House of Commons - Trade and Industry

Select Committee on Trade and Industry First Report

IV. THE IMPLEMENTATION OF THE DIRECTIVE

42. The DTI's consultation paper sets out three options for the implementation of the Directive: a brand-specific contractual scheme; a tonnage target scheme; and a hybrid scheme which differentiates between the historic car parc and new vehicles.[98] We have no intention of duplicating the work of the DTI; suffice it to say opinions varied as to which was the most acceptable option. We consider below a further option put forward by the car manufacturers, and some of the major issues about implementation which will need to be addressed whichever option is adopted.

SMMT'S 'OPTION 4'

43. The SMMT put forward a fourth option for consideration. Ford describe 'Option 4' as having "all the advantages of Option 1 and overcomes the disadvantages of Options 1, 2, and 3".[99] Briefly, under Option 4 the last owner is responsible for delivering an ELV to an authorised dismantler or shredder. Dismantlers may accept or reject any ELV presented to them. If they accept the ELV, it must be at no cost to the last owner. All ELVs accepted by dismantlers are presumed to have a positive value. Shredders have an obligation to accept all ELVs directly from last owners at no cost, but only if they are complete. However, if shredders demonstrate a deficit in the processing of ELVs, the producers will organise free take-back. The assessment of any deficit is to be made by an independent third party jointly appointed by producers, importers, authorised shredders, and Government representatives.[100] The SMMT told us this option has the support of the whole industry, although Toyota's memorandum stated their support would be qualified and that the proposal "might not necessarily have the unanimous support of the industry".[101]

44. The BMRA were unhappy with the SMMT's 'Option 4'. An obligation on shredders would put them in a "very difficult position" and is "fundamentally flawed".[102] They said it would inevitably have a knock-on effect on viability. They remarked that the car manufacturers "are trying to pass the cost on to our sector and we are saying we cannot afford to take it, whereas if we had some clear guidance and decisions from DTI and some funding for this and how it could be achieved, we could be getting on with the task".[103] Mr Wemyss of the MVDA told us "the SMMT have not involved us in their thoughts" but on what they had seen of 'Option 4', for vehicles to go direct to the shredders "is not an option".[104] The SMMT, on the other hand, say that without an effective mechanism for distinguishing between vehicles with a negative value and those that can be processed at a profit, vehicle manufacturers will face unnecessarily increased costs that will undermine the competitiveness of, and investment in, the UK motor industry.[105]

45. It is not clear whether the obligation 'Option 4' places on shredders extends to scrapyards. If scrapyards, particularly those that act as 'feeders' for shredders, are also obligated to accept all ELVs, then in practice most of the depollution will take place in scrapyards. If scrapyards can reject ELVs, then shredders will be left to pick up all the least desirable ELVs.

46. It appears to us that the obligation 'Option 4' places on shredders to take all vehicles may not work in practice. We are concerned that there does not appear to have been dialogue between the motor manufacturers and the recycling industry about Option 4 or about the implications of the Directive. SimsMetal pointed out that the shredding industry was a capital intensive and high productivity sector often operating from premises with restricted space. It was not designed to cope with individual vehicles.[106] Given that shredders today receive many vehicles that have already been crushed, there is no evidence to suggest they would welcome an obligation to depollute individual vehicles. There are also only around 37 shredders in the UK and it is not at all clear to us how last owners would be able to deliver vehicles to shredders. It appears to us that under 'Option 4' there would be strong incentives on owners of old cars simply to abandon them. We strongly suggest that dialogue takes place to determine, more accurately, the pros and cons of Option 4 and other possibilities.

Key issues

FINANCING

47. The Directive states that producers (vehicle manufacturers or importers) will meet all or a "significant" part of the costs for free take-back for vehicles with no or a negative market value from 1 July 2002 for all new cars put on the market after this date, and from 1 January 2007 for all cars.[107] If these dates are held to, then in practice only a small percentage of cars (those that are accident damaged, ie, PELVs) will need to be dealt with under the Directive between 2002 and 2007. However, the DTI's consultation paper did not consider how take-back and treatment costs should be financed. There was considerable disappointment in the industry that this issue had been avoided.[108] Dr Keddie told us in oral evidence that this was a "political" question that rested with Ministers.[109] Given the short timescale, we were somewhat alarmed to discover that the DTI's consultation paper did not address the issue of funding. We recommend that the DTI address the issue of funding, and make public their views, as a matter of some urgency.

48. Inevitably there are a range of opinions on what "significant" means: MG Rover said the definition should be 20%;[110] Ford said financial responsibility for producers should not exceed 50% of the ELV take-back costs.[111] The question of who pays, and how much, is at the heart of any system of implementation of the Directive.

