The Automotive Industry in an Era of Eco-Austerity: Creating an Industry As If the Planet Mattered

The Automotive Industry in an Era of Eco-Austerity

This book is dedicated to Thaisa. Muito obrigado meu amor.

The Automotive Industry in an Era of Eco-Austerity Creating an Industry as if the Planet Mattered

Peter E. Wells Cardiff University, UK

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© Peter E. Wells 2010 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2009941410

ISBN 978 1 84844 967 1 (cased)

02

Printed and bound by MPG Books Group, UK

Contents List of abbreviations Preface: the era of eco-austerity Acknowledgements 1 2 3 4 5 6 7

vi viii x

The automotive industry in crisis: economic and environmental failure Diversity and the industrial ecology metaphor Contemporary global diversity and cultures of automobility Emergent diversity in the global automotive industry: the policy agenda Alternative business models as the basis of a new industrial ecology of the automobile Enablers and limiters of change Conclusions

Bibliography Index

1 39 58 78 99 130 163 171 193

v

Abbreviations ACEA AEB AMP ASA ATS bbl BRIC CAFE CARS CAW CNG EBIT ELV EPA ERG EU EV FAPRI GMAC GMD HCNG HCV HFCs IEA JAMA KAMA LCV LPG M&A mbd MDI MFR mpg mtpa MY

European Automobile Manufacturers’ Association Association of European Businesses Automotive Mission Plan (India) Advertising Standards Agency (UK) Automotive Transformation Scheme (Australia) Billion barrels Brazil, Russia, India and China Corporate Average Fuel Economy (US) Car Allowance Rebate System (US) Canadian Auto Workers Compressed natural gas Earnings before interest and taxes End of Life Vehicle Environmental Protection Agency (US) Electric Recharge Grids European Union Electric vehicle Food and Agriculture Policy Research Institute (US) GM Acceptance Corporation Gordon Murray Design Hydrogen compressed natural gas Heavy commercial vehicle Hydrofluorocarbons International Energy Agency Japan Automobile Manufacturers’ Association Korea Automobile Manufacturers’ Association Light commercial vehicle Liquid petroleum gas Merger and acquisition Million barrels per day Motor Development International Micro Factory Retailing Miles per gallon Million tons per annum Model Year (US) vi

Abbreviations

NAP NGO NGV NHTSA OECD OEM OICA OIE PBP ppm PSS RAC RNPO SMMT SNM TPS UAW UNECE V2G VSP WHO

vii

National Automotive Policy (Malaysia) Nongovernmental organization Natural gas vehicle National Highway Traffic Safety Administration (US) Organization for Economic Cooperation and Development Original equipment manufacturer Organisation Internationale des Constructeurs d’Automobiles Office of Industrial Economics (Thailand) Project Better Place Parts per million Product service system Royal Automobile Club (UK) Renault Nissan Purchasing Organization Society of Motor Manufactures and Trades (UK) Strategic Niche Management Toyota Production System United Auto Workers United Nations Economic Commission for Europe Vehicle-To-Grid Voiture sans permit (France) World Health Organization

Preface: the era of eco-austerity Like a winter dawn creeping chill and grey over the land, the realization is growing that we are entering a new era. While the people of the world have endured previous periods of economic hardship, the new era is different. There is a real and justified fear as communities seek to comprehend the new language of crisis with its sub-prime borrowers, toxic assets, negative equity and quantitative easing, and somehow to trace cause and effect from the urban poor of America to the glittering bonus payments of the City of London. Factories and offices are closing their doors. It feels like the whole world economy has frozen solid with fear: investment has ground to a halt, sales have crumbled into bare minimalism, nobody is recruiting and nobody is selling a house. There is a collective holding of the breath while we wait for things to get back to normal. Only they will not go back to normal, if normal is what we have experienced in the last 20 years or so. This really is a new era. For a start, it will take many years to recover the losses of the last 12 months that have been witness to wealth destruction on an unprecedented scale. More fundamentally, we cannot allow a repetition of the fevered bubble of speculation upon which our economic lives floated – because in the end all bubbles burst. At the same time, the environmental challenges have not gone away. In fact, with every passing of a new scientific report or research project the evidence continues to accumulate: not only are things worse than we thought, they are also getting worse even more quickly than we thought. It is not just climate change. It is an entire package of disasters that threatens our very social existence that scientists are seriously discussing now. Be it water shortages or the decline in petroleum production, encroaching deserts or the loss of forests, species extinction or the collapse of fish stocks – everywhere the pressure of humanity on the planet is reaching critical levels. Until recently, we believed that we could face these challenges and had the economic power to overcome them, because we could afford to be green. Well, we don’t have the money any more, but we cannot afford not to be green. For us, this becomes a critical juncture in human history. A burgeoning global population is going to face a devastating economic slowdown at a time when the resource base is stretched to its limits. viii

Preface

ix

The era of eco-austerity sounds grim, and well it might be if we are not careful and imaginative. There is a very real danger that, under these circumstances, our future is one of an unremitting scramble for the dwindling resources of the planet. It is all too easy for a ‘green totalitarianism’ to emerge promising stronger government for a greener planet. An alternative scenario might be one of social implosion and global population collapse as we virtually return to the Stone Age. The truth is that none of us forecasters and analysts and visionaries really knows what the future will bring, because the rules have changed such that the old certainties have crumbled to dust around us. Governments are currently focused on trying to salvage what they can from the wreckage of the economy, and particularly the financial system. Large sums of money are being poured into vulnerable sectors like banking and the automotive industry in an attempt to return to the ‘growth’ that was a key factor behind the problems in the first place. This reaction is inevitable, but ultimately may be pointless or counter-productive – just pouring good money after bad. The era of eco-austerity is opening with a firestorm of creative destruction, which in turn creates the conditions for a radical transformation of our lives. The financial crisis has exposed the chronic lack of sustainability in our previous lifestyles, when we lived like there was no tomorrow – but tomorrow then arrived. Crises have always been the basis for opportunity, and now this is the case more than ever. The new era of eco-austerity may actually be one to be embraced and celebrated rather than confronted and overcome because now is the time for a radical change in our culture, in our social structures, in our political processes, in our lifestyles, in the very meaning of ‘wealth’ and ‘success’ and ‘growth’. Over the next few months and years, the shape of the new era will start to become evident. On the other hand, it is extremely challenging to translate this rhetoric into substantive action, particularly in an industry as problematic as the automotive industry and an activity as problematic as motorized personal mobility. This book is a modest attempt to provide an account of how we arrived at this point, and what the solutions might be. In so doing, the book has recourse to some key themes including diversity, flexibility, volatility, turbulence, localism, technological innovation, social and business innovation, and cultural change. Ultimately this is not about the search for the best single technology for a sustainable car – it is much more wide ranging than that. This book is about the search for and transition to multiple and diverse solutions to the provision of sustainable personal mobility.

Acknowledgements The research for this book was made possible through funding by the UK Economics and Social Research Council of the Centre for Business Relationships, Accountability, Sustainability and Society (BRASS) at Cardiff University. I would like to acknowledge the support of Gareth Davies at AutomotiveWorld, Paul Nieuwenhuis and my fellow academics, PhD students and staff at BRASS, and the many members of the automotive industry, government and voluntary groups who have over the years provided information and funding. Every effort has been made to trace all the copyright holders but if any have been inadvertently overlooked the publishers will be pleased to make the necessary arrangements at the first opportunity.

x

1. 1.1

The automotive industry in crisis: economic and environmental failure WHEN IS A CRISIS?

In the realm of economics and business, a crisis is rarely a single event or a happening of short duration. When a company becomes bankrupt, or when an entire industrial sector collapses, there may be one or more pivotal moments, but crisis is generally a process or a sequence of events. So it is with the crisis that engulfed the global automotive industry in 2008 and 2009. While it might be said that the industry was the victim of circumstances beyond its control, as industry leaders have been wont to claim, this explanation neglects two important factors. First, the automotive industry was itself part of the ‘circumstances’ in so many ways; and secondly, while the financial upheavals unfolding from late 2007 onward might have been the proximate cause of market collapse and hence corporate crisis for vehicle manufacturers and suppliers, the underlying causes lie buried deep within the long-standing business practices of the industry. This book is not intended to be one of the growing numbers that seek to analyse the convulsions that rippled through the global economy from 2007 onward. There are already several insightful accounts (Shiller, 2008) and doubtless more will arrive. It should be recognized, however, that in so far as the global financial crisis had its roots in massive trade imbalances, and in consumers, governments and companies spending beyond their means, then the automotive industry was undeniably part of the problem. New car sales around the world were, up to 2007, booming as never before on the strength of freely available credit and a continuing surge in investment into new production capacity. Vehicle manufacturers were making cars like there was no tomorrow, and they were right! The idea that the leading vehicle manufacturers and the automotive industry as a whole are somehow blameless, passive and undeserving victims of external events is one of the key myths to be challenged in this book. Such an analysis inevitably leads to the conclusion that the crisis is temporary, has nothing to do with structural problems in the industry, and 1

2

The automotive industry in an era of eco-austerity

can be resolved by government financial support until business as usual is possible and markets return to normality. On the contrary the crisis for the automotive industry derives from the inability of the industry to confront the twin threat of economic and environmental pressures. These two forces for change are not distinct but in fact are intimately connected one with the other, although some leading figures concerned with the issue of climate change have not embraced this perspective (Stern, 2009). For example, the burgeoning consumption of scarce raw materials by the automotive industry was one of the factors behind the surge in commodity prices that occurred just prior to the mid-2008 collapse. In a different but similar vein, the relentless consumption of petroleum by cars in use has been a key factor behind the growth in CO2 emissions to the atmosphere, and consequent global climate change, while simultaneously being a major feature in global trade imbalances. In this regard the automotive industry is one of the first in the world to truly face the reality that it is not sustainable. Being unsustainable is necessarily a temporary condition, but the automotive industry like many others appeared to be managed by those that believed that the day of reckoning could be postponed into the indefinite future.

1.2

THE ECONOMIC DIMENSION

According to the Organisation Internationale des Constructeurs d’Automobiles (OICA), in 2005 if automotive manufacturing was treated like a country, it would be the sixth largest in the world with an equivalent turnover of €2 trillion (OICA, 2009). From the turn of the millennium vehicle production expanded significantly, and in the decade from 1995 to 2005 the industry expanded by some 30 per cent. Already the rather grand claims made by the industry appear to ring rather hollow, for example that ‘automobiles represent freedom and economic growth’ (OCIA, 2009). The estimated nine million direct jobs and 50 million indirect (supplier) jobs created by the industry worldwide are now dependent upon government hand-outs. The estimated US$400 billion contributed annually to government revenues worldwide also looks less attractive now as governments and society pick up the costs of closure and rationalization. Table 1.1 shows car and commercial vehicle production by country in 2000, while Table 1.2 shows car production by country for 2000, 2007 and 2008. It is recognized that data in this and other tables may not agree with other sources, chiefly due to differences in definitions and the difficulties of double-counting kit assembly. However, the data are broadly internally

The automotive industry in crisis

Table 1.1 Country

Total Source:

Car and commercial vehicle production by country, 2000 Cars

Argentina Australia Austria Belgium Brazil Canada China Czech Rep. Egypt Finland France Germany Hungary India Indonesia Iran Italy Japan Malaysia Mexico Netherlands Poland Portugal Romania Russia Serbia Slovakia Slovenia South Africa South Korea Spain Sweden Taiwan Thailand Turkey UK Ukraine USA Uzbekistan Others

3

Commercial vehicles

Total

Total change (%) 1999–2000

238 921 323 649 115 979 912 233 1 351 998 1 550 500 604 677 428 224 39 616 38 468 2 879 810 5 131 918 134 029 517 957 257 058 274 985 1 422 284 8 359 434 280 283 1 279 089 215 085 481 689 178 509 64 181 969 235 11 091 181 333 122 949 230 577 2 602 008 2 366 359 259 959 263 013 97 129 297 476 1 641 452 18 124 5 542 217 32 273 127 445

100 711 23 473 25 047 121 061 329 519 1 411 136 1 464 392 27 268 20 149 458 468 551 394 697 3 369 283 403 35 652 3000 316 031 1 781 362 2 547 656 438 52 234 23 283 68 215 13 984 236 346 1 649 450 0 126 787 512 990 666 515 41 384 109 600 314 592 133 471 172 442 13 131 7 257 640 0 63 204

339 632 347 122 141 026 1 033 294 1 681 517 2 961 636 2 069 069 455 492 59 765 38 926 3 348 361 5 526 615 137 398 801 360 292 710 277 985 1 738 315 10 140 796 282 830 1 935 527 267 319 504 972 246 724 78 165 1 205 581 12 740 181 783 122 949 357 364 3 114 998 3 032 874 301 343 372 613 411 721 430 947 1 813 894 31 255 12 799 857 32 273 190 649

11.4 14.6 1.2 1.6 24.5 −3.2 13.1 21.1 −21.4 13.2 5.3 −2.8 7.2 −2.1 228.9 132.8 2.2 2.5 11.3 24.9 −13.0 −12.2 −2.2 −26.9 3.1 141.8 43.3 4.1 12.6 9.6 6.3 20.2 5.6 27.6 44.7 −8.1 63.0 −1.7 −27.4 59.3

41 215 653

17 158 509

58 374 162

3.8

Derived from OICA.

