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In the Loop

To build a circular economy, look to the auto industry’s success

One of the best, established examples of a circular economy is hiding in plain sight.

An unidentified car for sale in a pre-owned vehicle lot.

An unidentified car for sale in a pre-owned vehicle lot. Credit: Shutterstock/Richard Thornton

There is a tendency in sustainability circles to think we need to chase after the newest, shiniest solution for every problem. What if a model for building the circular economy was right there all along?

The automotive industry remains one of the best examples of success in the circular economy. There are many reasons, but I want to focus on the acquisition model, the repair and recommerce piece of the puzzle and the supporting industries that keep automobiles running.

Buy or lease?

At a car dealership I can choose between purchasing or leasing, and different terms for either. This would be considered a breakthrough innovation in many industries now, but it dates back to the early 1940s, when Chicago car dealer Zollie "Z" Frank introduced leasing for fleet vehicles. Leasing slowly became popular and reached 30 percent U.S. market penetration in the 2010s. 

This is an example of how companies can interact with customers to ensure products are returned when they are no longer needed, while building brand loyalty. 

Repair and resale

It may seem a given that auto dealerships would provide repair and resale services, but that’s only because they’ve been doing it successfully for so long. The second and third users of a car represent an important commitment to keeping durable products at their highest and best use as long as possible. Without these additional users and owners, drivable cars would reach recycling too early.

Unwanted vehicles, once a source of environmental concern for leaking hazardous oil, brake fluid and antifreeze, are now opportunities for resource recovery. An industry of scrappers and recyclers handles substances responsibly. They enable a reuse economy for parts to repair other vehicles and a recycling economy for materials. That’s why a vehicle retains value at the end of its driving life.

'Cottage' industry

Many times when a repair or recommerce business model succeeds, a whole industry builds up underneath it. This has been the case in the auto industry almost since the beginning. The ecosystem of independent auto repair shops, used car lots and resale websites proves how well the circular economy for cars is working. 

One thing that makes this all work is the support for replacement parts that auto manufacturers and third parties offer for vehicles, along with the relative standardization of certain parts. 

We are starting to see these sorts of supporting industries pop up for fashion, consumer tech and furniture — signs that those markets are poised for a more circular future. 

What comes next

The automotive industry is pushing toward an even more circular model. First and most obvious is electrification, which moves away from fossil fuels that are inherently linear in how we extract, refine, burn and emit them. Batteries that are increasingly recyclable, coupled with the potential to use renewable energy for charging, move us closer to full circularity.

Additionally, auto manufacturers are working on circular designs, incorporating eco-friendly materials, modularity and disassembly-friendly components. Cars are becoming more easily dismantled, inside and out. These initiatives support the circularity of all components, not only select items such as metals and tires, and they make repairs and upgrades more accessible.

Emerging tools to track materials include digital product passports. Industry collaboration includes the World Economic Forum’s Circular Cars Initiative.

The business models and repair and resale systems of the automotive industry over the last 100 years can be a model, if not a direct copy and paste, for other industries looking to transition to a circular economy. The challenge for other industries is finding new ways to replicate this success.

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