Automotive Sector Can Harness New Revenue Through Parts Lifecycle Value-Retention
In the automotive sector, prospective revenue streams can be achieved by original equipment manufacturers (OEMs) that embrace greater value-retention practices for parts utilization beyond traditional service lifecycles. The basic tenants of value-retention found in circular economy principles seek to recover all products, components and materials at their highest utility and value. New revenue opportunities for OEMs derive from those whom incorporate circular economy philosophies such as direct reuse, repair, refurbishment and remanufacturing. These practices help to retain value through enhanced resource efficiency and decreased environmental impacts.
Today, motor vehicles stay on the roads and highways in the United States much longer than previously. This provides a replacement part market for repairs that is much different than 25 years ago when the average age of motor vehicles was 8.1 years. If fact, the average age of an American motor vehicle fleet has risen to an all-time high of 11.7 years. It is forecasted that the average motor vehicle’s age will rise by another 10 percent in the next several years.
This higher part demand from a fleet of older vehicles provide an opportunity for automakers to actually collaborate with other industry partners. Through active education and awareness initiatives, automakers can cultivate greater market support of part alternatives that reduce the environmental footprint of their vehicle components and operations. These efforts can also enhance manufacturers’ ability to meet greenhouse gas emission commitments and other sustainability goals, as well as reach regulatory compliance with sustainability and circular economy requirements in markets around the globe.
Each year, there are more than 25 million motor vehicles that reach the end of their service life around the globe. In the United States, over 95% of the 11-15 million scrapped vehicles annually enter an extensive recycling infrastructure that includes automotive parts recyclers, remanufactures, and shredders.
In a recently released United Nations study entitled, Re-Defining Value, The Manufacturing Revolution — Remanufacturing, Refurbishment, Repair and Direct Reuse in the Circular Economy, it was noted that compared to traditional OEM new production, remanufacturing can reduce new material requirements by between 80% and 98%; comprehensive refurbishing saved slightly more materials on average, between 82% and 99%. Repair saved an even higher share, between 94% and 99%; and utilizing direct reuse largely does not require any inputs of new materials.
Circular economy principles provide competitive advantages.
In recent research, the professional service company, Accenture, determined that “potential revenue of selected circular economy business models for automotive companies could more than double by 2030, growing by $400-600 billion … making circular economy business models a major profit pool in the automotive industry.” This additional value is driven through circular economy principles. Accenture noted that automotive manufacturers can achieve enhanced efficiencies through a combination of vehicle design, manufacturing, distribution and product life extension.
Broader circular economy views by OEMs will broaden network and revenue opportunities. Take for instance, OEMs such as Groupe Renault which has supplemented their circular capabilities by working with third parties to support a closed-loop recycling network of independent automotive recyclers and dismantlers to significantly improve their competitiveness in the marketplace.
Instead of planning for disposal at the end of its products’ lives, Renault strategizes to reuse, repair or remanufacture. The last generation and next generation of vehicles become part of a circular production process. End-of-life vehicles are dismantled to procure parts and materials so they can be used again as a resource for spare parts and further recycling of components and materials.
Collaborative Relationships between OEMs and Independent Automotive Recyclers
It is important for OEMs and professional automotive recyclers to cultivate business relationships to collaboratively lessen barriers and embrace utilization of existing production, distribution, and collection infrastructure and networks to address product and material loops within the supply chain.
Around the world, automotive manufacturers should embrace providing consumers a choice between alternative OEM parts sourced from circular economy principles and newly produced OEM parts. When integrated into an automaker’s network, these resource efficient alternative parts extend and strengthen valuable consumer relationships, and draw from new, diverse market segments. Additionally, automakers may leverage existing production, logistics, service arrangements and distribution infrastructure in implementing these strategies.
It’s imperative that consumers have access to marketplace competition that ensures efficient repair and maintenance of motor vehicles globally. A solid commitment and investment in circular economy concepts not only will benefit consumers and automotive recyclers and remanufactures but also will open doors to new revenue streams for other stakeholders in the motor vehicle service and repair marketplace.