Auto Recycling Nederland (ARN) is the Netherlands’ innovative solution to the problem of minimising waste from End-of-Life Vehicles (ELVs) in line with European Union targets. To fulfil its brief, ARN must safeguard its share of the country’s total number of ELVs. That requires visibility of the future marketplace, something that has proved hard to obtain because of the large number of imponderables.

PA Consulting Group (PA) helped solve the problem by developing a sophisticated yet easy-to-use mathematical model that allows ARN to explore different scenarios. The team then worked with ARN to create a strategy for building market share, supported by a portfolio of suitable policy instruments. PA contributed a unique combination of expertise and knowledge, including strategy development and modelling, the economics of the scrap industry, automotive cost reduction and waste legislation. ARN can now be confident of meeting its statutory obligations and environmental objectives.

ARN was established by the Dutch automobile industry in 1995 with the aim of reducing the

waste generated by ELVs. It is to ARN that Dutch automotive importers and manufacturers

delegate their responsibility for complying with European Union (EU) environmental regulations.

Motorists pay a small fee to cover the cost of having their car removed by ARN, which

operates its own network of dismantling companies, collectors, processors and shredders.

ARN’s objectives are:

• to maximise its market share of ELVs

• to recycle 85% (rising to 95% by 2015) of the materials in those vehicles,

measured by weight, and

• to do this at the lowest possible cost.

Exploring the future to meet environmental targetsAuto Recycling Nederland

“ARN predicts the availability of End-of-Live vehicles every year. The used models worked well in times of moderate change. However, in current more turbulent times the predictive value was insufficient. Based on prior projects ARN asked PA Consulting Group to develop predictive models which it did very well.”

Dave Bebelaar, General Director ARN

Figure 1: Supply of ELVs including ELV age extension until 19 years in 2015

2008 2009 2010 2011 2012 2013 2014 20152000 2001 2002 2003 20041996 1997 1998 1999 2005 2006 2007

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000Historical data

Conclusion: the general trend is increase in supply of ELVs. With the increase of age of ELVs is included, the supply is 49 thousand lower than without increase of age included.

Prediction

A need to see into the future For some time, the number of cars processed by ARN

has been in decline. There are three main reasons.

Firstly, the total number of ELVs has reduced because

of exports to Eastern Europe and increasing lifespan

of cars. Secondly, ARN has lost some market share to

other (mainly illicit) methods of disposal. Thirdly, ARN

has introduced a Post-Shredder Technology concept that

will allow useful materials to be recovered from shredder

waste; this step will improve recycling yield but makes

participation in the ARN scheme slightly less attractive to

dismantlers because their fee is reduced, with the result

that some dismantlers have left the scheme.

To protect its market share, and for other strategic and

planning purposes, ARN needs to be able to forecast

the future volume of ELVs (figure 1). However, owing

to the large number of factors influencing that volume,

the picture used to be uncertain. Influences include

increasingly stringent emission standards and the

possible introduction of a road pricing system like

London’s congestion charge, both of which could reduce

the number of cars on the road.

ARN therefore asked PA – with whom it had already

been working on strategic issues for a number of years

– to provide a quantified prediction of ELV supply,

and also to help it develop a strategy for increasing

its market share.

Building a ‘car park’ model To address the problem of prediction, PA developed

a mathematical model of the stocks and flows of

ELVs. ARN brought in it immense quantitative insight

into the automotive market in terms of historical ELV

development, new sales, parallel imports and export.

The dynamic model can be understood in terms of

a car park representing the country’s stock of cars,

and a stream of vehicles coming out of the car park

representing the flow of ELVs.

While this particular application of stock-and-flow

modelling is innovative, the approach is well-proven.

In building ARN’s model, PA drew on experience

in areas like supply chain and factory optimisation,

as well as strategy development.

The model can easily accommodate the numerous

factors influencing future ELV volumes. Working closely

with ARN, PA identified around 30 such factors,

and assigned each a weighting to represent the

strength and immediacy of its likely impact (figure 2).

ARN can now carry out ‘what-if’ modelling to evaluate

ELV availability under various scenarios – for example,

under the assumption that exports are increasing

dramatically while new sales drop.

2

Figure 2: An ‘Event horizon’ frames factors that contribute to changing ELV supply, ELV value and amount of scrap yards

1990 1995 2000 2005 2010 2015

0 1 2 3 5 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5

fall ‘iron wall’ • 4e extension EU • 5e ext. EU • 6e ext. EU • 7e ext?

º Euro norm 1 º Euro norm 2 º Euro norm 3 º Euro norm 4 º Euro norm 5?

• TAX refund export # export #

º less tax exemption

# ELV and export #

º scrap incentive (?)# ELV #

• road pricing?

# export ## ELV #

º regulatory compliance# scrap yards $

º increase value parts trading€ purchase ELV #

º increase raw material prices€ purchase ELV #

º budget cars# reg. #

º avg. vehicle weight up€ purchase ELV #

Key: continues effect leap effect º moderate influence • major influence

# export #

Technological

Economic

Social/ political

Designing a new strategy The model immediately gave ARN a much clearer view

of the future, including the good news that, although

the flow of ELVs had been declining, it was likely to

recover again in future, avoiding the need for a total

restructuring of the sector.

Armed with this new information, PA helped ARN

to create a strategy for protecting and increasing its

market share. Together, ARN and PA held workshops

to brainstorm the policy instruments available for tasks

like making ARN’s proposition more attractive to current

and potential new dismantlers, and restructuring the

non-compliant part of the dismantling sector. All these

instruments were evaluated in the light of their ability

to contribute to the overall objective of building ARN´s

market share. By identifying the feasibility, impact and

risk associated with each of the policies, ARN was able

to build up a portfolio of preferred approaches.

Benefits of the project ARN is now equipped with the ability to understand

its future market, and also has a strategy and policy

instruments to manage that market. That means

the company is well positioned to fulfil its business

objectives and at the same time comply with the

EU’s environmental targets.

PA had contributed not only expertise in modelling

and strategy development but also knowledge about

the economics of the scrap industry, automotive cost

reduction and waste legislation.

Because PA and ARN staff worked so closely together

during the assignment, it was easy for ARN to start

using PA’s model and approach in-house. The

companies continue to collaborate on other projects.

Making recycling work The ARN approach to implementing environmental

policy is effective and professional, but internationally

it is virtually unique. Only Sweden has a comparable

system for automotive recycling, and no country has

yet applied it to other types of goods, though it is just

as suitable for, say, washing machines as cars.

ARN is truly leading the way in turning environmental

targets into practical policies.

3

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This document has been prepared by PA.

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