A CHARGE ON NEW VEHICLES

49. MG Rover remarked that there has been a suggestion that a £5 per car allocation to ELVs from Vehicle Excise Duty would fund around £80 per ELV towards processing costs.[112] The MVDA said that logic suggests that some responsibility for the recycling of a vehicle should also fall to the original purchaser.[113] The AA felt that a scheme of 'bonds' to cover the ultimate disposal costs, applied on the sale of new cars is a "reasonable measure".[114] They suggested a number of provisions, including that bond values must be reviewed and audited by an independent body. Charles Trent Ltd believed there should be a disposal fee or premium incorporated into the price of a new car. They suggested a charge in the region of £75 to £100.[115] The RMIF told us "we think it is not unreasonable to take the example started in the Netherlands, where a fund was created for vehicles reaching the end of their life so they could be properly disposed of".[116]

50. We asked the SMMT for their view on proposals that the cost of processing ELVs could be built into the purchase price of new cars. Mr Christopher Macgowan told us that they did not think that was feasible. Any scheme such as a tax on new cars would be against the thrust of the Directive where the responsibility lies with the manufacturer.[117] We understand that the responsibility for all or a significant part of take-back costs lies with the manufacturer. Manufacturers will have to make specific provision to cover the cost of disposal of ELVs. To finance this, it is likely that original car prices will rise. We believe that the cost to producers of take-back would ultimately be passed on to original purchasers.

A 'BOUNTY' SCHEME

51. The MVDA put forward the case for an Automotive Recycling Credit Scheme to try to attract ELVs into an Authorised Treatment Facility, simultaneously reducing the number of abandoned vehicles.[118] Under this proposal a sum would be added to the price of a new vehicle, and once a last owner had handed the vehicle over to an ATF and received a Certificate of Destruction, he/she could apply for a refund of the recycling credit. Mr Hesketh told us it was a "capture scheme to get vehicles into the system". This did not rule out the possibility of adding "another chunk, as it were, to deal with processing".[119]

DATE OF IMPLEMENTATION

52. The Directive, whilst setting out free take-back for vehicles from 2002 for new cars and 2007 for all cars, does allow Member States some flexibility in implementation. The DTI consultation paper did not rule out bringing forward the date for all cars from 2007, much to the alarm of the motor manufacturers. The SMMT said it was "essential" that the UK kept to the original dates.[120] Given the DTI's commitment to a "level playing field" with other Member States it would seem perverse to insist on a much more stringent timescale for the UK than for other Member States.

ACCRUAL AND THE HISTORIC CAR PARC[121]

53. The payment for the recovery of historic vehicles is an issue of much debate. Similar concerns arise over the treatment of imported cars and so called 'orphan' cars.[122] Motor manufacturers inevitably have differing commercial concerns, particularly concerning accrual and market share. Ford listed a number of basic principles the DTI should take into account when considering implementation of the Directive, including "a system which avoids the obligation for producers to book one-off reserves for the historic car parc".[123] Toyota were concerned about any system that would apportion cost by market share stating: "it would be unreasonable if those manufacturers who have profited in the past from higher sales now benefit from a system which apportions the cost of treating ELVs by current market share".[124] They went on to say " as a relatively small marque but with a growing market share, Toyota cannot afford to subsidise those with a declining market share or those who are no longer in business".[125] Honda expressed the view that the cost of implementation should be based on "cars scrapped and not market share".[126]

54. MG Rover, however, said that it would not be reasonable to expect it, as a new and relatively small company with a stable 4% market share, to stand the costs of the 10% of the historic parc manufactured by its ancestors including "both vehicles which [sic] the company continues to own the marque (eg MG, Austin, Wolsley, Morris), and vehicles which the company's marque ownership has ceased (eg Mini, Triumph). In fact, even the core 'Rover' marque is now licensed from BMW."[127] For MG Rover, a key issue is the ability to avoid accruals and historic parc liabilities by using payment by current market share.[128] Outside the motor industry, the packaging company Valpak were of the opinion that the "only realistic and practical option is to share costs by current market share".[129]

55. We appreciate that the issue of how to deal with the historic car parc is a thorny one. We do not presume to recommend any particular option for apportioning costs: whether current or historic market share is chosen, someone will suffer. However, we note that, if the date of implementation for the historic parc is left at 2007, the 'historic' car parc will largely reflect the market share in 1995-1997, given that the average age of a natural ELV is 10 to 12 years. If the date is kept at 2007, we would not expect any particular manufacturer to be excessively penalised. Moreover, given that the free take-back of all cars does not have to come into force until 2007, provision can be made in the interim to cushion the effect of the historic car parc. The solvency of companies could be protected by the adoption of a mechanism which avoids companies having to book substantial reserves rather than contingent liabilities.

