I International Conference

ECOLOGY OF URBAN AREAS 2011

Zrenjanin, Hunting Manor, 30th September 2011.

ANALYSIS OF ECONOMIC POTENTIAL OF THE END-OF-LIFE VEHICLE MARKET IN SERBIA

Duko Medi The Center for Sustainable Communities, Serbia dusko.medic@gmail.com ABSTRACT The work Analysis of Economic Potential of the End-Of-Life Vehicle Market in Serbia presents an analysis of key factors of management of used car market in Republic of Serbia. It explores the interdependency of market factors in shaping the demand and supply ELV recycling. The work also examines the feasibility and optimal functioning of recycling and estimates the economic potential of ELV recycling system and necessary investments. The paper uses life-cycle analysis of ELV and Life Cycle Costing of ELV recycling; it calculates the amount of generated solid waste and shredder residues. The work shows that the domestic market demand for the ELV recycling of secondary raw materials is large enough for materials that would arise with increased level of recycling in Serbia from 14% to the European level of 75%. ELV Recycling system in Serbia needs necessary investment of 24 million euros at ten plants with the optimal capacity of the shredder treatment of ELV 10,000 / year. Analysis of the financial operations of the collection, and process of dismantling and shredding in Serbia shows an income of -26.88 , 30.36 and 29.59 respectively for each part with indicator price per individual ELV of 33.07 . Key words: End-Of-Life Vehicle Market in Serbia, dismantling ELV, Life Cycle Costing of ELV.

INTRODUCTION Analysis of economic potential of ELV market in Republic of Serbia is challenging due to underdevelopment of recycling system, lower level of recovery rate of ELVs and still not developed market for some arising materials. Overview of present situation in recycling system of ELV in Serbia shows lack of proper management of arising ELVs and lack of integral management system of recycling. The demands for materials of ELVs recycling are recognized in few companies, mostly for scrap metal. Reparation parts (mostly clamps, brake pedal, stabilizing bars all that parts of special significance to the security) are done without quality control and adequate technologies. Tradition in recycling of metals in Serbia exists in the process of manufacturing of parts ELVs recovery is still done for adequate compensation from customers who take auto-parts from uncategorised or illegal damp-fields by themselves. After all, on such damp-fields, dismantlers make illegal treatment of vehicle shells by burning color and other anti corrosion and anti vibration materials from them (Pavlovic, 2006). General recycling in Serbia is in the stage where Germany, Austria and Switzerland were in seventies with unregulated landfills, waste treatment plants, waste incineration and completed transfer stations (Jovanovic et al., 2008).

Still, in Serbia we can recognize some improvement in ELVs recycling, which is significant in the region of Western Balkan Countries. This is mostly due to an existing recycling centre equiped for shredder treatment in Centar za reciklau a.d. Beograd (part of Sholz group) and to an incentive for scrappage of old cars in 2009. and 2010, when, it is estimated, 15.000 ELVs were recycled. Historicaly, with the beging of eighties in Republic of Serbia (known for the best non-ferrous metals manufacture country in West Balkan region) the framework for recycling of secondary materials was set. However, this positive trend was not continued in the years folowing economic crisis due to the disintegration of SFR Yugoslavia and emerging problems in recycling industry. There were less raw materials as a result of neglected or even completely broken activities of business actors. The costs of transportation and processing at the time were excesive, there were unresolved problems of financial nature which lead to less sales and difficult debt collection. The survival of many companies for the collection and preparation of scrap metal was brought into question (Ilic, 2002). At present, in Serbia, according to Stana Bijelovi (Chief of Department for Secondary Material Market of the ex national Recycling Agency) waste recycling rate is only 14 percent (Cvetkovic, 2009). This rate is estimation for recycling of ELVs in Serbia, as well. THEORY Analysis of the economic potential of the market of ELVs in Serbia is interdisciplinary demanding task which seeks exploring the interdependency of market factors in shaping the demand and supply system of recycling of ELVs. In addition of market analysis and cost effectiveness of recycling operations, the work examines necessary investments for optimal functioning of ELV recycling system in Republic of Serbia. In order to answer such a comprehensive task the simplification and approximation are required, and the reliance on a large number of domestic researches, and, the large number of similar works in European Union and other developed countries conducted. For examinination of ELV recycling system, a tool for analysis the life cycle of ELVs was used. Firstly, Life Cycle Analysis of ELVs in order to comprehend all the energy and raw material input and output of the system. Secondary, Life Cycle Costing of ELV recycling system which helped in analyzing the optimal technological treatment in Serbia. METHODS In the absence of comprehensive reserches including experimental one, archival research and content analysis were conducted together with use analogies based on prior knowledge in this field. All calculation of Life Cycle Costing of ELVs in Serbia are done based on the work Strategic Guidance Model for Product Development in Relation with Recycling Aspects for Automotive Products (Muhamad Zameri Mat et al., 2010) on a chosen functional unit basis of avarage ELV in Serbia (i.e. avarage mass of ELVs in Serbia is 1000 kg). Recyclability rate and the avarage composition of the Serbian automobile is based on the work Access to the recycling of motor vehicles (Sudarevic et al., 2005), ilustrated in Table 1 below. Table 1: Recyclability rate and the avarage composition of the Serbian automobile (Sudarevic et al., 2005)
Unit FERROUS METALS 68 Weight per vihicle % 680 kg 90 Recyclability rate % 612 kg

