In every industry, there are key economic factors, commodity prices and demand variables that affect day-to-day operations. In the automotive industry, especially in the salvage business, one of those important factors is scrap metal pricing. Platinum, palladium, aluminum and other metals play a part, but even with new, innovative materials being used for automobile structure, the most important metal is still steel.
The price of steel (in this case, crushed auto bodies) varies based on global supply and demand, just like any other commodity. In the automotive salvage industry, steel is king because it determines how much extra value a vehicle can bring in after all the viable recycled parts are removed. This, in turn, determines what the vehicle may be able to bring at auction. Even though we’re talking about cars, crushed auto scrap prices can be thought of as the “tide that lifts all boats” in the automotive industry. When steel prices are up, salvage vehicle prices tend to go up and vehicles move through the salvage cycle quickly. When steel prices are down, it may take longer as different parts of the supply chain brace themselves for the downturn.
It is also important to watch scrap prices to explain why business is running smoothly or facing headwinds. For example, when steel prices go up, salvage yards may liquidate excess crushed automobile scrap. This creates more space in the yard and potentially more dollars in the budget, so auctions may see an increase in vehicles purchased or in ASPs. It is always important to know not just the “what” but the “why” as well, even when times are good. So, with all of this in mind, watch scrap metal prices each month, knowing that higher prices mean a sigh of relief across the entire industry.