4

The automotive industry in an era of eco-austerity

Table 1.2 Country Argentina Australia Austria Belgium Brazil Canada China Czech Rep. Egypt Finland France Germany Hungary India Indonesia Iran Italy Japan Malaysia Mexico Netherlands Poland Portugal Romania Russia Serbia Slovakia Slovenia South Africa South Korea Spain Sweden Taiwan Thailand Turkey UK Ukraine USA Uzbekistan Others Total Note: Source:

Car production by country, 2000, 2007 and 2008 Cars 2000

Cars 2007

238 921 323 649 115 979 912 233 1 351 998 1 550 500 604 677 428 224 39 616 38 468 2 879 810 5 131 918 134 029 517 957 257 058 274 985 1 422 284 8 359 434 280 283 1 279 089 215 085 481 689 178 509 64 181 969 235 11 091 181 333 122 949 230 577 2 602 008 2 366 359 259 959 263 013 97 129 297 476 1 641 452 18 124 5 542 217 32 273 127 445

350 735 283 348 199 969 789 674 2 388 402 1 342 133 6 381 116 925 778 67 149 24 000 2 550 869 5 709 139 287 982 1 707 839 309 208 882 000 910 860 9 944 637 347 971 1 209 097 61 912 695 000 134 047 234 103 1 288 652 8 236 571 071 174 209 276 018 3 723 482 2 195 780 316 850 212 685 315 444 634 883 1 534 567 380 061 3 924 268 170 000 429 430

46.8 −12.5 72.4 −13.4 76.7 −13.4 955.3 116.2 69.5 −37.6 −11.4 11.2 114.9 229.7 20.3 220.7 −36.0 19.0 24.1 −5.5 −71.2 44.3 −24.9 264.8 33.0 −25.7 214.9 41.7 19.7 43.1 −7.2 21.9 −19.1 224.8 113.4 −6.5 1997.0 −29.2 426.8 237.0

399 577 285 590 125 436 680 131 2 561 496 1 195 436 6 737 745 933 312 72 485 18 000 2 145 935 5 526 882 342 359 1 829 677 431 423 940 870 659 221 9 916 149 419 963 1 241 288 59 223 840 000 132 242 231 056 1 469 429 9 818 575 776 180 233 321 124 3 450 478 1 943 049 252 287 138 709 401 309 621 567 1 446 619 400 799 3 776 358 195 038 332 917

13.9 0.8 −37.3 −13.9 7.2 −10.9 5.6 0.8 7.9 −25.0 −15.9 −3.2 18.9 7.1 39.5 6.7 −27.6 −0.3 20.7 2.7 −4.3 20.9 −1.3 −1.3 14.0 19.2 0.8 3.5 16.3 −7.3 −11.5 −20.4 −34.8 27.2 97.9 −5.7 5.5 −3.8 14.7 −22.5

41 215 653

53 049 391

28.7

52 637 206

−0.8

USA excludes light trucks. Derived from OICA.

% change (2000–2007)

Cars 2008

% change (2007–2008)

The automotive industry in crisis

5

consistent and it is assumed that in net global terms any differences will be marginal. From Table 1.2 it can be seen that the automotive industry as a whole entered the new millennium with a robust growth rate overall in terms of cars and commercial vehicles produced. Although it is the markets of the so-called BRIC countries (Brazil, Russia, India and China) that often get the attention, Table 1.1 shows that the strongest growth in percentage terms at that time was in a variety of countries such as Ukraine, Turkey, Brazil, Indonesia and Serbia. Table 1.2 gives a clearer overview of the relative boom conditions since the millennium up to the global financial crisis of 2008. As can be seen, production output showed extraordinary growth in some countries including the BRIC countries. It is notable also that car production in the United States had fallen by 29 per cent by the end of 2007 and by a further 4 per cent in 2008 (though this figure excludes the ‘light truck’ category of vehicles that are often used as passenger cars in that market). Production also fell in other traditional locations during this time period, including Canada, Belgium, France, Italy, the UK and the Netherlands. Of the main traditional production locations, only Japan and Germany managed to show a growth in output in the period 2000 to 2007, indicative of a strong export performance rather than greater demand in the domestic market. In contrast, production in China soared to 6.3 million cars in 2007. Thus the overall growth of 28.7 per cent shown in car production for the period 2000 to 2007 masks some very strong variations at a national level as the ‘tectonic plates’ of the industry shifted. Indeed this geographic restructuring in terms of production is but one aspect of an underlying theme in this book – that of turbulence. Data for 2008 show major reductions in output from 2007 in countries such as Italy, France, Spain and Sweden even though at a global level output was virtually unchanged. In Table 1.3 the top 50 vehicle producing companies in 2007 are listed. Again the data are essentially pre-crisis in that they reflect the position prior to the major global financial events of 2008. The subsidiary brands owned by the various groups are not shown (e.g. the data for VW does not show the figures for Skoda, Audi, SEAT and the other brands held by the group). Neither do the data account for the complexity of the interlinkages and cross-shareholdings between various companies. Finally, the data do not show the many smaller companies active in niche markets such as Lotus. Still the data do show, for all the expectation of consolidation in the automotive industry in the search for ever-greater economies of scale, that the industry on the eve of the crisis remained significantly fragmented on a world scale. Overlaid on these national data are the investments and outputs of

6

The automotive industry in an era of eco-austerity

Table 1.3

Global vehicle production by company, 2007

Rank Group 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

GM Toyota Volkswagen Ford Honda PSA Nissan Fiat Renault Hyundai Suzuki Chrysler Daimler BMW Mitsubishi Kia Mazda Daihatsu AVTOVAZ FAW Tata Fuji Chana Automobile Isuzu Beijing Automotive Dongfeng Chery Others SAIC Brilliance GAZ Volvo Harbin Hafei Geely Anhui Jianghuai Mahindra Paccar Great Wall Jiangxi Changhe

Cars

LCV

HCV

Heavy Bus

Total

6 259 520 7 211 474 5 964 004 3 565 626 3 868 546 3 024 863 2 650 813 1 990 715 2 276 044 2 292 075 2 284 139 754 855 1 335 226 1 541 503 1 100 528 1 286 299 1 165 660 711 595 735 897 690 712 243 251 512 606 543 787

3 055 575 1 108 333 256 777 2 586 284 43 268 432 522 641 734 536 578 392 996 67 003 312 177 1 779 269 257 350 0 304 273 81 040 117 779 130 968 0 0 170 230 72 422 0

33 042 129 107 39 600 95 596 0 0 131 429 127 542 0 159 237 0 4 500 438 954 0 7 174 0 3 291 13 608 0 0 157 781 0 0

1 681 85 776 7510 0 0 0 7422 24 616 0 99 410 0 0 65 447 0 0 1991 0 0 0 0 16 896 0 0

9 349 818 8 534 690 6 267 891 6 247 506 3 911 814 3 457 385 3 431 398 2 679 451 2 669 040 2 617 725 2 596 316 2 538 624 2 096 977 1 541 503 1 411 975 1 369 330 1 286 730 856 171 735 897 690 712 588 158 585 028 543 787

0 454 272

49 810 0

478 535 0

3668 0

532 013 454 272

437 035 427 882 189 057 313 002 293 588 39 138 0 231 488 216 774 209 880

0 0 69 935 0 0 179 596 14 825 0 0 0

0 0 85 036 0 0 30 105 210 446 0 0 0

0 0 24 700 0 0 0 10 753 0 0 0

437 035 427 882 368 728 313 002 293 588 248 839 236 024 231 488 216 774 209 880

104 441 0 122 605 112 083

64 115 0 0 0

0 126 960 0 0

0 0 0 0

168 556 126 960 122 605 112 083

The automotive industry in crisis

Table 1.3

7

(continued)

Rank Group

Cars

40 41 42 43

107 170 0 100 376 100 202

0 4 586 0 0

0 97 323 0 0

0 4 984 0 0

107 170 106 893 100 376 100 202

0 0 84 138 0 31 869 68 160 65 790

0 0 0 0 40 293 0 0

92 485 70 839 0 71 017 0 0 0

5 956 15 919 0 7 314 0 0

98 441 86 758 84 138 78 331 72 162 68 160 65 790

56 301 121

12 775 910

2 685 200

416 245

72 178 476

44 45 46 47 48 49 50 Total Note: Source:

Porsche Hino BYD China National MAN Navistar Fujian Scania UAZ Shannxi Shangdong Kaima

LCV

HCV

Heavy Bus

Total

LCV = light commercial vehicle; HCV = heavy commercial vehicle. Derived from OICA.

multiple vehicle manufacturers engaged in a process of inter-market penetration facilitated and augmented by the creation of new manufacturing capacity – often with destabilizing results for the recipient economies (Changhoon and Clark, 2007). Table 1.4 shows similar data but for 2008, where the impact of reduced production can be seen as well as the shifting ‘league status’ of the companies – notably of course the ascent of Toyota to become the largest vehicle manufacturer in the world.

1.3

THE PROCESS OF DECLINE

At the outset it is to be admitted that corporate strategy at all levels is diverse and contextual, while the glib phraseology of ‘globalization’ does little to capture the reality of the industry over the last ten years or so (Freyssenet et al., 2003). The idea that there can be one best way (Womak et al., 1990) has been largely discredited. Despite this, the underlying business model that forms the basis of the Toyota Production System (TPS), or Fordism, or Sloanism, or Hondaism is technologically and structurally similar in all cases. Of course differences between these approaches are important, and can be the difference between profitable survival and

8

The automotive industry in an era of eco-austerity

Table 1.4

Global vehicle production by company, 2008

Rank Group 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

Toyota GM Volkswagen Ford Honda Nissan PSA Hyundai Suzuki Fiat Renault Daimler AG Chrysler BMW Kia Mazda Mitsubishi AVTOVAZ Tata FAW Fuji Isuzu Chana Automobile Dongfeng Beijing Automotive Chery SAIC Volvo Brilliance Harbin Hafei Geely Anhui Jianghuai BYD GAZ Mahindra Proton Great Wall Paccar Chongqing Lifan

Cars

LCV

HCV

Heavy bus

7 768 633 6 015 257 6 110 115 3 346 561 3 878 940 2 788 632 2 840 884 2 435 471 2 306 435 1 849 200 2 048 422 1 380 091 529 458 1 439 918 1 310 821 1 241 218 1 175 431 801 563 489 742 637 720 552 096

1 102 502 2 229 833 271 273 1 991 724 33 760 463 984 484 523 85 133 317 132 516 164 368 929 330 507 1 356 610

251 768 24 842 46 186 68 715

114 877 12 871 9 840

134 033

8 416

151 759

104 774

135 658

23 303

395 123 7 000

68 578

83 159 105 754 128 233

1 344 2 302 5 567

160 966

128 169

19 388

64 401 47 101

488 488

3 221

Total

531 149

9 237 780 8 282 803 6 437 414 5 407 000 3 912 700 3 395 065 3 325 407 2 777 137 2 623 567 2 524 325 2 417 351 2 174 299 1 893 068 1 439 918 1 395 324 1 349 274 1 309 231 801 563 798 265 637 720 616 497 538 810 531 149

489 266 446 680

489 266 446 680

350 560 282 003

350 560 282 003 248 991 241 553 226 754 220 955 207 711

17 964

218 542

140 985 62 201 493

24 025

241 553 226 754 220 955 207 711 192 971 22 043 100 615 156 813 129 651

125 084 122 783

12 485

192 971 187 053 162 816 157 306 129 651 125 084 122 783

The automotive industry in crisis

Table 1.4

(continued)

Rank Group

Cars

40 41

107 422

42 43 44 45 46 47 48 49 50 Total Note: Source:

9

MAN Jiangxi Changhe China National Porsche LUAZ Navistar Scania Shannxi Auto UAZ Ashok Leyland Kuozui

LCV 100 566

HCV

Heavy bus

7 487

108 053 107 422

106 377 96 721 88 316

106 377

2 232 76 302 72 067

13 962 7 807

41 228 1 019

50 539

19 927

63 827

1 792

2 272

55 130 574

10 741 629

2 292 188

75 220 30 953

Total

96 721 90 548 90 264 79 874 75 220 72 181 71 485 67 891

419 449

68 583 840

LCV = light commercial vehicle; HCV = heavy commercial vehicle. Derived from OICA.

financial collapse in the course of competition between companies within the same industry sector. Yet the industry tends towards an institutional isomorphism on the fundamental parameters of product design (all steel vehicles using internal combustion engines), process design (steel stamping and welding, body painting, trim and final assembly), and marketing approach (distributed network of franchised dealers, revenue streams generated by the sale of cars, multiple product brand ranges) premised on economies of scale and standardization (see Nieuwenhuis and Wells, 2007 and Batchelor, 1994 for an historical account of the emergence of this system). Industry observers have for some time been arguing that a new business model is needed (Nieuwenhuis and Wells, 1997; Maxton and Wormold, 2004). Figure 1.1 illustrates the spiral of events that make the reversal of corporate decline so difficult (Wells, 2009c). The immediate cause of problems is of course a decline in sales, as has happened on an industry-wide basis since mid-2008. Inevitably, such a general crisis more profoundly affects the weaker companies – though the business studies literature tends to neglect the lessons to be learnt from failure (Chesbrough and Rosenbloom, 2002; Denrell, 2003). In the past this spiral of decline can be traced back to more individual events – the Ford Firestone case is a good

10

The automotive industry in an era of eco-austerity UNIT SALES FALL REVENUES FALL/ UNIT COSTS RISE

MARKET VALUE DECLINES

DEALERS LOSE CONFIDENCE

SUPPLIERS LOSE CONFIDENCE

INVESTOR RETREAT

DEALERS TAKE OTHER FRANCHISES STAFF MORALE FALLS TIME TO MARKET INCREASES INCREASED RISK OF TAKEOVER CUSTOMER SERVICE DECLINES PRODUCTS BECOME TOO OLD KEY COMPETENCIES LOST UNIT SALES FALL

PROFITABILITY DECLINES

Figure 1.1

The crisis spiral

illustration (O’Rourke, 2001; Moll, 2003; Noggle and Palmer, 2005), as is the problem Mitsubishi had with cover-ups over neglected vehicle recalls in Japan (Ito, 2006). Moreover, while much of the concern has been with crisis and resolution over a relatively short time period, it is also possible for ‘crisis’ to unfold inexorably over the years. Indeed, some aspects of the negative feedback process described here can take many years for the full effects to be felt by the company. For example, when a crisis hits a company key design staff may decide to leave and find employment elsewhere. This does not matter for the immediate product portfolio, or even for models largely developed but not in the market, but in a few years’ time when full replacements are due the quality of the new designs may not be up to the desired level. As the crisis deepens so the negative effects are found throughout the organization, and the negative feedback loops start to develop. For the vehicle manufacturers the following are important: ● ● ●

customers; financial community; franchised dealer networks;

The automotive industry in crisis ● ●

11

suppliers; internal resources and competences.

