Dr. Eberhard Von Kuenheim, Chairman
FROM: Nicholas Cucinelli, Strategic Planning Staff
Bernd Pischetsrieder, Production Division
BMW VEHICLE WASTE STRATEGY
Next month, BMW AG and our competitors will have the opportunity to comment on the
German Environment Ministry’s (BMU) proposal for a revolutionary policy on the “Reduction,
Minimization, or Utilization of Scrapped Vehicle Wastes,” essentially a voluntary “take-back” requirement for vehicles at the end of their service life coupled with future “recycled content” provisions for new vehicles. The recycling group (T-RC) has gone to considerable lengths to research this issue and identify viable strategic alternatives; this memo will outline their findings and then recommend a corporate strategy that maximizes shareholder value, competitive position, and company reputation. This pending legislation should not be perceived as a threat, but rather as a tremendous opportunity to create value and build sustainable competitive advantage. Since the current voluntary regulations can be expected to become compulsory,
BMW will eventually have to comply and bear rapidly increasing vehicle disposal costs, so it is in the company’s best interest to act now to minimize future costs, accelerate our learning process, and enhance the future value of our reputation.
Problem Analysis – Vehicle Recycling
In 1989, independent dismantlers and shredders processed 2.1 million vehicles at the end of their service life, keeping 75% of vehicle materials out of the waste stream. The laborintensive dismantling industry accepts or purchases used vehicles and then profits by selling their high-value components, metals, and some polymers to reprocessing and scrap metal companies.
It then sells the remaining vehicle hulks to shredder companies that profit by separating recyclable materials from Automotive Shredder Residue (ASR). This ASR annually accounts for 400,000 tons of solid waste that is either landfilled or incinerated. Disposal costs of ASR are expected to rise dramatically as Germany runs out of landfill disposal capacity (estimates range from 5 to 10 years); compounding the problem is the likelihood that ASR will soon become classified as hazardous waste by the BMU. Incineration of ASR is also becoming an unlikely disposal option as environmentalists and the BMU create market forces that significantly drive up costs and regulatory risk.
ASR percentages in vehicles are also increasing alongside ASR disposal cost as manufacturers use an ever-widening range of technologically superior materials to enhance vehicle performance. This complicates and drives up the cost of the dismantling process. The increasing costs of dismantling and ASR disposal are currently passed on to final vehicle owners, decreasing the likelihood that they will dispose of used vehicles in a responsible manner.
Eventually, these price increases also will significantly weaken the dismantling and shredding industries. The dismantling industry is further vulnerable to future enforcement of environmental laws by the BMU; only 10% of dismantlers are currently certified for operation and many would close down if forced to comply with requirements.
A failure of the dismantling industry, weakening of the shredding industry, and an increase in inappropriate vehicle dumping would place significant disposal costs squarely on the vehicle manufacturers in light of the draft “take-back” policy. Manufacturers would have to react quickly to find disposal alternatives or see their profits eroded by escalating disposal costs.
Strategy – Independent BMW Take-Back Infrastructure
The options available to BMW consist of fighting the proposed BMU regulation, utilizing the existing dismantling/shredding industry to handle vehicle recovery, and assembling an independent vehicle take-back infrastructure. Fighting the proposed BMU regulation forces
BMW into a reactive…