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Fri, Jun 23, 2000
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Ford Enters Auto Recycling Business
By Brian S. Akre  Associated Press
DEARBORN, Mich. — While Ford Motor Co. works to take market share from rivals General Motors Corp. and DaimlerChrysler AG, it is also aiming at a much less lofty, but perhaps equally challenging, goal: to become the global leader in recycled car and truck parts.

An auto recycling center bought by the Ford Motor Co. in Tampa, Fla., is shown. Ford Motor Co. plans to create a global chain of auto parts recycling centers that it expects to generate $1 billion in revenue within a few years.

What Ford envisions is a global chain of auto parts recycling centers that generates $1 billion in revenue within a few years. The move could spur rapid consolidation of the largely family-owned auto junkyard business.

The world's No. 2 automaker expects the technology and economies of scale that it will bring to the business will lower the wholesale cost of used parts for the primary customers: insurers and repair shops.

Ford executives said Monday that they already have bought one auto recycling center in Tampa, Fla., and are in talks to acquire many others across North America in the coming weeks. The still-unnamed business will operate as a wholly owned subsidiary.

"We're here to revolutionize the industry, to create a Fortune 1000 company from scratch to become a global, environmentally focused powerhouse," said William Li, the 29-year-old chief operating officer of the new enterprise.

Ford's move also is part of its campaign to be seen as the world's most environmentally sensitive automaker. Li said Ford wants to increase the amount of a junked car that is recycled to 95 percent from the current average of 80 percent, thereby reducing the amount of scrap that goes into dumps.

The move fits into new president Jac Nasser's strategy to expand Ford's role into businesses that bring in revenue throughout a car's life cycle.

"He zealously believes in the focus on the customer and the total life cycle of the car, and he's really supporting it with this kind of investment," said David Cole, an industry expert at the University of Michigan.

Ford also operates Visteon Automotive Systems, its parts-making unit; Ford Credit; and the global Hertz rental-car operation. Earlier this month it bought Europe's largest independent auto repair chain, Kwik-Fit, for $1.6 billion.

The move goes against the strategy of some other automakers, namely General Motors, to divest related businesses and focus on manufacturing. The history of U.S. automakers' investments in outside businesses is littered with failures.

The used parts business today consists of about 10,000 mostly small, family-run operations. They range from traditional auto junkyards — where do-it-yourselfers and repair shops go to hunt for parts amid rows of rusting wrecks — to clean, highly organized automotive recycling plants.

Ford's investment will lean toward the latter. Part of the new business will be built through acquisitions. The first purchase, in March, was Copher Brothers Auto Parts in Tampa, Fla., a state-of-the-art recycling operation that serves central Florida. Ford plans to expand the operation and eventually use it to recycle parts from Ford plants as well.

Cole said the used parts business, while fragmented, has become highly sophisticated with large regional operations and profit margins well above those in auto manufacturing. There's no shortage of business: about 11 million vehicles are scrapped annually in the United States alone.

"Getting a player like Ford in, that's a big-time change," Cole said.

Ford plans to set up a nationwide, computerized parts inventory and shipping system that it expects will significantly reduce the time it takes a repair shop to get a used part. That will help dealers and Ford's primary customers: those who own Ford cars and trucks.

Ford also said its recycling centers will have retail stores to serve the do-it-yourself mechanic, even though that's a dwindling market.

The biggest beneficiary is likely to be the insurance industry, which will have a big, new customer for wrecked vehicles and a new source from which to buy replacement parts.

Li said other big companies also are looking at getting into the business, which could lead to more rapid consolidation. He declined to identify them.

William Steinkuller, executive vice president of the Automotive Recyclers Association, said an investment group in Chicago has been buying up auto recyclers over the past year, but that Ford's investment is the first of its kind by an automaker.

Ford so far has declined to discuss its plans with his group, which has about 2,000 members in 19 countries, he said. "Obviously, consolidation in the auto recycling industry is a significant issue with us. We're anxious to talk to Ford about what their plans are."

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