Customers Customers are of course vital in this process, be they corporate or private retail. If customers lose confidence in a brand, then it is bound to suffer. Damage to a brand can be difficult and expensive to repair; alternatively, building a brand image and reputation takes many years. There is a secondary impact on used car values that is also important. If the brand is seen to be weakened, residual values on used cars will fall, with some customers getting into the automotive equivalent of ‘negative equity’ whereby the actual value of a three-year-old car is significantly below the book value upon which a finance package has been arranged. In fact with the overall market crisis several vehicle manufacturers had to reduce the asset value of the cars that they had sold under finance packages, wiping many millions of Euros off their balance sheets (Mercedes lost €449 million in the third quarter of 2008 alone due to this problem according to Reiter, 2008). Financial Community A weaker share price that reflects the troubles a company is experiencing simultaneously makes a company vulnerable to external takeover, and less able to generate the resources to mount a defence. In order to shore up the balance sheet, a company may need to sell assets but at the same time the debt rating may be reduced, thereby making capital more expensive. True, speculations over takeovers of a weak company, hostile or otherwise, can act to drive up share price again but this does not in itself help with debt rating. For example, in 2008 one of the debt rating agencies, Standard and Poor, cut the then DaimlerChrysler Financial Services Americas limited liability company rating from CCC+ to CCC− (Isaiah, 2008b). Many of the global vehicle manufacturers suffered from a shortage of finance in the post-crisis environment from mid-2008. Governments had to step in to provide ‘soft loans’ and loan guarantees (Lampinen, 2009) because so many new car purchases are made via various finance schemes rather than outright purchase by customers. In the first half of 2009 the EU European Investment Bank provided €7 billion (US$9 billion) for vehicle manufacturers (Proctor, 2009a). For GM Acceptance Corporation (GMAC) in North America, new vehicle consumer financing contracts during the first quarter of 2009 fell significantly to US$3.4 billion from US$13.1 billion in the first quarter of 2008. At the end of 2008 new contracts had collapsed, and it was only with an investment from the US Treasury’s Troubled

12

The automotive industry in an era of eco-austerity

Asset Relief Program in late 2008 that GMAC expanded its new North American retail car financing activities (AutomotiveWorld, 2009a). Again it is significant that these processes may play out over differential time periods. Some, such as adjustments to share price, can happen quickly – indeed such adjustments are the short-term consequences of financial markets assessing the future implications of recent developments. On the other hand, selling off assets in order to generate funds and reverse the crisis spiral may take some time, and equally the more ‘distressed’ the position of the company the more likely it is that the full asset value cannot be realized because potential buyers know the seller is increasingly desperate to generate whatever revenues are possible. The automotive industry faces daunting investment costs into the future, in four main categories: the rationalization costs of closing unwanted capacity in saturated markets; the investment costs in opening up new capacity in growth markets; the development costs for new models; and the R&D costs of bringing to market alternative technologies to achieve environmental targets. With low or negative profitability, the required investment resources must come from outside. A key question is, therefore, can the automotive industry afford its own future? Franchised Dealer Networks The franchised dealer network is a key element in the mainstream business model for vehicle manufacturers, for without it the spatially extensive market could not be reached. These dealerships are independent, and employed precisely because of their sensitivity to changing market conditions. Over an extended period of time, the number of dealers in the mature markets has fallen. In the UK, for example, in the 30 years to 2007 the total number of franchised dealers decreased from 11 201 (1976) to 5273 (2007), almost a 50 per cent reduction (Sewells, 2008). As sales per outlet fall, so the confidence of the dealers falls. They might react by seeking to take another brand into the franchise or business; once a single-franchise operation becomes a multi-franchise outlet some sales that would previously have gone to the initial brand will go instead to the new brand, thereby reducing sales overall to the brand under crisis. This situation is made worse if entire brands are dropped (see the section on rationalization and cost reduction below), or if the vehicle manufacturer decides to reduce the number of dealers, thereby creating ‘gaps’ in network coverage. In the USA, GM informed around 1100 franchised dealers that it would not renew their contracts in October 2010 as part of its previously announced intention to reduce the total number of dealers by 42 per cent, from 6246 in 2008 to 3605 by the end of 2010 (AutomotiveWorld, 2009b). A similar

The automotive industry in crisis

13

42 per cent cut was later announced for Canada. When Chrysler went into bankruptcy in 2009 it too announced dealer reductions (789 in the USA as of May 2009), but also halted so-called wholesale financing to dealers (which enables them to hold stock at 0 per cent finance cost for a limited period), thereby reducing their operational flexibility. It is interesting to note that the GM Europe dealer network actually tried to buy a 10 per cent share in the vehicle manufacturer in May 2009, having raised some €500 million, when the proposed sale to Magna was being discussed. The claim is that having fewer dealerships will give higher sales volumes per dealer, and hence greater financial viability. With declines, however, franchised dealers may become reluctant to invest at former levels such that, for example, the physical fabric of the retail outlets declines, as does the skills level of the workforce due to lapses in training coverage. Once again, therefore, customer service levels will fall and so will sales, thereby accelerating the impetus to decline. Not surprisingly dealers may find it difficult to trust vehicle manufacturers. In mid-2008 GM issued a statement that there were no plans to remove any brands from its range other than Hummer (Murphy, 2008a), yet barely six months later Saab, Saturn and Pontiac were added to the list. Suppliers The large changes introduced with lean production included a series of new policies to manage the supply base. The number of direct suppliers was cut by a factor of ten while a degree of control was passed to the leading suppliers in terms of product development. The vehicle manufacturers became strongly interventionist, sending development teams to enhance the quality and productivity of their suppliers. Lean sourcing was not in itself enough, however. In addition the vehicle manufacturers have sought to capitalize on low production costs associated with emergent production locations, and so in reality the ‘shared destiny’ concept has not survived critical events and, if anything, leading suppliers are now seeking to exert market power to retain price levels. Table 1.5 provides a summary. Vehicle manufacturers are increasingly reliant on suppliers, but in a crisis vehicle manufacturers become vulnerable both to strategic choices by the supplier and indeed to that supplier simply going out of business. If suppliers start to reduce their investments to a particular vehicle manufacturer in product development then it is likely that the pace of new model development will slow and/or there will be some aspects of the new model that are not up to current standards. In either case the vehicle manufacturer is left competing in the market with products that are less than ideal, being either too old or insufficiently competent, or both. In

14

The automotive industry in an era of eco-austerity

Table 1.5

Transitions in vehicle manufacturers’ sourcing strategies Traditional

Lean

Extended enterprise

Neotraditional

Number of 2 000–3 000 suppliers per model or plant Geographic Local scope of supply base R&D capacity Work to of suppliers drawing

200–300

20–30

200–300

Regional

Regional

Global

Design to fit

Innovative solutions

Innovative, sometimes challenging to vehicle manufacturers

Contracts to suppliers

Short term; awarded on quoted cost basis

Model term; awarded on cost, quality, delivery basis

Renewed cost emphasis

Management of supply base

Remote; piece price focus

Structure of supply side

Fragmented; national focus High; captive suppliers for main subassemblies

Interventionist; quality, price, delivery focus; supplier performance optimization Tiered hierarchy; regional focus Reduced; captive suppliers seek external business

Model or platform term; awarded on ‘shared destiny’ basis Outsourced; value mapping; chain optimization; strategic focus Supply chain; regional focus Selective integration in strategic technologies; reduced integration elsewhere

Low-level integration emerging even in ‘core’ technologies

Vertical integration in the OEMs

Source:

Automated; reliance on external accreditation; material cost focus Supply chain; global focus

Wells, 2008a.

turn this will undermine sales and so take the decline spiral around a further iteration. Prior to 2007 there had already been multiple high-profile business failures in the automotive components industry, including Meridian, Tower

The automotive industry in crisis

Table 1.6

15

Some illustrative major supplier bankruptcies to late 2009

Supplier

Activity

Location

Event

JL French

Castings

US

Lear

Seating; world’s 11th largest supplier

US and Canada

Visteon

Multiple areas (ex-Ford captive supplier) Wheels

US

Declared bankrupt for second time in July 2009; 98% of business with GM, Ford and Chrysler Declared bankrupt in July 2009; total assets of about US$1.27bn and total liabilities of about US$4.54bn Declared bankrupt May 2009

Laser welded blanks Multiple areas

US

HayesLemmerz Noble International Visteon Plastal Holding

Edscha

Plastic automotive components Hinges and roof systems

Key Plastics

Plastic components

Contech

Aluminium and steel cast components Roof linings

Stankiewicz GmbH Delphi

Dana

Source:

Multiple areas (ex-GM captive supplier) Drivetrain components

US

UK Sweden

Germany (owned by US Carlyle Group) US

US

Germany US

US

Declared bankrupt May 2009 Declared bankrupt April 2009 April 2009 sought high court protection Declared bankrupt March 2009 along with German subsidiary Declared bankrupt in February 2009 Declared bankrupt in December 2008 with debts of more than US$100m Declared bankrupt in February 2009 Declared bankrupt in December 2008 Declared bankrupt in 2005; yet to emerge from this Filed for protection under Chapter 11 in 2006; eventually emerged February 2008

Compiled from http://www.automotiveworld.com news reports, 2006–9.

16

The automotive industry in an era of eco-austerity

Automotive, Cooper-Standard Holding, Collins and Aikman, Arvin Meritor, Dura Automotive Systems and Federal-Mogul. In fact Table 1.6 captures only part of the scale of losses, closures and restructuring underway in the period from 2007 in the automotive components industry. In early 2009 some reports were talking of up to 500 US suppliers being ‘at risk’ as the crisis unfolded. Internal Resources and Competences One area that is particularly difficult to measure in terms of the impact of the spiral of decline is that of internal resources and competences. Many vehicle manufacturers operate so-called labour banks whereby during busy periods workers provide over and above the contracted hours per week on the understanding that during slack periods the company will continue to pay them. This simple form of production smoothing is effective up to a point, but inadequate to withstand the structural forces unleashed in the economic crisis from mid-2008. All things being equal, there must be a strong incentive for those with the most marketable or portable skills to seek employment elsewhere, and for the company to start to struggle to recruit the best talent. Inevitably in turn this means that the ability of the business to compete into the future is more or less compromised.

1.4

THE FAILURE OF TRADITIONAL STRATEGY

Traditional strategies include mergers, acquisitions and consolidation, multibrand platforms, rationalization and cost reduction, expansion into new markets and extending the brand reach. It is worth noting that these strategies have not failed for every vehicle manufacturer. VW Group, for example, has been largely regarded as successful with its use of common platforms or vehicle architectures across several different brands and models. Equally it could be argued that the Renault-Nissan partial merger has been a success on most terms, even if many jobs were lost in Japan as part of the rescue process. Over time, however, two key issues have come to be important. First, the automotive industry as a whole has become a lot more complex, as have the operations of the major vehicle manufacturers. They have all, generally, expanded production facilities and brands and models, they have opened up into new markets, and entered into multiple supply arrangements alongside joint ventures or co-product agreements with other vehicle manufacturers. Hence the process of identifying the possible synergies in a merger, and of finding the areas where duplication can be removed, is more difficult. In

The automotive industry in crisis

17

addition such processes inevitably involve governments, trades unions and others with a vested interest in the outcomes and this can militate against the raw logic of business. Secondly, arising from the complexity, it takes longer to achieve change such that the benefits might not accrue fast enough. Mergers, Acquisitions and Consolidation Many of the traditional solutions in the form of rationalization, cost reduction and industrial consolidation have failed to yield the anticipated benefits; the most obvious case being the catastrophically executed merger between Daimler and Chrysler (Han and Kleiner, 2003; Weber and Camera, 2003). In 1998 Daimler paid US$36 billion for Chrysler, while in 2007 it sold the majority of the business (80.1 per cent) to Cerberus Capital for just US$7.4 billion, having endured major losses in the previous two years. Dieter Zetsche, Chief Executive of DaimlerChrysler at the time, reportedly said that ‘We obviously over-estimated the potential synergies’ (quoted in Gerlach, 2007). The failed merger was part of a wider strategy adopted by Daimler under the then Chairman Jürgen Schrempp in the mid1990s termed the ‘Welt AG’ plan under which the company would seek a dominating role in the key market regions of the world through a series of mergers and alliances including Chrysler, Mitsubishi and Hyundai. Paradoxically, the strong leadership of Schrempp could have been the cause of the merger failure (Stadler and Hinterhuber, 2005) as he took the company into a series of relationships that the rest of the management found difficult to make operational. While the major financial institutions and corporate lawyers, along with the senior management teams involved, tend to be well rewarded in the short term by mergers and acquisitions (M&As), in the longer term the corporate benefit is much more doubtful. In the case of the automotive industry there are sound reasons for taking the view that benefits would in any case take years to materialize. For example, the typical car model requires something like 36 to 48 months to bring to market if started from a ‘clean sheet’. It is then in production for say eight to ten years (with some mid-life facelifts possibly), and will be supported in the aftermarket for a further ten years with the supply of spare parts. Investments in plant and tooling, as well as supplier contracts, are generally put in place as the model is developed and put into production. Indeed reversal of consolidation, merger and acquisition strategies has proven expensive for GM buying out the ‘put’ option held by Fiat and selling Saab to Koenigsegg in mid-2009; BMW selling off MG Rover (Brady and Lorenz, 2001; Donnelly et al., 2003); Ford selling Land Rover and Jaguar to Tata after years of losses, unhappy ownership of the Norwegian electric vehicle brand TH!NK, and so on. Table 1.7 illustrates

18

The automotive industry in an era of eco-austerity

Table 1.7

Major restructuring changes in the global automotive industry, 2007 to 2009

GM GM GM

Bankrupt Sale of Saab Sale of GM Europe (Opel, Vauxhall) Sale of Hummer

GM GM Ford Ford Ford Porsche Chrysler

Chrysler LDV Source:

Sale of Saturn Sale of Jaguar/Land Rover Sale of Aston Martin Sale of Volvo Cars Attempted acquisition of VW Sold to Cererbus Financial Holdings by Daimler (retained 20%) Bankrupt Bankrupt

Bailed out by US government Purchased by Koenigsegg Initially agreed purchase by Magna and others; bids reopened later Purchase proposed by Chinese company Purchased by Penske Purchased by Tata Purchased by Prodrive No purchaser as of late 2009 Failed attempt. In July 2009 VW bought up Porsche Messy and not totally resolved by late 2009 Bailed out by US government Not bailed out by UK government

Compiled from http://www.automotiveworld.com news reports, 2007–9.

