The auto industry’s best-kept secret

February 22, 2013, 5:15 PM UTC

FORTUNE — Cars, long the bane of environmentalists, are becoming more earth-friendly. Finally, there is enough of a business case for big car companies to start building electric vehicles, hybrids, and, in the future, fuel cell-powered cars. It looks like the industry might gain some green cred.

What dictates green credibility? A company’s ability to reduce, reuse, and recycle raw materials. The auto industry is actually exceptionally good at these three R’s, and it has been for a while. The Automotive Recycler’s Association has been around since the 1940s. According to a report from the group, roughly 86% of the material components of U.S. cars are recycled or reused after those cars are off the road.

“I don’t know that there’s an industry that’s in a better place in terms of recyclability than automotive,” says Andrew Wertkin, the chief technology officer at PTC, a technology company that helps clients manage the lifecycles of their products. But the ability to recycle doesn’t give the car industry a gold star in the green department, Wertkin says. Why not? Why is auto recycling not a story that the industry tells all the time?

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There are a couple of good reasons car companies are not touting their recycling prowess in the U.S. For one, the market for cars that burn alternative fuels is relatively new and small. For all of Toyota’s (TM) success with the Prius, hybrids only make up roughly 3% of the total vehicles sold annually in the U.S.

Second, in America, green still isn’t enough of a selling point to really come into play. Toyota is making impressive efforts on using sustainable materials, says Eric Olson, senior vice president of advisory services at research and consulting firm Business for Social Responsibility. Toyota is using reclaimed materials in seats, for example, and some of the insulation is made out of soy foam.

“I drive one of these EVs [electric vehicles],” Olson says, “and I do look at that stuff. But for EVs to go from thousands of units to millions of units is not going to be because of soy foam in the door panels.” In marketing to U.S. car buyers, Olson says, “the element that does work for the Prius is that they’re trying to package it as cool, not even primarily the right thing to do.”

Appealing to “the right thing to do” is tough in this case. First of all, says Wertkin, the auto recycling industry didn’t evolve for the public good; there was a solid business case for the effort. According to the Automotive Recycler’s Association, the car recycling industry nets $32 billion in sales annually. “There’s always been a thriving used part market in automotives,” Wertkin says. “By happenstance, they use a ton of metal and glass and easily recyclable stuff. Cars are unbelievably dismantle-able,” he adds, which is a coincidence, not a concerted effort.

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Not that the industry needs to have the best intentions to help the Earth. Steel, which is difficult if not impossible to mine sustainably, can be repurposed for a profit. The United States Geological Survey reported in January that the automotive recycling industry recycled more than 15.5 million tons of steel from junked cars, which is about 11.9 million vehicles’ worth.

But there is still a messy underbelly that the industry might not want to highlight. According to the EPA, auto recyclers prevent 25 million tons of materials from reaching landfills. That being said, 5 million tons still get trashed. Those 5 million tons consist of everything sent through the shredder that can’t be reused: fabrics, plastics, glass, rubber, and various metals.

Companies can invite consumer backlash when they seem to have conflicting green goals. For example, in 2002, Ford (F) completed a green roof for its River Rouge factory near Detroit. But efforts to promote its green roof generated negative responses — the company was also, simultaneously, fighting gas mileage regulation in California, which was intended to curb greenhouse gas emissions. Environmental groups came down hard on Ford for what they saw as hypocrisy, says Olson.

Going forward, car companies will have an easier time promoting their green goals as they make cars that burn less fossil fuels, and the American consumer finds green efforts more compelling.

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The catch is that an influx of materials used to build cars that burn alternative fuel might complicate the recycling process. “Hybrid fuel cells or any non-fossil fuel vehicles are way more difficult to recycle and reuse and reclaim, and have many more potentially toxic substances,” says Wertkin.

But, he adds, as with consumer electronics, the European Union is passing regulation that holds car companies accountable for the entire lifecycle of the product. The industry will need to figure out not only how to make more efficient cars, but how to keep them green once they hit the junkyard.

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