Shell Other steel part Cast iron NON-FERROUS METALS Alloy AlSi Copper Lead PLASTICS AND COMPOSITES ABS Polypropylene PVC Polyester Polyurethane Other FLUIDS Fuel Engine oil Hypoid oil Brake fluid Antifreeze with water Meripol Freon RUBBER Pneumatics Other rubber parts GLASS TEXTILE OTHER BATTERIES

25 28 15 6 4.4 1 0.6 8 1 1 0.8 1.2 1.5 2.5 1.4 0.2 0.4 0.3 0.04 0.3 0.1 0.06 5 3 2 3.5 1 6.1 1

250 280 150 60 44 10 6 80 10 10 8 12 15 25 14 2 4 3 0.4 3 1 0.6 50 30 20 35 10 61 10

90 90 90 90 90 80 90 80 80

225 252 135 54 39.6 9 5.4 8 8

44 100 90 0 0 0 0 100

6.2 2 3.6 0 0 0 0 0.6

FINDINGS Let's look at the data of registered motor vehicles and trailer in Republic of Serbia since 2003. year. The greatest number of registered passengers cars was produced by Zastava (domestic trademark). Regarding foreign trademarks, the following manufacturers were the most notable: Volkswagen, Opel, Ford, Fiat, Renault, Mercedes, Peugeot and Skoda. Table 2. Registered road vehicles and trailers in Republic of Serbia since 2003. year, Statistical Office of the Republic of Serbia Motorcycles Rep. of Serbia Special lorries Buses Passenger Cars cars Special passenger Tractors Lorries (trucks) Trailer 99025 28596 27665 26389

2010 2009 2008 2007

38229 34500 31794 24897

1567113 1637002 1486174 1476642

79 13475 13573 14574

8034 8853 8553 8887

162779 148255 139243 129877

23552 24166 25802

239295 7356 7344 7263

2006 2005 2004 2003

20380 16042 14824 13287

1511837 1481498 1455060 1388109

15109 15920 16525 16107

9312 9696 9209 9144

126045 116440 110075 101433

27498 28222 28179 24713

128017 126816 125873 121377

103859 101465 99767 96509

Let's look a number of first time registered road vehicles and trailers in the Republic of Serbia for 2008. year, it will help us to assess the total annual number of ELVs in Serbia. Table 3. First time registered road vehicles and trailers in Republic of Serbia, Statistical Office of the Republic of Serbia Special passenger cars Special lorries Motorcycles Buses Tractors Rep. of Serbia Passenger Cars Lorries (trucks) Trailer 4198 2107 2924

2010 2009 2008

13313 5674 8140

145173 126382 87284

5 364 199

471 357 480

13215 8447 13903

832 718

4769 2341 1387

The total annual number of end-of-life of vehicles (ELV) can be theoretically calculated from the data of Statistical Office of the Republic of Serbia. Estimated annual number of ELV can be calculated using the following formula: The total number of ELVs in 2008 = State the vehicle at the end of 2007 + the number of first time registered vehicles in 2008. Number of registered vehicle at end of 2008. - Number of vehicles exported in 2008. year I.e. 1 476642 + 87 284 1 486174 = 77 752 ELVs in 2008. This number represent a 5.23 percent of total passenger cars in 2008 year. However, based on national estimates that the annual number of ELVs is 8-10 percent of anual registered passenger cars, we have amount to 118,893 to 148,617 passenger cars in 2008. year As a aproximation for futher calculation in this work we will estimate 100000 ELVs arising annualy in Republic of Serbia. Taking this number of ELVs in the Republic of Serbia as well as the percentage of participation of individual material per vehicle, anualy arising: 68,000 tons of ferrous metals, 6,000 tonnes nonferrous metals, 8,000 tonnes of plastics and composites, 1,400 tons of fluids, 5,000 tons of rubber, 3,500 tons of glass, 1,000 tons of textiles, 1,000 tons of batteries, as well as 6100 tonnes of other waste from ELVs. Tabela 15. Estimation of annualy lost of secondary materials from ELV recycling in Serbia Material At the level of the current recycling rate of 14% ELVs arising in Serbia, annually in Tonnes 9520 840 At the level of the possible future recycling rate of 75% ELVs arising in Serbia, annually in Tonnes 51000 4500 Lost of materials arising from ELV recycling in Serbia, annually in Tonnes 41480 3660