POSITIVE AND NEGATIVE VALUE ELVS

56. Both the Directive and the SMMT's 'Option 4' are predicated on the difference between ELVs that have a positive value, both to the last owner and the processor, and those with a zero or negative value. However, there appears to be no mechanism in place to ascertain what defines a 'positive' or 'negative' ELV. The SMMT's memorandum stated: "there is concern that without an effective mechanism for distinguishing between vehicles with a negative value and those that can be processed at a profit, vehicle manufacturers will face significant additional costs".[130] They went on to say: "The Government should ensure that the implementation regime introduces a market mechanism to differentiate between ELVs with a positive and negative value".[131]

57. In oral evidence Mr Macgowan told us that when trying to establish the value of a vehicle "it is far better to leave it to the market".[132] Honda, however, noted that "the Government should ensure that the implementation regime introduces a mechanism to differentiate between ELVs with a positive and negative value".[133] Dr Keddie of the DTI believed the market would determine what is a vehicle with a positive or a negative value.[134] It appears that the stage may be set for battles between consumers and last processors on the value of an ELV. We are not convinced that leaving the market to decide whether a vehicle has a positive or negative value is in the best interests of the last owner of the vehicle. We recommend that the DTI publish guidelines and information for consumers as to what they may reasonably expect to receive for an ELV.

58. These battles seem likely to extend to last processors and manufacturers over which vehicles have a negative value, particularly if a scheme like 'Option 4' is adopted. It can not even be assumed that the financial viability of shredders will be the clinching argument: shredders deal with all sorts of other goods not just cars and could be making a loss on cars, but have other profitable business. If processors do not have to demonstrate the negative value of ELVs to their businesses, they would have little incentive to keep costs down and could end up requiring manufacturers to subsidise operations that are, or could be, profitable.

59. It would seem to be in the interests of manufacturers to claim that as few vehicles as possible are of negative value and ELV processors to claim the reverse. Although we believe the industry players are too responsible to exploit the situation, there will be times when there are genuine differences of opinion, and it is difficult to see how 'market forces' would solve this. The ELV Directive, by imposing legal obligations on the parties, distorts the operation of the current market. That being so, we do not think it would distort the market further to have an agent of last resort (other than the courts) to determine disputes between car producers and ELV processors. We recommend that the DTI consider whether any existing body could be given this task or whether the industry should be required to set up a disputes mechanism itself.

COMPLETE VEHICLES

60. The Directive refers to free take-back if the vehicle is 'complete'.[135] There would appear to be no agreed definition of 'complete'. Mr Paul Everitt of the SMMT told us that the term was still under discussion with the DTI but it would be likely to encompass the large components that have value such as the engine, catalytic converter, and the gearbox.[136] Mr Steve Franklin went on to say "it must have all its major body component parts and it must be in a rollable condition, you must be able to push it along if it will not start".[137] Dr Keddie of DTI was unsure as to what work had been carried out to define a 'complete' car.[138] These are key issues in any system implementing the ELV Directive. It is imperative that the last owners of vehicles are aware both of their obligations and what they may expect on handing in their car. We recommend that the DTI set out clear and unambiguous guidelines for what determines a 'complete' car.

Other Member States

61. Denmark, Sweden and the Netherlands already have schemes in place to deal with ELVs:

— In Denmark, last owners meet the full costs of treatment and recycling but reclaim this through a central fund generated through a tax on car insurance;

— In Sweden producers are required to meet the full costs for all vehicles sold from 1998 onwards and 50% of costs for all older vehicles from 2002. The remainder will be paid by last owners who can recover the costs from a fund generated through a tax on new car sales;

— In the Netherlands, last owners can take their cars back free of charge. The treatment facilities claim the costs from a central fund, generated through a tax on new car sales.[139]

62. We understand that other Member States are still finalising their proposals. Germany proposes to make last owners pay for all vehicles scrapped between 2002 and 2006 but require producers to pay all costs from 2007. The French proposal was the basis for the SMMT's 'Option 4'. Italy is considering the creation of a national consortium that all producers and treatment facilities would join. The cost of treatment would be set by the Government and funded through a premium or tax on new car sales with producer responsibility introduced gradually from 2007. Spain is considering a scheme under which last owners would pay until 2007 but would receive a refund against their road tax payments. Producer responsibility would be introduced from 2007.[140] The DTI should continue to monitor the implementation of the Directive in other Member States, and ensure, so far as possible given the different situations in other Member States, that the UK car and scrap industries are not disadvantaged by the way the Directive is transposed here.

98 Under Option 1, producers would be made legally responsible for putting in place adequate national collection systems for their own vehicles. Under Option 2 producers would be required to meet all or a significant part of the cost of take-back and treatment for negative or no value ELVs of their own marque, plus a proportion of costs for orphan vehicles. Producers or their compliance schemes would be responsible for ensuring that recovery, recycling, and reuse targets were met and these targets would be set as tonnage targets. Under Option 3, producers' tonnage targets would be set for the historic parc based on current market share; for new vehicles, producers would be required to pay bonds into individual or collective funds for each vehicle sold Back

99 Ev, p3 Back

100 Ev, p61 Back

101 Ev, p8-9 Back

102 Q150: Q160 Back

103 Q152 Back

104 Qq 207-8 Back

105 Ev, p10 Back

106 Ev, p16 Back

107 Article 12 Back

108 Eg Q152 Back

109 Qq 215-6 Back