Kristin Naragon, Chief Strategy Officer at Akeneo, the Product Experience (PX) Company.
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Over the past few decades, there has been increasing pressure on international corporations to combat climate change. Europe is creating regulations for businesses to act sustainably and participate in the circular economy. These mandates will begin impacting North American manufacturing, and the automotive industry is no exception.
As part of the European Green Deal, digital product passports (DPPs) were announced in 2020 to help make Europe climate-neutral by 2050. In a global economy, when a $16 trillion region like the EU starts dictating new rules and regulations on how to sell in that region, businesses around the world need to respond.
DPP regulations may not initially impact North American auto manufacturers. Still, automotive brands conducting business in Europe or looking to expand to European markets will need to begin planning for these new guidelines now.
Let's explore digital product passports and their potential impact on North American automakers, along with the steps that can be taken now to achieve compliance and position themselves as innovators and leaders in this powerful cultural and geopolitical revolution toward responsible consumption.
Understanding The Emerging Role Of Digital Product Passports
DPPs are part of a broader Circular Economy Action Plan (CEAP), which focuses on keeping products and resources in the economy for as long as possible. Circular economy initiatives are designed to reduce net new products through mindful resource allocation in manufacturing.
DPP fits into this initiative by providing a complete digital record of a product’s lifecycle. The information included in this digital record should include everything from the materials used to make the product to any environmental impact of its production, safe disposal or recycling instructions, important warranty or maintenance information and much more. This comprehensive information can be accessed by scanning a QR code or other barcode to reveal key product information.
DPPs have become a key issue for green legislation as an increasing number of consumers are expressing concerns surrounding sustainability. A Forrester survey revealed that 69% of European respondents wished companies were more transparent about their business practices.
As DPPs are rolled out, some key industries like clothing and electronics—the latter category being one the World Health Organization calls the fastest-growing solid waste stream in the world—will be first, with other industries like automotive being given more time to comply.
What DPP Means For North American Automotive Compliance And Market Access
While this initiative is designed for European manufacturers, it will also impact manufacturers from outside the EU that are selling into that market. For U.S. automakers who already face a number of issues breaking into the European market, including emission standards and other regulatory hurdles, taking DPP seriously now could limit penalties and exposure through noncompliance for those selling in the EU now and ensure a smoother path to market entry.
It’s unclear when DPP standards will be required for automakers operating in the EU. Early industries like textiles and electronics are said to require DPP by 2027, so more complex industries like automotive could still have a few years to get processes in place. Given the complexity, however, it's never too early to prepare for DPP.
Becoming Leaders In Sustainability With DPP
DPPs work as consumer education tools, but their main focus is sustainability initiatives. So, while there are economic benefits for brands looking to break into the European market, spearheading DPP early could also benefit brand reputation.
American vehicle manufacturers have historically had a difficult time breaking into the EU market. However, in recent years, trends have shown an increase in European customers favoring electric vehicles. In fact, as that particular sector grew 20% from 2022 to 2023, it stands to reason that European consumers are growing more concerned with sustainability and environmental initiatives. Being early adopters of DPP could become a key point of separation for competitive automakers.
At a time when 62% of consumers “always or often” seek products to purchase that offer a pitch for sustainability, it’s clear that environmental concerns are only increasing, particularly among younger generations. Automakers that embrace the most rigorous environmental standards available will only make their case stronger for consumers who share those values.
What Auto Manufacturers Can Do Now To Prepare For A DPP Future
The transition to environmental transparency through DPP is not going to happen overnight, particularly in the auto manufacturing industry. Vehicles are some of the most complicated consumer products on the market, and sourcing detailed manufacturing, materials and maintenance information for all components can be daunting. Thankfully, automakers have years of lead time to prepare.
A key first step toward DPP compliance is a comprehensive approach to product data management. Having a single source of truth for all product components that can be easily managed and updated is crucial and can serve as a foundation for a DPP system.
Second, start coordinating with all stakeholders within the supply chain to encourage, or perhaps require, a transition to complete, digitized product records. Having disparate manufacturing partners work in lockstep toward a unified goal will save a lot of time and headaches in the future.
Education is also paramount in the transition process internally. Training product managers, sales teams and inventory managers on the role DPP will play in the future can go a long way to assuring the success of the program and, ultimately, the future viability of your business. The benefit of this program goes further than governmental compliance and market reach—the impacts will be seen with employee morale if the education on the topic shows how they are part of a solution toward making a positive environmental impact.
All in all, embracing DPP-aligned practices is not merely a regulatory necessity but a strategic imperative for market access and brand differentiation. By prioritizing transparency and sustainability and leveraging robust product information management (PIM) systems, North American automotive stakeholders can position themselves as leaders in the evolving landscape of product lifecycle transparency, gaining consumer trust and securing competitive advantage in an increasingly conscientious global marketplace.
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