Ferrous metals Non-ferrous metals

Now, look on a general overvied of value and financial analysis of ELV recycling in Serbia based on functional unit and recyclibility rate shown above and prices of secondary materials in Serbia. The general characteristic of the ELV which are analyzed is as follow. Vehicle = Zastava Total weight = 1000 kg/ ELV Content Based Material Categories of ELV Quantity of ferrous materials (kg) = 680 Quantity of nonferrous materials (kg) = 60 Quantity of plastic materials (kg) = 80 Quantity of others materials (kg) = 131.2 Quantity of hazardous materials (kg) = 48.80 Total = 1000 Nominal Mass of Materials Ferrous materials (kg) = Expected % of ferrous materials x Quantity of ferrous materials (kg) = 90% x 612 = 550.8 kg Nonferrous materials (kg) = Expected % of nonferrous materials x Quantity of nonferrous materials (kg) = 90% x 54 = 48.6 kg Plastic materials (kg) = Expected % of plastic materials x Quantity of plastic materials (kg) = 0% x 80 = 0 kg Hazardous materials (kg) = Expected % of hazardous materials x Quantity of hazardous materials (kg) = 100% x 48.80 = 48.80 kg Waste materials (kg) = 750 (550.8+ 48.6 + 48.80) = 101.8 kg Value Analysis has been developed based on the three main analyses. There are acquisition analysis, dismantling analysis and also shredding analysis. Each part of the analysis has data for the costs and also revenues for every process, every component or every material involved. Based on that, the return for each analysis can be calculated.

Acquisition Cost of buying EOL vehicle (/vehicle) = 34.3185 Payment from vehicle manufacturer or local authority (/vehicle) = 40.0383 Total acquisition cost () = 30.8883 Total acquisition revenue () = 4.004 Total profit of acquisition () = Total acquisition revenue - Total acquisition cost = 4.004 30.8883 = -26.88 Dismantling Data of the Dismantling Process Cost of dismantling processes (/kg) = 0.0573 Cost of disposing of hazardous materials (/kg) = 0.114 Market price of spare part components (original) (/kg) = 0.23 Market price of spare part components (remanufacture or reconditioning) (/kg) = 0.114 Costs of Dismantling Process Dismantling processes () = Cost of dismantling processes (/kg) x Reused components or parts (kg) = 0.0573 x 250 = 14.325 Disposing of hazardous materials () = Cost of disposing of hazardous materials (/kg) x Nominal mass of hazardous materials (kg) = 0.114 x 48.8 = 5.5632