some recent attempts at industrial restructuring in the sector, where again results have been mixed. Table 1.8 details some changes to the contract vehicle assembly industry in the period 2007 to late 2009. Prior to this, early casualties had been Mayflower (UK), TWR (UK, but undertaking contract assembly for Volvo in Sweden) and Matra (France). Of the remainder, Magna (Austria) and Valmet (Finland) remained in business. A typical case for the contract manufacturers is Karmann, which previously built the Volkswagen Golf variant/wagon (previous generation), Chrysler Crossfire, Kia Sportage (previous generation), Audi A4/ S4 Cabriolet and Mercedes Benz CLK coupe. As with other contract assemblers, a combination of vehicle manufacturers putting more of the low-volume work in-house (in their increasingly flexible factories) and the loss of work on retractable roof systems has undermined its business. An early casualty was the automotive division of Matra, the company that built the earliest Renault Espace models and the ill-fated Aventine model. On the other hand, several of these contract assemblers might in the future produce electric vehicles in competition with their former customers, a point returned to later in this book. One of the main areas of benefit expected from M&A activity is that

The automotive industry in crisis

Table 1.8

Major restructuring changes in the contract assembly industry, 2007 to 2009 Problems started in mid-2006; bankrupt November 2007; bought by Argentum Motors, July 2008 Bankrupt April 2009

Heuliez (France)

Contract assembler; seat assemblies; retractable roof systems

Karmann (Germany)

Contract assembler; retractable roof systems

Bertone (Italy)

Contract assembler

Bankrupt November 2007; ‘sold’ January 2008 but sale blocked

Pininfarina (Italy)

Contract assembler

Net loss of €115m (US$176.68m) in 2007; rescued January 2009

Source:

19

In administration again, April 2009; two bids received; medium-term focus on own electric vehicles Concentrate on components; cut 1340 jobs; medium-term focus on own electric vehicles Interest expressed by First Auto Works (China) and Mahindra & Mahindra (India). Exited. Interest still expressed by Fiat Stopped contract assembly; sought to develop electric vehicle; net loss in 2008 €204.1m (US$275.4m)

Compiled from http://www.automotiveworld.com news reports, 2007–9.

of purchasing components and materials, though again this takes time to materialize. For example, the Renault Nissan Purchasing Organization (RNPO) was founded in 2001 as part of the more general partial merger of the two companies. In the 2002–03 fiscal year, RNPO purchased components worth US$21.5 billion (or 43 per cent of the total bought by Nissan and Renault). By January 2004 RNPO had increased the scope of its joint purchasing to include manufacturing equipment, such as press machinery and welding equipment, distribution, front-end modules, interior materials such as trim, and car audio equipment such that joint purchases increased by US$11.5 billion to US$33 billion (AutomotiveWorld, 2003). Such moves give greater purchase volumes on commodity items (tyres, glass, steel, etc.) and also allow the gradual removal of duplication in purchasing management staff.

20

The automotive industry in an era of eco-austerity

Multi-brand Platforms It is often claimed by vehicle manufacturers that one of the key areas for cost saving arising out of M&A activity is that multiple brands and models can be derived from a single ‘platform’, thereby saving resources in R&D and in tooling. This approach, often reduced to putting a different badge on essentially similar cars, has somewhat fallen out of favour to be replaced by so-called architecture strategies. With architectures, the common components are hidden from view for the consumer. The GM GMT-800 model, for example, is the blueprint for the company’s fullsize truck. This versatile architecture has spawned 63 variants of pickups and sport-utility vehicles, including the Chevy Suburban and Silverado, the Cadillac Escalade and the Hummer H2. The model list included (in 2008): ● ● ● ● ● ● ● ● ● ●

Cadillac Escalade/Escalade ESV; Cadillac Escalade EXT; Chevrolet Avalanche; Chevrolet Silverado, HD, hybrid; Chevrolet Suburban; Chevrolet Tahoe; GMC Sierra, HD, hybrid; GMC Yukon Denali, Yukon Denali XL; GMC Yukon, Yukon XL; Hummer H2.

The engineering logic was quite compelling, with major aspects of development (such as integration of the powertrain with the chassis) effectively by-passed for new models derived from the same architecture. As a result development times are compressed, more products can be created and development costs per model are reduced. On the other hand, to take just one instance, the Hummer H2 was a poor pastiche of a car with only some superficial resemblance to the iconic Hummer military vehicle. It gained incremental sales for the Hummer brand while simultaneously destroying its integrity. In 2009 GM had to put the Hummer brand up for sale as part of the process of creating the New GM business. Rationalization and Cost Reduction Cost reduction to expand the market has been an industry staple strategy since the days of the Model T Ford. There is a clear danger that rationalization to achieve cost reduction might conflict with other elements of

The automotive industry in crisis

21

strategy, notably the expansion into new markets and extending the reach of a brand (by adding more models in more market segments to the brand range). Equally, however, it could be that rationalization is required in a mature (saturated) market while simultaneously new capacity is required in a new (expanding) market – indeed this has been a long-running problem for the industry over the last 20 years or more. In the context of the spirals of decline, however, rationalization may not be sufficient. For example, in mid-2002 GM announced plans to reduce the number of mid-size cars on sale in North America from 15 to 10 in a bid to reduce costs and focus marketing efforts. The company had already announced plans to drop the Oldsmobile brand by 2004. As with Chrysler dropping the Eagle brand in 1998 and the Plymouth brand in 2001, the measure did little to halt the decline in market share. In 2009, as part of the prebankruptcy reconstruction of GM, it was announced that GM was to sell the Saab, Saturn, Hummer and Pontiac brands (Isaiah, 2008b). In practice it is probably fair to say that the bulk of the effort in terms of cost reduction has been via increasingly aggressive procurement regimes, holistic purchasing strategies intended to off-load a greater share of development costs onto suppliers while simultaneously achieving year on year price reductions in per-unit bought in components and materials. Expansion into New Markets Russia is a typical example of a country into which the global automotive industry has sought to expand and capture market growth as economic liberalization proceeds. The Russian government put in place in 2007 a three-stage plan for the development of the automotive industry, but it is unclear how this plan has been affected by changes in the global macroeconomic environment. Under this plan the period 2008–10 was seen as one of consolidation in the industrial base for vehicle assembly and components serving domestic demand, leading to phase two (2011–15), which would be characterized by export-oriented facilities, and ultimately resulting in the third phase, where 70 per cent of production would be for domestic demand and 30 per cent for export. Up to 2008 the market in Russia had shown clear trends towards strong growth, and the replacement of ‘domestic’ brands with imported cars or sales of non-domestic brands manufactured in Russia. In 2004, out of total sales of 1 268 000, domestic brands accounted for 865 000 (68 per cent); by 2008 sales had been estimated to grow to 2 750 000 with domestic brands accounting for 700 000 (25 per cent). The expectation of market growth fuelled an investment boom in Russia as in other markets such as China, India, Thailand, Brazil and

22

Table 1.9

The automotive industry in an era of eco-austerity

The estimated market in Russia, Q1 2008 and Q1 2009 (cars and light commercial vehicles)

Group Avtovaz GM Group Opel Chevrolet Cadillac Hummer Saab Ford Group Ford Volvo VW Group VW cars VW vans Audi Seat Skoda Nissan Group Infiniti Nissan Hyundai Toyota Group Toyota Lexus Renault Mazda PSA Peugeot-Citroen Peugeot Citroen Kia GAZ Group GAZ cars GAZ vans Sollers Group Fiat Isuzu Ssangyong UAZ Daewoo Honda Mitsubishi Suzuki

Q1 2009

Q1 2008

% change

88 720 43 102 11 945 30 268 472 309 108 32 697 29 956 2 741 25 761 10 935 1 406 3 302 292 9 826 24 804 1 877 22 927 21 391 20 816 19 356 1 460 15 011 13 176 13 175 9 981 3 194 13 710 12 987 2 339 9 748 11 720 3 915 22 2 063 5 720 11 692 9 218 6 042 4 407

144 777 83 157 23 479 58 594 308 191 681 45 737 41 499 4 238 22 455 7 507 1 754 3 880 232 9 082 38 355 1 102 37 253 44 054 38 530 35 825 2 705 24 303 17 094 10 403 8 403 2 000 21 101 32 298 5 297 27 001 19 534 4 515 0 3 000 12 019 23 941 15 445 21 296 9 890

−39.0 −48.0 −49.0 −48.0 53.0 62.0 −84.0 −29.0 −28.0 −35.0 15.0 46.0 −20.0 −15.0 26.0 8.0 −35.0 70.0 −38.0 −51.0 −46.0 −46.0 −46.0 −38.0 −23.0 27.0 19.0 60.0 −35.0 −60.0 −56.0 −64.0 −40.0 −13.0 0.0 −31.0 −52.0 −51.0 −40.0 −72.0 −55.0

The automotive industry in crisis

Table 1.9

(continued)

Group

Q1 2009

BMW Group BMW Mini Jaguar Land Rover Land Rover Subaru Mercedes Benz Mercedes Benz cars Mercedes Benz vans IZH Chery Geely Great Wall Lifan BYD Chrysler Group Chrysler Jeep Dodge Porsche Iran Khodro Alfa Romeo Source:

23

4 184 4 011 173 3 397 3 031 2 990 2 795 2 360 435 2 166 957 915 833 618 606 417 70 161 186 299 108 37

Q1 2008 4 211 4 009 202 4 897 4 612 4 296 4 118 3 388 730 5 628 5 361 0 2 607 662 920 2 139 406 795 938 390 681 74

% change −1.0 0.0 −14.0 −31.0 −34.0 −30.0 −32.0 −30.0 −40.0 −62.0 −82.0 0.0 −68.0 −7.0 −34.0 −81.0 −83.0 −80.0 −80.0 −23.0 −84.0 −50.0

Derived from AEB, 2009.

elsewhere. As Table 1.9 clearly shows, however, the market in Russia experienced precisely the same sort of collapse as other global markets. As a consequence the investments detailed in Table 1.10 appeared in 2009 to be surplus to requirements, with excess capacity once again the main structural problem faced by the vehicle manufacturers. As can be seen from Table 1.10, the years up to 2009 have been witness to a significant flow of inward investment from vehicle manufacturers eager to capture a share of the booming market in Russia. These plans were, however, in some cases put on hold in 2009, with for example Suzuki reportedly halting construction of its plant in St Petersburg. Nissan officially launched its new plant in June 2009, but with only one shift and 750 workers. Several plants had closures or production slowdowns announced in 2009 including Avtoframos, GAZ Siber production, Ford St Petersburg, IzhAvto, Toyota St Petersburg and Geely (Ural). In March 2009 Putin pledged more than US$1 billion in aid for the automotive industry in Russia.

24

Moscow Vsevolozhsk Togliatti Taganrog Izhevsk Nab. Chelni St Petersburg St Petersburg Kaluga St Petersburg Kaluga St Petersburg St Petersburg

Avtoframos Ford GM AVTOVAZ TagAz IzhAvto Sollers Toyota GM Volkswagen Nissan PSA–Mitsubishi Hyundai Suzuki Others

Source:

Kia, BMW, Hummer, Chevrolet, Others Renault Ford Chevrolet Hyundai Kia Ssangyong, Fiat Toyota Chevrolet, Opel VW, Skoda Nissan Mitsubishi, Peugeot Hyundai Suzuki

Brands

Derived from AEB, 2009; Bonchev, 2008.

Kaliningrad

Avtotor

Total

Location

1999 2002 2001 1997 2003 2006 2008 2007 2008 2009 2010 2010 2009

1994

Start date

Production facilities of non-domestic brands in Russia, 2009

Factory

Table 1.10

4 908

380 330 338 320 90 180 220 300 1 200 200 400 400 120

250

Capital cost (US$m)

459 000

70 000 70 000 55 000 80 000 50 000 21 000 0 6 000 2 000 0 0 0 0 1 000

106 000

Production 2007

1 645 000

160 000 150 000 60 000 155 000 120 000 90 000 100 000 180 000 140 000 80 000 60 000 80 000 30 000 60 000

130 000

Capacity 2012

The automotive industry in crisis

Table 1.11

25

Brand names, models, body styles and variants on the UK market, 1994 to 2009

Year

Brand names

Models

Body styles

Variants

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

54 56 57 53 54 52 57 58 57 56 62 54 63 64 59 57

205 211 218 225 231 240 262 260 263 257 351 323 356 344 304 310

300 309 321 318 382 332 357 351 387 370 397 376 415 397 366 376

1 303 1 580 1 624 1 611 1 637 1 759 1 931 2 042 2 472 2 743 3 042 3 155 3 219 3 323 3 291 3 637

Source:

Wells and Morreau, 2009.

Extending the Brand Reach Vehicle manufacturers have sought to capture or retain market share by increasing the number and variety of models and brands on offer in any one market, thereby hoping to align their product offering more closely with customer demand. Table 1.11 gives an indication of how this has resulted in market fragmentation, taking the UK as an example. Extending the brand, or indeed adding new brands, can both be means by which vehicle manufacturers are able to cover more of the market segments and potentially increase revenues per vehicle. Table 1.12 presents some data that show clearly that the market share of the top ten models in a number of European countries declined in the ten years between 1996 and 2006 – again indicative of market fragmentation. As Table 1.12 shows, in all cases the market share of the top ten models has fallen significantly no matter what the starting point. The rate at which that share has declined varies from case to case, with perhaps France and Sweden showing the most enduring reliance on the top ten models. Perhaps this is no accident, as in both cases the domestic manufacturers have retained a degree of competitiveness. Neutral markets, those with no

26

The automotive industry in an era of eco-austerity

Table 1.12

Market share of the top ten models, selected markets, 1996 and 2006

Market

1996 share (%)

2006 share (%)

38.30 33.58 41.45 35.32 42.90 48.88 57.11 40.50 44.23 45.54 49.90 50.84 41.93

27.51 27.74 28.84 21.83 32.76 41.69 36.05 30.90 34.07 37.39 34.70 41.86 31.89

Austria Belgium Denmark Netherlands Finland France Portugal Germany Spain Irish Republic Italy Sweden UK Source:

Derived from SMMT, 2007a.

domestic manufacturer, tend to highlight these trends even more strongly – perhaps because there is less residual loyalty to a domestic manufacturer. The consequences for vehicle manufacturers can be profound. In those core domestic markets critical volumes are lost. An example is the VW Golf. In 1996 VW sold 337 550 Golf/Vento models in the domestic German market, or 8.55 per cent of the total market of 3 946 320. In 2006 VW sold 236 980 Golf/Jetta models to claim 6.83 per cent of the total market of 3 467 961 (Society of Motor Manufactures and Trades (SMMT), 2007a). Put another way, it is a real challenge for the volume vehicle manufacturers to retain their domestic market share. Hence between 1996 and 2006 Renault domestic market share fell from 26.5 per cent to 23.6 per cent, while over the same time period Fiat domestic market share fell from 33.6 per cent to 23.3 per cent. The trend is not entirely universal, with for example VW managing to increase domestic market share in the same time period from 18.9 per cent to 19.8 per cent, but the overall thrust of these market developments is clear.

