entirely new engine. Remanufacturing is not “recycling” in the sense that it retains some of the value from the original engine fabrication and is not “repair” in the sense that it is fully restored rather simply made operational (Smith & Keoleian, 2004, p. 193-194). Remanufacturing can involve several routes based on the condition of the individual parts. The parts in the engine can be classified as new, remanufactured, or dependent. New parts are the engine components that are always replaced during remanufacturing while remanufactured parts are those components that usually have limited damage and can be restored. In contrast, dependent parts can be either replaced or restored depending on the condition. While there are numerous approaches to dealing with engine restoration, three basic routes can be considered. Minimum part replacement assumes that all dependent parts are in good condition and can be remanufactured rather than replaced. Total part replacement assumes that all dependent parts must be replaced with new parts. The most economically and environmentally costly of these options is maximum part replacement, which involves replacing all parts except for the four major castings: the crankshaft, connecting rods, cylinder head, and cylinder block (Smith & Keoleian, 2004, p. 196-198).