Total Dismantling Cost () = Cost of Dismantling processes () + Cost of disposing of hazardous materials () = 14.325 + 5.5632 = 19.89 Revenue of Dismantling Spare parts components (original) () = Market price of spare part components (original) (/kg) x Quantity of components or parts (original) (kg) = 0.23 x 187.5 = 43.125 Spare parts components (remanufacture or reconditioning) () = Cost of disposing of hazardous materials (/kg) x Quantity of components or parts (remanufacture or reconditioning) (kg) = 0.114 x 62.5 = 7.125 Total Revenue of Dismantling () = Revenue of spare parts components (original) () + Revenue of spare parts components (remanufacture or reconditioning) () = 43.125 + 7.125 = 50.25 Total Profit of Dismantling () = Total Revenue of Dismantling - Total Dismantling Cost = 50.25 19.89 = 30.36 Shredding Data of Shredding Cost of shredding processes (/kg) = 0.0573 Cost of disposing of waste (landfill cost) (/kg) = 0.0114 Market price of ferrous materials (/kg) = 0.137 Market price of nonferrous materials (/kg) = 0.251 Market price of plastic materials (/kg) = 0.063 Market price of the other materials (/kg) = 0.0114 Market price of waste materials for useful purpose (/kg) = 0.0457 Costs of shredding Shredding processes () = Cost of shredding processes (/kg) x Total of Content Based Material Categories of Recycled Components or Parts = 0.0573 x (680 + 60 + 80 + 131.20 + 48.8) = 57.30 Disposing of waste (landfill cost) () = Cost of disposing of waste (landfill cost) (/kg) x Nominal mass of waste materials (kg) = 0.0114 x 68.5 = 0.7823 Total Cost of shredding () = Cost of shredding processes () + Cost waste disposal (landfill cost) () = 57.30+ 0.7823= 58.08 Revenues of shredding Ferrous materials () = Market price of ferrous materials (/kg) x Nominal Mass of Ferrous materials (kg) = 0.13701 x 550,8 = 75.46 Nonferrous materials () = Market price of nonferrous materials (/kg) x Nominal mass of nonferrous materials (kg) = 0.25126 x 48.6 kg = 12.21 Plastic materials () = Market price of plastic materials (/kg) x Nominal mass of plastics materials (kg) = 0.10 x 0 = 0 Other materials () = Market price of other value materials (/kg) x Nominal mass of other materials (kg) = 0.01 x 0 = 0 Total Revenue () of shredding = Revenue of ferrous materials () + Revenue of nonferrous materials () + Revenue of plastic materials () + Revenue of other materials () = 75.46+ 12.21 = 87.67 Total Profit of Shredding () = Total revenue of shredding Total cost of shredding = 87.67 58.08 = 29.59 Indicator After completing an analysis above, the grand total of the return for acquisition, dismantling and also shredding can be calculated. This value is called as the indicator Grand Total of A + D+ S = Total profit of acquisition () + Total profit of dismantling + Total profit of shredding () = -26.88 + 30.36 + 29.59 = 33.07 (Indicator)

Financial Analysis Case 1 In the financial analysis, it is assumed that the capacity of the recycling company is 10000 ELV/ year in the Case1 (ELV recycling center developed according to Instruction on conditions which must meet certified operator for the recycling of scrap vehicles by Ministry of Environment and Spatial Planning RS, 2009). So that the profit generated by the company is about 33.07 x 10000 = 330700 / year. The details of the investment invested by the company are as follows: Table 2: Investment cost for the recycling company Case 1 (Muhamad Zameri Mat et al., 2010)

Investment
Land and Building Weighbridge Environment lock Forklift Dismantling equipment Truck

Quantity 1 1 5 1 3 1 10 5 5 1

Cost ()/unit

Investment Cost ()

Crusher
Container/skip Engine hoist Trolley jack Skip loading

60.000,00 100.000,00 20.000,00 600.000,00 90.000,00 30.000,00 2.000,00 500 300 15.000,00

TOTAL
Payback period (year) company Case 1 = (2399000/ 330700/ year) = 7.25 years. Financial Analysis Case 2

1.200.000,00 60.000,00 100.000,00 100.000,00 600.000,00 270.000,00 30.000,00 20.000,00 2.500,00 1.500,00 15.000,00 2.399.000,00

In the financial analysis Case 2, it is assumed that the capacity of the recycling small scale local community company is 514 ELV/ year. In the work Establishing a business in the recycling of

motor vehicles in the municipality of Apatin (Medic, 2010) it is estimated that each year, on basis of municipality of Apatin (approx. average size municipality in Serbia), approx. 514 ELVs arising.
So that the profit generated by the company Case 2 is about (159,24 x 514) - 46200 = 35649 / year and payback period (year) company Case 2 = (247900/ 35649/ year) = 6.95 years. The details of the investment invested by the company are as follows: Table 3 Investment costs of municipal dismantler (Case 2) where an estimated 514 ELV/year Investment Cost ()

Second hand Car Crusher Vehicle de-pollution unit 4 Tanks (4 x 1000 l) Forklift Warehouse of hazardous waste Scissor lift Land, concreting and set out (300 m2) Equipping the reception office with a spare parts warehouse (40 m2) Depolution workshop (120 m2) TOTAL:

68.500 6.400 2.000 7.000 10.500 1.300 50.000 14.000 42.000 201.700

Table 4. Approximation of dismantling costs of municipal dismantler (Case 2)

4 workers Electricity Costs and expenses incurred Bussiness expenses Amortization Other costs TOTAL

Annual costs of dismantling () 28.800 2.400 1.560 8.400 4.200 840 46.200

Table 5. Approximation of revenues of dismantling per vehicle (Case 2)