1.5

THE ENVIRONMENTAL DIMENSION

Not all of the ills of the world can be laid at the door of the automotive industry, but it is certainly worth considering the many and varied

The automotive industry in crisis

27

environmental challenges of the contemporary era if only as an antidote to the often myopic institutional focus on carbon emissions and climate change. Put in another way, a car with zero carbon emissions in use is not necessarily going to provide sustainable mobility. Not least, the automotive industry is again symptomatic of a broader problem: that as hitherto underdeveloped economies seek to emulate and indeed overtake the material wealth of the previously industrialized nations, so the latent unsustainability of the industrial nations is made apparent. The work of the ‘Factor X’ school of thought (Weiszacker et al., 1997) made this abundantly clear, building on the worthy tradition of the still influential and inspirational Brundtland Report (World Commission on Environment and Development (WCED), 1987) and the now neglected ‘limits to growth’ theories (Meadows et al., 1972). As the Factor X theorists eloquently put it, resource consumption (and the pollution that in turn ‘consumes’ fresh resources) is a function of population, technology and level of economic development, and all three are changing at a frightening rate. More recently the more populist concept of the ecological footprint (Wackernagel and Rees, 1998) has gained political purchase and provided us all with a graphic metaphor of the burdens we are placing on the planet. As Giddens (2009) argues, there is no cohesive politics of climate change and green parties are mostly marginal, while resurgent nation states in the wake of the failure of globalization may fatally undermine the ability to achieve collective action at the international level. Those burdens are many and varied (Brown and Starke, 1998; Millennium Ecological Assessment (MEA), 2005), and include crucial issues such as deforestation (Binswanger, 1991), habitat loss (Hoekstra et al., 2004), desertification (Schlesinger et al., 1990; Geist and Lambin, 2004), species extinction (International Union for Conservation of Nature (IUCN), 2009) and loss of species diversity, water shortages (Ward, 2002; World Wildlife Fund (WWF), 2008), over-fishing (Scheffer et al., 2005), and the looming exhaustion of many important organic and inorganic materials with extraction rates exceeding discovery rates or the ability of reserves to be renewed (Tilton, 2002). The automotive industry cannot reasonably be blamed for the problems associated with over-fishing in any direct manner, but the industry has long been seen by national governments as an engine of economic growth and an indicator of national prosperity and to that extent the automotive industry is very much part of the entire social project of modernism that has propelled us all along the path of increased material consumption. Moreover, some of the planetary burdens imposed by humanity can be attributed directly to the automotive industry and its products, in manufacture, use or disposal.

28

The automotive industry in an era of eco-austerity

Table 1.13

Total world materials consumption for all cars adjusted for material yield (mtpa)

Material

2010

2015

81.86 11.179 12.211 11.139 4.888 3.110 1.504 1.852 3.956

81.544 11.629 13.595 11.376 3.954 3.474 1.622 2.010 4.899

Steel Iron Aluminium Plastic Elastomer Glass Copper Zinc, etc. Other Source:

Change Change 2010–15 2010–15 (kg) (%) −0.241 −0.150 1.385 0.236 −0.935 0.364 0.118 0.157 0.943

−0.3 −1.3 10.2 2.1 −23.6 10.5 7.3 7.8 19.3

2020

93.321 12.372 18.381 14.492 4.612 4.111 1.982 6.396 7.185

Change Change 2015–20 2015–20 (kg) (%) 11.776 0.743 4.786 3.116 0.659 0.637 0.361 4.387 2.286

12.619 6.004 26.037 21.502 14.279 15.504 18.201 68.583 31.822

Wells, 2008a.

The construction of roads, for example, is itself contributory to the fragmentation of ecosystems and hence to the decline of biodiversity and ecological vitality. Roads create barriers to the movement of many living things, and bigger roads create bigger barriers. With roads come traffic, cars and trucks and other motorized transport that connect previously remote locations to other centres of population. Roads and vehicles are the instruments through which humanity is often able to extend its dominion over the land. The manufacture of cars demands vast quantities of materials, as Table 1.13 clearly illustrates. The automotive industry is heavily implicated in carbon emissions. In 2004 US cars and light trucks contributed an estimated 314 million metric tons carbon-equivalent. The USA has 5 per cent of the world population, 30 per cent of the world’s automobiles and contributes 45 per cent of the world’s automotive CO2 emissions (DeCicco et al., 2006). Greater understanding of anthropometric climate change (Lynas, 2007; World Energy Council (WEC), 2007) provides potent arguments for developing innovations that can reduce carbon emissions in vehicles for example, while the looming scarcity and uneven geographical distribution of oil provides an international context for developing alternatives to hydrocarbon fuels (International Energy Agency (IEA), 2008). In those nations that are particularly dependent on imported oil such as the United States the problem is viewed as acute and of national strategic importance (Aleklett, 2007), and for some is the basis for further global conflict (Heinberg, 2005). Of course the environmental and the economic

The automotive industry in crisis

Table 1.14

Sources of CO2 emissions in the UK, 2006

Source

Proportion (%)

Power generation Land transport Air/sea transport Business Other Source:

29

35.0 22.0 7.0 17.0 6.0

Adapted from SMMT, 2007b.

problems are frequently inter-twined. Becker (2009) forecasts that by 2030 electric vehicles could account for 64 per cent of US light vehicle sales and 24 per cent of the fleet in circulation. If this were to happen Becker further calculates: ●

●

● ● ●

US oil imports will be 18–38 per cent lower by volume by 2030 than would be expected if internal combustion engine cars took all the sales (even allowing for improvements in fuel efficiency); similarly, the annual US trade deficit attributable to importing oil could be between US$94 billion and US$266 billion lower by 2030; there would be a net employment gain of between 130 000 and 350 000 jobs by 2030; health care cost savings (due to reduced air pollution) of between US$105 billion and US$210 billion; greenhouse gas emissions of between 20 per cent and 69 per cent by 2030 when non-polluting sources of electricity are used compared with 2005 US light vehicle emissions.

The position in a country such as the UK shows that the automotive industry is somewhat less implicated in the overall picture on CO2 emissions, but still significant, as shown in Table 1.14. The SMMT (2007b) estimates that cars account for some 40 per cent of transport CO2 emissions in the UK, though this figure includes air travel and the UK has a particularly high CO2 emissions figure from air travel due to the disproportionate share of long haul flights. The science behind many of these issues is less than certain, as is the relative contribution of direct human agency or indirect feedback loops such as the impact of (probably anthropogenic) climate change on fish stocks that have already suffered from over-fishing. An almost universal

30

The automotive industry in an era of eco-austerity

awakening among politicians globally has produced a newfound zeal to tackle these issues, imbuing legislators with a revolutionary ardour to, among other things, embrace new vehicle technologies and provide incentives for their introduction into the market. Petroleum, Carbon Emissions and Peak Oil The mainstream ‘Reference Scenario’ for the IEA forecast to 2030 (IEA, 2008) is typical of the mainstream of scientific opinion with respect to future trends on energy consumption, and concludes that: ‘The Reference Scenario, characterized by rising energy prices, increased import dependence, and rising greenhouse-gas emissions, is unsustainable: environmentally, economically, and socially.’ This is worrying news for the automotive industry because the Reference Scenario takes as its starting point government policies obtaining in mid-2008, along with petroleum prices that were somewhat higher than they became in the post-crisis era. In the view of the IEA, world primary energy demand will grow by an average of 1.6 per cent per annum, or 45 per cent between 2006 and 2030. Fossil fuels of all types will continue to retain an approximate 80 per cent share of primary energy demand, though within this the share of coal is expected to increase significantly. Under this scenario the expectation is that by the end of the twenty-first century there will be an approximate doubling of CO2 concentration levels in the atmosphere to about 1000 parts per million, which in turn may be expected to result in global temperature increases of around 6°C. While the area of global climate change remains an inexact science, these are indeed alarming figures. Obviously not all of the increase in CO2 emissions can be laid at the door of the automotive industry, but equally the implication is that huge changes are needed in all aspects of land transport and the impact it has on climate change (Ryan and Turton, 2007; Sperling and Cannon, 2007; Staley, 2008). Politically, the forecast poses a considerable challenge. Collectively the non-OECD countries account for 87 per cent of the anticipated growth in consumption to 2030. At the same time, power generation and transport are seen as the two key sectors driving growth in energy consumption. World oil demand is expected to grow at 1 per cent per annum to 2030, with net consumption rising from 85 million barrels per day (mbd) in 2007 to 106 mbd by 2030. Crucially the forecast on oil consumption assumes that currently prevailing subsidies in key markets such as China and India are removed, with the resulting price rises helping to curtail demand. About 75 per cent of the growth in oil demand worldwide is expected to derive from the use of cars and trucks, with the global population of cars expected to rise from 650 million (2005) to about 1.4 billion by 2030. Cars

The automotive industry in crisis

31

Table 1.15

Aluminium penetration in vehicle body applications, 2007 (%)

Application

Europe

North America

Asia

18 4 2 2 <1

8 1 1 0 0

3 <1 <1 2 <1

Bonnets Wings Doors and boot lids Entire body structure or front structure Roofs Source:

Derived from European Aluminium Association, 2008.

produce typically 85 per cent of life cycle CO2 emissions during their use phase, with about 10 per cent in manufacturing and 5 per cent in disposal (SMMT, 2007b), so clearly the use of cars is critical to the outcome. Meanwhile, the debate on so-called ‘peak oil’ is contentious but the view that it will occur soon is gaining currency (Deffeyes, 2001). Material Consumption A key theme highlighted in the original ‘Club of Rome’ report (Meadows et al., 1972) was that of the unsustainable rate of material consumption, a factor almost lost in the swelling tide of concern over global warming. The automotive industry is a major consumer of materials, particularly virgin materials rather than recycled materials. Table 1.13 illustrates some estimates for material consumption by the automotive industry based on growth in output to 100 million cars per year by 2020, and shows just how voracious the sector is in terms of consumption. The automotive industry is not the only sector served by the aluminium industry, but it is one of the most important in terms of volume, value and growth potential. As Table 1.15 indicates, by 2007 the penetration of aluminium into the vital vehicle body area (where high-value sheet is used) had reached significant levels, particularly in Europe – and there was good reason for optimism about growth prospects. A study by the European Aluminium Association found that aluminium use in cars in the region had grown from 50 kg in 1990 to 132 kg in 2005. A key question is: what impact will the crisis have on future growth prospects? Industry leaders have already indicated the most significant aspect of the crisis as far as the aluminium industry is concerned – the exposure of high-cost producers to unbearable pressures. By all the major indicators available in mid-2009 the sector faces a difficult time:

32

The automotive industry in an era of eco-austerity ●

●

●

Global demand was expected to fall from around 36 million tons per annum (mtpa) in 2008 to perhaps 28 mtpa in 2009, with the prospect of further falls in 2010. Stocks were at the highest level in more than two decades, and there could be a surplus supply in the market of around 1 billion tons in 2009. From a peak of just under US$3400 per ton in mid-2008, prices had fallen to US$1350 per ton by 2009 and were still facing downward pressure.

According to reports from Reuters, Oleg Deripaska, CEO of the largest aluminium producer in the world, United Company RUSAL, speaking at the 2009 Davos conference said: What I think is important for the industry is to really stop hoping and prepare for the worst . . . There is huge oversupply in aluminium . . . I believe in the next nine months we will see a completely different landscape for the aluminium industry, which will stay for the next seven to 10 years. (Faulconbridge, 2009)

The Human Cost of Automobility: Air Quality and Road Traffic Deaths and Injuries Much of the focus on the human health costs of automobility has been on urban air quality and toxic exhaust emissions. In 1998 the World Health Organization (WHO) estimated that in the European Union there were some 80 000 premature deaths per year because of atmospheric pollution from cars, with an additional economic burden caused by hospitalization for respiratory and cardiovascular diseases and effects on patients with chronic bronchitis and asthma (WHO, 1998). The same source noted that in Europe, the proportion of the population exposed to traffic noise levels above 65 dB(A) increased from 15 per cent in the 1980s to 26 per cent in the early 1990s. These are, of course, very important issues but they have thrown into stark relief the relative neglect of the consequences of road traffic ‘accidents’ around the world. Of course this is a hugely difficult area because death and injury rates are not reducible to car technology alone, but are a factor of many issues including infrastructure design and maintenance, population mix, physical topography and climate, cultural attitudes, economic conditions, legal enforcement, the health system and much more. In Table 1.16 death rates are compared with car ownership levels. It is here that the vehicle manufacturers may find the real problem emerging, because it contains the basis for a significant ‘backlash’ against

The automotive industry in crisis

Table 1.16

Death rates and car ownership rates in selected countries

Country China Columbia Dominican Republic El Salvador Peru Nicaragua Kuwait US UK Sources:

33

Death rate/100 000 people (1998–2003 average)

Car ownership/1000 people (2004)

19.0 24.2 41.1 41.7 17.6 20.1 23.7 14.7 6.1

7 36 44 20 30 13 432 459 499

WHO, 2009.

motorization generally – especially in the markets where strong growth is anticipated. Table 1.16 illustrates some vital issues. First, reliable and accurate data are missing for a great many countries (such as India and many others in Asia or Africa), and in any case are not all that credible. At best, these figures can be said to represent the minimum position, with probable death rates rather higher. Secondly, in some countries the rate is extremely high, with the peaks generally occurring in South and Central America. Thirdly, and most worryingly, those countries with high death rates are generally those with low car ownership rates, but the case of Kuwait shows that high ownership rates do not automatically result in lower death rates. The worst-case scenario is that emerging markets retain their high accident rates with resultant deaths and injuries, but also rapidly expand car ownership rates. In an extreme case, if China were to have UK levels of car ownership then the car population would have to increase by 71 times. If the death rate were also multiplied by 71 times the result would be an annual toll of 13.5 million people killed (Wells, 2007a). While clearly unrealistic this does show the potential. The human, economic and social cost would be huge if anything like this figure were approached. At present, deaths and serious injuries are predominantly among young men in the 18–25 age range – a critically important segment of the economically active population. The WHO uses the concept of Disability Adjusted Life Years to calculate the total loss to society through road traffic accidents, because it is possible that some victims will suffer reduced capacity for economic activity for many years after (WHO, 2004).

34

1.6

The automotive industry in an era of eco-austerity

THE FAILURE OF TRADITIONAL REGULATION

Traditional regulation has been partially effective in ameliorating the worst of the negative consequences of car manufacturing, use and disposal. Formal regulation in terms of laws and standards enacted at national or international level tends to be slow, predictable and focused on the ‘art of the possible’ bearing in mind available technology and the business interests of the automotive industry. These comments apply to themes such as reducing the death and injury rate from vehicle collisions as well as improving rates of recyclability, reducing emissions of toxic gases or improving fuel economy. One feature to change with the financial crisis since mid-2008 is that the industry can no longer be assured of this level of deference and sympathy. While the industry remains a significant element of many economies, the need for widespread financial rescue has undermined independence. Hence with the new administration of Barak Obama in the USA have come both extensive bailout packages for the automotive industry and a renewed stringency and vigour for regulation. Indeed in March 2009 the National Highway Traffic Safety Administration raised the light vehicle CAFE (Corporate Average Fuel Economy) standard to 27.3 mpg (30.3 mpg for cars and 24.1 mpg for light trucks) for application from Model Year (MY) 2011. Moreover in May 2009 the Environmental Protection Agency (EPA) started drafting rules under Section 202(a) of the Clean Air Act to limit vehicle greenhouse gas emissions. In particular the EPA drafted rules to cut light vehicle greenhouse gas emissions to 250 g/mile CO2 in MY 2016, with a gradual phase-in starting in MY 2012 (Graig, 2009). It could be argued that CO2 regulation in Europe, North America and elsewhere took a very long time to put in place, and has been too limited in its scope and severity. Terrorism and surging commodity prices (especially petroleum) were rather more effective in stimulating measures to promote energy diversity. Table 1.17 illustrates the major fuel economy regimes around the world as of 2007. A key thrust of industry efforts with regard to regulation has been to seek global standardization and harmonization – although this target has yet to be achieved. With respect to CO2 emissions, this problem is somewhat illustrated in Table 1.18, showing projected emissions rules of various countries adjusted to reflect the EU system of measurement. In some cases the new regimes are bringing greater complexity, as with the case of Japan illustrated in Table 1.19. Different regulatory authorities have grappled with the problem in different ways. By having multiple classes the Japanese system is sensitive to variations in model weight, but

The automotive industry in crisis

Table 1.17

35

Fuel economy and greenhouse gas emissions regimes around the world, 2007

Country/ region

Standard Measure

Japan

Fuel

EU

CO2

China

Fuel

Canada

GHG

California GHG

United States

Fuel

Australia

Fuel

S. Korea

Fuel

Taiwan

Fuel

Structure

Target

Test cycle

Implementation

Weight based g/km Single standard l/100km Weight based 5.3 Mt Vehicle reduction class based g/mile Vehicle class based mpg Single standard (cars) l/100km Single standard km/l Engine size based km/l Engine size based

New cars New cars New cars In use and new New

JC08

Mandatory

NEDC

Voluntary

NEDC

Mandatory

New

US CAFE Mandatory

New

NEDC

New

US EPA Mandatory City US CAFE Mandatory

km/l

New

US CAFE Voluntary

US CAFE Mandatory

Voluntary

Note: GHG = Greenhouse gas; includes CO2, CH4, N2O, HFCs), NEDC = New European Driving Cycle. Source:

Adapted from ICCT, 2007.

might in fact result in the counter-intuitive strategy of weight being added to a model in order to move up a class and hence benefit from less stringent emissions requirements. Of course, the policy environment is subject to change. As had been widely expected, US President Obama proposed on 19 May 2009 a national policy that set new fuel economy and greenhouse gas emissions standards for all passenger cars, light duty trucks, and medium duty passenger vehicles sold in the USA. The new standards apply to MYs 2012–16, and will require an average fuel economy standard of 35.5 mpg in 2016 (39 mpg for cars, 30 mpg for trucks), or CO2 limits of 250 g/mile. The CAFE programme established by the Bush administration 2007 legislation specified a minimum 35 mpg in 2020.

36

The automotive industry in an era of eco-austerity

Table 1.18

Actual and projected greenhouse gas emissions for new passenger vehicles by country, 2002, 2008 and 2014 (CO2 equivalent converted to EU NEDC test cycle; g/km)

Country/region

2002

2008

2014

Japan Europe USA California South Korea China

158 170 260 246 na 242

144 150 250 275 198 174

130 132 235 200 199 na

Note: Source:

NEDC = New European Driving Cycle. Adapted from ICCT, 2007.

Table 1.19

Class 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Source:

Japanese fuel economy targets for 2015: light duty passenger cars Vehicle weight (kg)

Target (km/l)

<600 601–740 741–855 856–970 971–1 080 1 081–1 195 1 196–1 310 1 311–1 420 1 421–1 530 1 531–1 650 1 651–1 760 1 761–1 870 1 871–1 990 1 991–2 100 2 101–2 270 >2 271

22.5 21.8 21.0 20.8 20.5 18.7 17.2 15.8 14.4 13.2 12.2 11.1 10.2 9.4 8.7 7.4

Green Car Congress, 2007.

In Europe, by 2005, it was clear that the compromise agreed in the mid-1990s on a European Community strategy to reduce CO2 emissions from new cars was not going to work. Initially this strategy envisaged an industry average goal of 120 g/km CO2 new car emissions by 2005, a

The automotive industry in crisis

37

figure that would have represented a 25 per cent reduction on 1995 average levels. In 1998 the European Automobile Manufacturers’ Association (ACEA) made a voluntary agreement with the European Union to reach an average new car target of 140 g/km by 2008, with the 120 g/km target moved out to 2012. JAMA (Japan) and KAMA (Korea) made similar commitments with the target deferred one year – an important consideration when it is claimed that jobs will be lost in the ‘domestic’ European industry if tougher measures are enforced. Faced with the certainty that the leading vehicle manufacturers in Europe were not going to achieve the voluntary target, and with 2006 averages about 160 g/km on new cars, the European Commission was faced with a difficult policy problem, not least because it has long been clear that failure to meet the target would result in legislation. Within the Environment and Energy Directorates there was a strong lobby for stringent measures, notably a cap of 120 g/ km for new cars from 2008. The EU Regulation on CO2 from new passenger cars was published in the Official Journal of the EU (5 June 2009, EC No. 443/2009). The Regulation stated it would enter into force three days after publication (i.e. on 8 June 2009). A target of 130 g/km of CO2 is to be phased in from 2012 to 2015. For the purposes of determining each manufacturer’s average specific emissions of CO2, the following percentages of each manufacturer’s new passenger cars registered in the relevant year will be taken into account: ● ● ● ●

65 per cent in 2012; 75 per cent in 2013; 80 per cent in 2014; 100 per cent from 2015 onwards.

In calculating the average specific emissions of CO2, each new passenger car with specific emissions of CO2 of less than 50g CO2/km (e.g. battery electric cars) is to be counted as the fleet equivalent of: ● ● ● ● ●

3.5 cars in 2012; 3.5 cars in 2013; 2.5 cars in 2014; 1.5 cars in 2015; 1 car from 2016.

Overlaid on these regimes are other national measures that are highly variable, and of course a burgeoning number of sub-national (mostly city authority) measures aimed at air quality, carbon emissions and congestion. In the UK, for example, the annual vehicle licence payment is

38

The automotive industry in an era of eco-austerity

structured according to CO2 emissions categories and so is taxation on company cars, while the City of London transport agency (Transport for London) has defined a low-emissions zone based on CO2 emissions around the central city area. In 2006 some 771 urban areas participated in European Mobility Week, along with 1019 in the International Car Free Day – surely an indication of a groundswell of underlying support for greater restrictions on car use in cities (Wells, 2008b). About 80 per cent of the population in Europe lives in cities, with an estimated 300 000 premature deaths per annum arising from emissions-related illnesses. The (admittedly biased) International Association of Public Transport estimates that congestion has an economic cost in Europe of €63 billion per annum (Wells, 2088b). London has thus been followed by cities such as Stockholm, Berlin, Oslo, Rome, and most recently Milan. Stockholm is interesting because the measures were voted in following a referendum and a trial period where citizens could assess for themselves the costs and benefits of the measures. Initially, over 70 per cent of residents were opposed to the plan. During the trial period charges were levied according to the time of entry into the zone at a rate of between €1 and €2.10 up to a maximum fee of €6.5 per day. During the trial period traffic entering the zone fell by 22 per cent and CO2 emissions by 14 per cent in the central city area. Other benefits included a reduced accident rate and faster travel times.

1.7

CONCLUSIONS

Given the economic and environmental troubles surrounding the existing automotive industry it is unsurprising that there is a frantic search for solutions and alternatives, with the need for answers getting ever-more pressing. It is a case study example of a more general problem: societal survival (Diamond, 2005). Regulatory controls are liable to become more stringent still, but beyond this is the more fundamental conclusion – the existing automotive industry no longer meets social needs relative to the costs it imposes. Economically and in terms of business profitability, the industry has failed itself. Environmentally and in terms of the wider social burden of automobility, the industry has pushed up against all the limits. Business as usual is, therefore, not an option.

2. 2.1

Diversity and the industrial ecology metaphor THE THEME OF DIVERSITY

In this chapter the argument is advanced that one aspect of industrial ecology that has not been given sufficient attention is the theme of diversity. Briefly it is argued that natural systems gain resilience and resistance from species diversity and the adaptation of species to the specific requirements of local environments. At a global level distinct ecosystems and sub-systems have emerged. In contrast, monocultures are often inherently unstable, and in agricultural terms at least are ‘imposed’ on the physical environment through the application of power, energy and technology. If this metaphor is applied to the economic realm, then it is argued that there are strong policy motivations to encourage technological and business structure diversity alongside a better ‘fit’ to the particularities of locality. Diversity has been used in the economic and regional literature before of course, and subject to critiques (Wagner, 2002). Often, however, these critiques are couched in traditional terms with respect to whether diversity is good or bad for economic growth, particularly for regions. There are strong theoretical and empirical grounds for the view that diversity within a region has economic benefits, but paradoxically so has diversity between regions (Dissart, 2003). Here the concept is advanced for somewhat different advantages more to do with complexity, resilience and stability rather than growth, and to extend beyond a narrowly economic interpretation of the value of diversity. These themes are also picked up later, for example in Chapter 4. Diversity here means an enrichment of social and economic life along with the ability to withstand external economic shocks, and can apply equally well to, say, different forms of ownership and organization (family firms, charities, multinational companies, not-for-profit enterprises, state institutions, etc.) as to different sectors of economic activity. Such diversity strategies are already emerging in some spheres of economic and political life, most notably with respect to the US policy to reduce dependency upon imported petroleum. This chapter will explore the meaning of diversity as a socio-technical strategy, with the emphasis on technological differentiation and small-scale decentralized economic 39

40

The automotive industry in an era of eco-austerity

structures. As such this chapter takes the view that industrial ecology can be a powerful metaphor, particularly when contemplating the future of social and technological change. While the emphasis here is on the concept of diversity, inevitably there is also coverage of related themes such as carrying capacity, evolutionary processes and innovation.

2.2

INDUSTRIAL ECOLOGY AND THE METAPHOR OF DIVERSITY

The emergent discipline of industrial ecology is composed of, and drawn from, two essentially opposing philosophical perspectives and, as with the great intra-disciplinary battles of the past, the threat of epistemological schism looms. For some industrial ecology is an empirical, quantitative and fundamentally positivist science whose architectural substance is defined by the tools and techniques employed; it is about objectively measured truth derived from the analysis of a given reality (Bey, 2001). For others, in contrast, industrial ecology is about discourse, and to this extent the metaphor that lies at the heart of the discipline is not a technique as such, but an inspirational insight: literally a different way of looking at the world. This part of the book explores the dualism that lies within industrial ecology. It seeks to expose the strengths and weaknesses of both positions; from the reductionism that pervades the hard industrial ecology approach to the naive idealism of the conceptual and qualitative approach. In so doing the purpose is not to set one faction against another, nor to promote one truth as more self-evident than another. Rather it is to conclude that industrial ecology can be neither purely hard science nor gentle inspiration. There is a sense that there is a struggle for the soul of the discipline, between those who see industrial ecology as essentially a quantitative science bringing tools and methodologies to bear upon the analytical process, and those who see industrial ecology as essentially a metaphor to provide insight, understanding and reflexive discourse. Industrial ecology as hard science without the softening of critical qualitative analysis could all too quickly degenerate into technocratic elitism along with an inherent social conservatism. A great example of this is the book on the industrial ecology of the automobile by Graedel and Allenby (1998). This is a marvellous piece of scholarship that provides an exacting account of the environmental life cycle burdens of the car. On the other hand, the corporate and business model status quo ante, indeed the very notion of our consumption of automobility, is not questioned. Thus there is a danger that in the hard science vision of industrial ecology, the