Ferrous metals Non-ferrous metals Plastics Fuel Oil TOTAL

DISCUSSION

Weight per vehicle % Tonnes 68 0,68 6 0,06 8 0,08 0,2 0,002 0,4 0,004

Recyclability % Tonnes 90 0,612 90 0,054 100 0,08 100 0,002 90 0,002

Market price /tons 150 1100 63 1000 500

Revenue ()

91,8 59,4 5,04 2 1 159,24

In the findings we finde that the return for the acquisition process is -26.88 . That means the acquisition process is currently not profitable to the company. The return for the dismantling process is 30.36 /vehicle. For the shredding process, the return is 29.59 /vehicle. Both of these processes give some profit to the company. The grand total is 33.07 /vehicle. It shows that the current design of the vehicle is valuable when it reaches end-of-life. In the financial analysis of Case 1, it is assumed that, the capacity of the recycling company is 10000 ELV/year. The company Case 1 generates a net of 330700 /year. Meanwhile, the total investment for the whole site is 2399000 . So based on this data, the payback period is calculated around 7.25 years. In the financial analysis of Case 2, it is assumed that, the capacity of the recycling company is 514 ELV/year. The company Case 1 generates a net of 35649 /year. Meanwhile, the total investment for the whole site is 247900 . So based on this data, the payback period is calculated around 6.95 years. CONCLUSIONS AND IMPLICATIONS In Case 1 of ELV recycling center developed according to reletivly new Instruction on conditions which must meet certified operator for the recycling of scrap vehicles by Ministry of Environment and Spatial Planning RS (2009), there is a need for 10 recycling center in Republic of Serbia in which it should be invested 23.990.000 according to annualy arising of 100.000 ELVs. Financial analysis of ELV recycling center Case 2, however, provides us an alternative scenario of development of ELV recycling system Serbia in which already functioning ilegal damp-fields are subject of development by environmental standardization. In this scenario, diversification of dismantlers will provide ELV dismantling at the source which will influence increase in recycling rate of ELVs. In this scenario, approx. 29 million euros investments should be done in 120 such centers for optimal ELV recycling system in Serbia.

TABLES
Table 1. Recyclability rate and the avarage composition of the Serbian automobile (Sudarevic et al., 2005) Table 2. Registered road vehicles and trailers in Republic of Serbia since 2003. year, Statistical Office of the Republic of Serbia Table 3 Investment costs of municipal dismantler (Case 2) where an estimated 514 ELV/year Table 4. Approximation of dismanling costs of municipal dismantler (Case 2) Table 5. Approximation of revenues of dismantling per vehicle (Case 2)

REFERENCES
A study to examine the benefits of the End of Life Vehicles Directive and the costs and benefits of a revision of the 2015 targets for recycling, re-use and recovery under the ELV Directive (2006) Final Report to DG Environment, Birmingham, UK: GHK in association with Bio Intelligence Service. Cvetkovi, J. (2009). Recycling is still underdeveloped. Belgrade, SRB: Politika. Ili, I., Guliija, Z., Radovanovi, N., Soki, M., Matkovi, V., Marinkovi, J. (2002) Resources and recycling of secondary raw of non-ferrous metals. Bor: RTB - Institute for copper. Jovanovic, Z.; Haase, H,; Ziems, D. (2008). Developmental stages of waste management in the German speaking countries and challenges for Serbia on its path to EU. Bor, SRB: Ekoloska istina - Bor, Kongress: EkoIst '08 (Sokobanja). Kozi, A., Sudarevi, D. (2005). Access to the recycling of motor vehicles. Kragujevac, SRB: Association for Quality and Standardization of Serbia. Quality Festival 2005, 32 National Conference on Quality. Medi, D. (2010). Establishing a business in the recycling of motor vehicles in the municipality of Apatin.. Zrenjanin, SRB: Technical Faculty Mihajlo Pupin. Pavlovi, prof. dr Milan; ubara dr Nadeda (2006). Eco logistics. Zrenjanin, SRB: Technical Faculty Mihajlo Pupin. Saman Muhamad Zameri Mat, Feri Afrinaldi, Norhayati Zakuan, Gordon Blount, Jane Goodyer, Ray Jones & Ashraf Jawaid (2010) Strategic Guidance Model for Product Development in Relation with Recycling Aspects for Automotive Products. Malaysia: Faculty of Mechanical Engineering, Universiti Teknologi Malaysia. Journal of Sustainable Development.