Diversity and the industrial ecology metaphor

41

emphasis is on data manipulation methodologies wherein it is all too easy to become enmeshed in the beauty of the technique and lose sight of the purpose. Equally, without proper scientific methods, industrial ecology as gentle inspiration is little more than an idea, with no convincing proofs to persuade others to make change happen. With the need for change in the automotive industry becoming more compelling by the day, there is a strong case for saying that time and effort should not be wasted on internecine strife, but rather it should be invested in a joint effort in taking this important discipline forward. It is important, however, to understand these differences of opinion in the discipline within the wider context, such that while industrial ecology is itself a relatively new discipline the world as a whole has changed greatly over the last 20 years – and this has a bearing on the discipline itself. In particular there are three aspects worthy of note for this book: the general proliferation of knowledge and information; the specific proliferation of knowledge within academia; and the substantive deterioration of performance in terms of the automotive industry as measured by many key indicators. The general proliferation of knowledge and information is observable in many respects. More information is being created than ever before, and is accelerated through information economies faster than ever before. It is a process that is still unfolding, but key indicators could include the number of television and radio stations, the number and coverage of magazines, number of Internet sites, blogs, Myspaces, Facebooks, and so on, the number of patents awarded, and the apparently continuous acceleration of technical change bringing in whole new sciences. We are overwhelmed by information, and yet seem unable to distinguish that which is important from the growing level of background noise. Within academia information proliferation is driven by related issues in information technology, but also by for example a growing concern to tie career progression to the ‘publish or perish’ mantra. There are many more academic journals than in the past, all vying for attention, and many more academics trying to get published in them. In effect the time period of the Kuhnsian discipline paradigm is bound to compress under these circumstances as multiple new entrants push against discipline boundaries and seek to define their own place in the pantheon of academic achievement. This problem is most acute in those areas of research that instinctively or inevitably cross traditional boundaries, for example with respect to sustainability. It is, however, evident in all disciplines. It is also evident that whatever the specific merit of engineering solutions to environmental problems, in aggregate and on most indicators with respect to sustainability the situation is getting worse not better. In other

42

The automotive industry in an era of eco-austerity

words the classic eco-efficiency approach has not delivered the desired results. Many of the explanations for this failure lie within the realm of the social, the political, the behavioural and the cultural. In simple terms it seems as if the gains of eco-efficiency are swamped by rebound effects and by the growth in consumption generally arising from higher populations and greater economic wealth. In the case of the automotive industry, a US study found that 20 per cent of the CO2 reductions from efficiency gains were negated by increases in the distances travelled (Greene et al., 1999). Industrial ecology therefore is inevitably under pressure from these three forces. As an essentially pragmatic discipline concerned with making the world a better place it attracts participants with a lively interest in getting things done. Hence there is a growing sense of urgency, but also of the notion that now is not the time to be ‘precious’ about the discipline but to embrace both the qualitative vision and the quantitative robustness that collectively characterize the discipline. It must be admitted that there are many within the realm of industrial ecology that would take exception to the manner in which the discipline is used here, particularly with regard to the concept of diversity. Some critics have argued that diversity is a bad metaphor because there is no process equivalent to natural selection in the social realm. That is to say, under natural conditions the process of evolution is driven by natural selection of emergent diversity. As random diversity appears, offering new and different characteristics, so some may be selected by sheer survival because the characteristics mean that the living organism in question is better adapted in one way or another to prevailing conditions or changes in those conditions. In the socio-economic realm the opposite seems to hold in the sense that a premium is placed on standardization and elimination of diversity. Diversity is sacrificed at the altar of least economic cost. In turn, this increases barriers to entry or results in an inability of the socio-technical system to accommodate change. There is something of a tautology in the view that there has been no natural selection and therefore the concept of diversity is not useful in understanding socio-economic or technical change. The problem here is of course that such a criticism fails to take account of the failures that are an integral part of the diversity process. Within the subject of concern in this book, the automotive industry, there have been many examples of failed attempts at what might be considered ‘mutations’ or new ways of designing and organizing the business model with its underlying business technology. These failures are to be expected, for they indicate that the mutated forms emerged but did not survive because the time and place were not right. There is an equally important issue of the relationship between theory and empirical evidence. Generally speaking, the approach in industrial

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ecology is similar to that in the world of business literature in that a theoretical position is advanced, which is then proven or disproven with the available evidence. Hence there is a general tendency for social science research to be more or less ‘history’, and for this problem to be compounded by the length of time required to undertake academic endeavours. It is not uncommon that the process from initially forming a research idea, to putting in a proposal, getting accepted for funding, hiring appropriate people, undertaking the actual research, writing up the results and then getting them published in a suitably prestigious peer review journal can literally take years. Given that speed is of the essence when it comes to addressing issues such as climate change, and that in any case socioeconomic events can unfold at a much greater pace (as the global financial crisis has shown), there is some merit in rethinking aspects of this working model in academia. In particular, there is surely much more room for academics to be pro-active, not just in the currently popular ‘action research’ sense, but to use their insights and knowledge to create solutions that do not yet exist. When the concept of Micro Factory Retailing (MFR) was first developed in 1999, academic journals were not interested in publishing what was seen as a purely theoretical concept with no ‘case study evidence’. The very good reason for the lack of evidence was that no such example of the concept then existed in the world, but it was argued that it could exist if the automotive industry were to be reconstructed with the principles of sustainability. In fact this work was first published in industry rather than academic journals (see Wells and Nieuwenhuis, 2000). As is argued later in this book (Chapter 5), the example of Riversimple, a company that launched its first product in 2009, is one of several to embody multiple characteristics of MFR that have emerged since the concept was first aired. In this respect, industrial ecology has enormous potential as a design tool and source of inspiration on the resolution of acute social and environmental problems. The traditional academic methodology, alternatively, appears rather inadequate to the task.

2.3

CARRYING CAPACITY

All populations, be they people, coniferous trees, iPods or cars, have logical limits. In many natural systems, rapid population growth towards some defined peak is often followed by an equally rapid collapse back down to background or normal levels. In addition in natural systems there are defined limits that determine what might be termed the carrying capacity of the ecosystem for any given species. Hence a stretch of savannah can carry a specific number of wildebeest, and in turn a specific number

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of lions, based on the available pasture, water and other resources and on competition from other species. If environmental conditions change then it is possible that the carrying capacity will also change upwards or downwards. In dynamic systems such as those in nature there will always be some degree of fluctuation of species populations over different time scales, and indeed it might be difficult to calculate the ‘true’ sustainable population of a species because of these fluctuations. Humanity has shown that it is possible to change environmental conditions to the benefit of a species, but the point has arrived at which it might be said that the human population has exceeded the carrying capacity of the planet (Wackernagel and Rees, 1998). To this extent the ‘problem’ of cars is but one manifestation of the larger problem of humanity and the carrying capacity of the planet. For all sorts of reasons it is clear that the population of cars in the world cannot be treated as if it were the result of being a species in a natural system, but equally it must be possible to identify the parameters that will determine the final population likely to be achieved, and by extension the size of the annual replacement market for new cars. The 2009 world car fleet of about 700 million units (i.e. excluding various categories such as auto-rickshaws and commercial vehicles) compares with a world population of six billion. As a simple example it could be argued that the maximum potential population of cars in the world would be established when all countries had the same population per capita as the current highest country (the USA) and when the world human population peaks. So if the US human–car ratio is 0.75, then if world populations peak in 2080 at ten billion the theoretical world car population peak will be 7.5 billion: ten times the current levels (Wells, 2007b). The ultimate carrying capacity must of course be considerably less than this, with one estimate giving two billion cars by 2025 (Sperling and Gordon, 2008), and with a middle-ground industry view of about three billion by 2050. There are a great many limiting factors that prevent all societies adopting the level of motorization of the USA. In a heavily motorized society such as the United States (that contributes about 25 per cent of all global carbon emissions) about 41 per cent of emissions are attributable to combustion of petroleum products, of which 25 per cent is attributable to automobiles (Environmental Defense Foundation (EDF), 2002). If other countries adopted USA levels of automobility, greenhouse gas emissions would rise accordingly worldwide. Other factors such as material availability could be considered limitations (rubber supply is an interesting case (Wells, 2008c)), as could socio-spatial factors such as population density and infrastructure availability. One aspect that is often neglected in this respect is the potentially disastrous consequences for

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deaths and injuries arising from automobiles in countries that are rapidly motorizing. There are further limitations on the supply side, particularly in terms of whether the automotive industry can actually afford the investments required in new capacity when profitability is so poor. A new fullsize car plant requires at least US$1.5 billion in investment, while each new model generation (i.e. at the level of vehicle architecture) requires a further US$1 billion. Similar sums would have to be spent by the supply base to expand the availability of materials and components. Even with generous help from recipient locations, the industry is going to struggle to afford its own future. The peak of world car populations is thus a considerable unknown, but even a doubling of existing levels is difficult to envisage, as is a similar growth in new car sales – at least with existing production and consumption practices. Given that the basis of the business model in the automotive industry is the continued expansion of the market, the long-term prognosis is clearly not good. Moreover the idea of carrying capacity has within it the possibility for populations to be revised downwards, not just upwards. While the automotive industry has perhaps accepted that there will be scant growth in new car sales in saturated markets such as those in the EU, there has been little or no discussion of the possibility that car populations in these countries will actually go into reverse. That is to say, the environmental conditions that have supported the current level of car ownership are already changing in multiple respects, and in most of those respects it is reasonable to expect that the result will be fewer cars. Socio-technical transformations need not just be understood as ‘growth’ scenarios in that sense. They also contain the dynamic of decline, not least because such transformations imply the displacement of certain technologies and social practices by other, newer versions.

2.4

SOCIO-TECHNICAL TRANSFORMATIONS

At the macro-economic and policy scale one productive approach has been to use the concept of Strategic Niche Management (SNM) and ‘transition’ theory as a unifying mechanism for policy formulation that will enable the nascent sustainable activity to be nurtured into one of substantive scale (Kemp, 1997). Transition management is not so much about instruments but more about different ways of interacting, the mode of governance and goal seeking. Innovation and learning are important aims for transition management (Rennings et al., 2003). Through transition management the endeavour towards more sustainable systems is institutionalized. Transition management helps to increase the chance of

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achieving a transition towards more sustainable systems, in energy, transport, agriculture and food, and helps to achieve greater socio-technical diversity (Vellema and Loorbach, 2006). The end-state is not fixed but open ended (Rennings et al., 2003). The SNM approach, first described by Rip (1992) and later elaborated by Schot et al. (1996) and Kemp (1997), is an approach to induce and manage technological regime shifts (Kemp et al., 2001) and is used to explain the success or failure of promising technologies. Through SNM concepts one can systematically document the initial activities and processes that lead to the eventual adoption and broad diffusion of new technologies in society, and with which one can take stock of important stimulating and constraining factors in that process (Kemp et al., 1998, 2001; Weber et al., 1999; Hoogma et al., 2002; Elzen et al., 2004; Raven, 2004, 2005). Eijck and Romijn (2008) used SNM as a principal analytical tool to analyse how the scope for an energy transition is influenced by factors at three societal levels: the overarching ‘landscape’, the sectoral setting or ‘regime’, and the ‘niche’ level where innovation develops and diffuses (Schot and Geels, 2008). Bruckner et al. (1996) developed an elementary evolutionary model to understand the conditions that lead to technological substitution. They demonstrated the difficulty for a new technology to take over the market, even when the new technology is technically superior to the existing technology. Faber and Franken (2008) are of the view that when a critical mass of adopters simultaneously switches to a new technology through some form of co-ordination, all others will follow and adopt the new technology as well in a form of institutional isomorphism (Hoed, 2004). They claim that in such environments, new technologies can be introduced in niche markets when a user group is willing to pay a significant premium for the superior characteristic. After introduction, users will begin to introduce subsequent improvements. Such a gradual process allows the technology to diffuse through niches (Levinthal, 1998; Geels, 2002). The impact of heterogeneity of preferences on technological change has been studied extensively in evolutionary models of technology adoption using a variety of modelling approaches, including diffusion models with increasing returns (Dalle, 1997), co-evolutionary models of users and producers (Windrum and Birchenhall, 1998, 2005; Janssen and Jager, 2002) and extensions of the Nelson and Winter model (Jonard and Yildizoglu, 1998; Malerba et al., 2007). These models reiterate the fact that niches are important for technological transitions to take place, as the new technology can be developed within the niche before being introduced in the mass market. Agent-based modelling provides a good framework for the evaluation of interaction among various links in the supply chain, which

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are individually attributed with heterogeneous characteristics, preferences and abilities (Janssen and Jager, 2002; Windrum et al., 2008). Such models conceptually support policy measures and regulations intended to help environmental technologies mature in niche markets, a notion that has been recognized in the policy concept of SNM (Schot et al., 1994; Kemp et al., 1998). Clearly the concept of SNM has a close link with that of path dependency, and both are highly relevant for a consideration of the future of the automotive industry. In essence path dependency first came to prominence as an explanation for evolutionary, historically grounded, economic change (Nelson and Winter, 1982). The idea is that once, for whatever reason, a technology gains a degree of ascendency then that lead tends to become self-reinforcing over time. There is a process of positive feedback in which so-called bandwagon effects or network effects come into play, leading to a technological lock-in from which it is difficult to escape. With bandwagon effects consumers and other actors in the market may multiply an initial market share advantage even where there is no obvious technical reason. For example, in the frequently cited case of Betamax versus VHS it is claimed that once VHS had an initial lead, the manufacturers of video tape players switched to VHS production because it was anticipated that any future industry standards would be centred on VHS technology not Betamax. At the same time there were network or infrastructure effects such as that shops stocked VHS players and tapes in preference to Betamax, ultimately resulting in the loss of the Betamax format (Cusumano et al., 1992). Hence path dependency becomes established from the dual action of market acceptance and regulated industrial standards. Once an initial lead is established, the costs of switching become prohibitively high at the personal and/or social level and companies find it ever harder to break through. The Betamax example is relatively limited in scope and social cost implications compared with the broad issues addressed in socio-technical paradigm change but the principle is the same. Interestingly the automotive industry has long demonstrated that in fact more than one pathway is possible and once embarked upon it can be difficult to change. One simple example is the division of world markets into right-hand drive and left-hand drive vehicles. There have been instances in which markets have changed (most notably Sweden from driving on the left to driving on the right) but generally markets have retained one rule or the other. Vehicles would cost less per unit if they were all left-hand drive around the world, because of simple economies of scale, but the social inertia that has accumulated around right-hand drive in markets such as the UK is all but insurmountable. Not only is there a huge stock of

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vehicles in circulation that are right-hand drive, but many other features have been designed around this assumption. This includes, obviously, the road network itself along with all the associated signage, but also features such as the ticket machines on entrances to car parks, drive-through restaurants, toll-booths, and so on. Moreover the actual changeover period would be chaotic. Path dependency need not be inefficient, as indeed the example of leftor right-hand drive vehicles illustrates. Cars are as efficient in either form, as is the production of cars, although it is the case that the design changes that must be made to a car in order to convert it from one side to the other affect about 15 per cent of the engineering cost of the car. Implicit within the concept of path dependency is the notion that switching is difficult; this is indeed the point made by path dependency analysis. Path dependency becomes stronger and more reinforced as a technology becomes more pervasive, and as it requires more (sunk cost) infrastructure. Some technologies, such as television, require relatively modest infrastructures such that the cost of switching (e.g. to digital or high definition) is relatively low. Similar statements could be made about, for example, the switch from portable CD players to solid-state audio devices. Other technologies such as sewage systems or railways (Puffert, 2002) demand a significant physical infrastructure that is difficult and expensive to change across society as a whole. At a social level it is clear that we have a built environment that is predicated upon widespread individual person mobility in the form of the car, and that these spatial structures are relatively enduring or slow to change. Alternatively within this very broad societal level of path dependence upon individual motorized mobility there are varying degrees of specific lock-in with respect to the dominant technologies of automobility. This path dependency on automobility is not just attributable to infrastructures and physical costs, but there is also a cultural path dependency in the sense that lifestyles and expectations are to some degree also shaped by the prevailing socio-technical paradigm. Attention has also been drawn to the ways in which regions and industries accumulate path dependency. Indeed this may be argued to be one of the outcomes from the (beneficial and efficient) concentration of specific industries in specific regions and to this degree it is a manifestation of spatial agglomeration economies. A location comes to accumulate a supportive milieu or network of labour skills, educational establishments, specialist companies and the like around specific industries and this process acts to reinforce the dependency of a location upon those industries. Institutional isomorphism may come into force here, in a process whereby companies and other organizations mimic each other as a risk-avoidance strategy (Hoed, 2004). Moreover the concept has also been applied within

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individual organizations to examine the ways in which routines, practices and behaviours can be established – a notable example being the TPS (Driel and Dolfsma, 2009). In this regard policies designed to attract and incubate clusters of new technology industry can be understood as attempts to set up a (benign) path dependency along what is anticipated to be a beneficial growth route. Hence for the automotive industry the situation is emerging in which there is a destabilizing combination of forces at play. First there is a general presumption towards technological diversity in order to meet the challenges of sustainability; and secondly, there is the tendency for this diversity to become more or less embedded over time. In turn this may lead to the expectation that the global automotive industry will become more diverse and fragmented over time, not less as the neo-classical economic theorists would have it. Alternatively it is unlikely that in the near future there will be ‘one best way’ for the socio-technical trajectory of the automotive industry. These themes are elaborated in more detail in Chapter 6.

2.5

THE LIMITS TO DIVERSITY

It is possible to identify several imperatives for increased localism that underpin the transition to greater diversity, though it must be accepted that these imperatives will not be equally developed in all cases. These include: ● ● ● ● ● ● ● ● ●

politics . . . re-emergent regionalism and devolution; culture . . . re-discovering identity; technology . . . enabling decentralization; economics . . . primacy of diseconomies of scale; mobility . . . increasing cost of travel; language . . . revival of small languages and dialects; social changes . . . downshifting and celebratory minimalism; energy . . . micro heat and power, especially renewable; business . . . rise of self-employment and small businesses.

Of course in many respects people live their lives on an increasingly accessible world stage, and in this respect ties to place are probably weaker than they once were. Hence there are contradictory forces at work in all of the above factors. For example, critics can point to increased integration and the erosion of independence with respect to issues such as world trade and political groupings. Hence the European Union has expanded on several occasions and now encompasses 25 Member States, yet simultaneously the

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UK and other Member States have been witness to increased pressure for political devolution, some of which has borne fruit. An interesting example of these long-term trends, and their contradictory nature, is that of brewing beer, though other parallel (but different) cases could be made for steel production, printing, bread making and many more. There is a dynamic tension between the economic incentives towards eroding diversity and other (often non-economic) pressures to increase diversity. In the case of beer the industry of course started as one of small scale, often indeed limited to a single public house (or inn) or to the confines of a particular village or town. With the industrial revolution came the technology to make beer on a larger scale, and to transport it at low financial cost to more distant destinations. Along with changes to consumption habits and tastes (see Fuess (2006) for a fascinating account of the beer industry in Japan), cheap transport premised on cheap hydrocarbon fuel sources enabled the centralization of production and the triumph of manufacturing economies of scale. Local brewers were decimated, unable to compete with the low price and consistent character of massproduced beers, and the industry consolidated over time. Interestingly, however, this process has shown signs of being reversed – at least in terms of production if not in terms of the concentration of ownership. US microbrewers and brew pubs started to emerge in the late 1970s, just as in the UK campaigns started that sought to save ‘real ale’. Despite the premium price, the desire to celebrate and enjoy diversity enabled the growth of these niche producers and a re-emergence of a degree of localism. While arguably relatively superficial or marginal, localism is emerging in many diverse areas from music and TV production to school meals, and farmers’ markets to restaurants resurrecting local cuisine. In addition there are themes such as ‘food miles’ and food security that have caught the public imagination and emerged onto the policy agenda. A key problem that frequently emerges in the social sciences is that of measurement, in that concepts such as diversity are relatively easy to formulate but difficult to give empirical precision in a socio-technical setting (see Stirling, 1998, 2007 for a quantitative methodology example using complex systems theory). This in turn leads to rather empty arguments as to what constitutes radical technology, or even what constitutes development within a system or some more dramatic evolution of that system. Those interested in business strategy like to talk in terms of ‘disruptive’ innovation, where the innovation in question tends to refer to a new technology that changes the terms of competition or opens up a new market space. Disruptive innovations can also refer to new business models, which can be as powerful as a new technology in making new markets appear (as is further discussed in Chapter 5). Interestingly a combination

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of new or innovative practices, organizational forms and strategies with new product technologies and new production systems can be said to represent the most ‘disruptive’ of actions because it combines and transcends existing approaches. On the other hand, it could be argued that there is no innovation in a social or organizational sense in the sense that this is still just capitalist business. Disruptive innovations that are simultaneously able to challenge the power of capitalist forces are few and far between, though again there is some justification in thinking that as the sustainability challenges to contemporary society increase so those non-capitalist alternatives may become more attractive, pervasive and enduring. The stance adopted here is that such debates are difficult to conduct without grounding in specific instances, and to that extent are only able to be revealed empirically. While this is a book about the automotive industry, in this regard the underlying theme is that this particular industry is emblematic of many others even if the actual empirical outcomes will be unique and distinct. Moreover disruption is a relative rather than an absolute category, and the largest scale at which disruption can occur is at the level of the socio-technical system. There may be instances of disruptive innovation below this level, where the impact is felt by particular subsectors, or product types, or companies (and hence of course particular locations). The disruption of the entire automotive industry socio-technical system is a huge undertaking. In other words, innovation (and diversity) can operate at different levels in a sort of hierarchy, from the level of a component of a product or a material that goes into a product, right the way through to socio-technical shifts. Diversity can be highly superficial, in for example the personalization of a mobile telephone ring tone or the appearance of one’s computer screen. Diversity further has a temporal and spatial component, both of which again are highly contextual. In combination therefore there are levels of innovation and degrees of innovation, along with different velocities of innovation and rates of spatial extension. All of these characteristics mean that the measurement of diversity in the social domain becomes rather more complex and contentious than that of the natural domain. Overlaid on these distinctions is the question of geographic scale, with in particular much debate over the question of regional diversity. There is a difference between economic diversity within a region (perhaps measured by the number of different sectors of economic activity and their relative share of employment within a region) and diversity between regions that probably results from relatively high levels of economic specialization within a region compared with another. On the other hand, natural diversity can perhaps provide the metaphor with which to think about socio-technical diversity and innovation. In natural systems there is, even within a single species and single variety, a

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‘background’ level of diversity. A field full of sheep may look the same to you and me – but to a lamb the face, the smell and the bleat of its mother are quite distinctive. This is perhaps the first level of diversity, confined to the superficial and to parts of the whole. Then there is the diversity within a species, which may be conceived as the diversity of varieties. In natural systems, different varieties retain the theoretical ability to inter-breed as the basic defining characteristic of a species. This is the next level of diversity. Then there is the level of different species and genera, as respectively more elevated levels of diversity. Perhaps then the greatest level of diversity in natural systems (in the absence of alternative life forms beyond the Earth) is that at the level of the ecosystem. It is useful to ask how much diversity is a society able to support. There are strong counteracting forces that tend towards uniformity, conformity and similarity acting at the economic and cultural levels. For example, vernacular architecture tends to result in domestic accommodation that follows a pattern of broad similarity within geographically proximate regions that share characteristics. This makes intuitive sense: given the same starting materials requirements, tools and skills, then populations will tend to come up with the same set of solutions. There is also an emotional comfort in having objects in common with others, and thus in looking and behaving like others. Conformity brings with it a sense of belonging and group identity. We imbue objects with cultural meaning, and in a world of infinite diversity those objects would lose much of their ability to transmit cultural messages about our status, interests, associations, attributes and so forth. Economists have long identified one of the more important forces for uniformity, namely the reduced cost per unit that comes with standardization and economies of scale. As in the world of fashion, there is a kind of dynamic tension between the level of standardization and cost. In the automotive industry, then, the notion of diversity can have multiple levels of meaning in parallel with natural systems. It is quite clear that in terms of the economics of production the least-cost solution is the mass production of entirely uniform products over a very long time. When motorization was first becoming established in markets such as the USA, France, Germany, Italy and the UK then the balance of the equation favoured the emphasis on least cost. As a consequence, cars stayed in production almost unchanged for a very long time, and were produced in virtually identical units. An initially high level of diversity with many different producers of vehicles rapidly evolved to a situation where there were only a few producers, with very high levels of more or less standardized output. As those markets became saturated, however, so the nature of the balance shifted more towards (higher cost or lower profit) incremental

Diversity and the industrial ecology metaphor

Table 2.1

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Levels of diversity in the automotive industry

Nature

Natural system example

Automotive industry

Automotive industry example

Species and varieties

Corgi

Genus

1.6 petrol LX saloon, black Focus

Family Order

Canine familia Canine Carnivora

Body styles; varieties Model Brand ICE/ASB

Ford Almost all cars are in the same order

Class Phylum Kingdom Domain

Mammalia Chordate Animal Eukarya

Automobile Transport Machines Human artefacts

Note: ICE = internal combustion engine; ASB = all-steel body; there are other systems of classification of the natural system.

differentiation. Mass customization in this respect can be understood as differentiation at the superficial level. Table 2.1 provides a crude approximation of the way in which the natural system of the hierarchy of life can be translated into the automotive industry. It is of course accepted that the automotive industry is not a natural phenomenon and that this metaphor can be criticized on a number of grounds. On the other hand, it is intended to illuminate the idea that the contemporary diversity of the automotive industry has much room for further development. The problem of lack of variety can be put in another way. If the contemporary automobile (in this case the Ford Focus 1.6 petrol LX saloon in black) is considered then there is a high degree of variety at the level of the species – as was illustrated in Table 1.11 in Chapter 1. On the other hand, at the level of the order then it is apparent that virtually all cars are of a single fundamental technology: the internal combustion engine and the all-steel body. Moreover, at the level of the class of personal transportation, in the advanced industrial economies it is evident that the automobile is again the dominant form. More diversity is exhibited in emerging markets with, for example, auto-rickshaws and greater use of bicycles and motorcycles, but in heavily motorized societies the automobile has virtually excluded other forms of personal transport. If the automotive industry is overlaid on Table 2.1 then it can be seen that it covers the levels from species and varieties, up to the phylum of

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transport and in some cases the kingdom of machines (e.g. Mitsubishi and Hyundai have broad-ranging interests in many manufacturing and service sectors). The majority, however, particularly in recent times, have tended to become concentrated in the class of automobiles to the exclusion of other activities. To put this in another way, with a few notable but marginal exceptions at the level of the order then all automobiles are the same. There is a chronic lack of variety. A consumer can buy any car that he or she likes, so long as it has an internal combustion engine and an all-steel body. Similarly at the levels of the class and phylum, then again there is a chronic lack of variety. Mass customization is about increasing diversity at the levels below the family, by offering more models and variants, with trim choices and optional equipment, but is actually achieved by reducing the underlying level of diversity by using common platforms or architectures for the vehicles. The achievement of this sort of diversity is expensive for traditional capital-intensive, high-throughput mass-production factories but is done in order to cater for a market demand to be ‘the same but different’. In other words there are strong forces that militate against monoculture or lack of diversity, just as there are for limits to diversity. For individual vehicle manufacturers this translates as a finite appetite for specific models and varieties even when the underlying demand for automobility remains strong. Hence it is increasingly difficult to retain specific models in production for extended periods. The quest for sustainability, it is contended here, demands taking diversity to much higher levels as defined in Table 2.1, and thereby to change the underlying technologies of the automobile along with our culturally embedded notions of what automobility is about, and the business models required to be successful at this new sort of automobility (see also Nieuwenhuis (2008b) for a provocative alternative insight using the metaphor of industrial ecology).

2.6

SCALE AND ECO-INDUSTRIALISM

Those seeking to understand and implement eco-industrialism have tended to do so at the local scale, where the spatial resolution is very small. In part perhaps because it allows the ‘problem’ of industrial ecology to be contained within a manageable level of complexity, the idea of eco-industrial parks has found favour with academics and policy-makers alike. Ecoindustrialism is in this sense the science of industrial ecology made real, most famously of course with the paradigm example of Kalundborg. Ecoindustrial parks (Wallner, 1999; Lambert and Boons, 2002; Deutz and

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Gibbs, 2004) seek to deploy the metaphor of industrial ecology such that unsustainable industrial systems come more closely to resemble sustainable ecological systems – primarily by ensuring that the waste-flows out from one process or business entity become the input or ‘raw’ materialflows into others. In addition, some social ends may be served, for example by directing waste heat to local communities. Although a few prototypical examples exist, the deeply embedded replication of those examples has proven somewhat elusive (Deutz and Gibbs, 2004; Gibbs et al., 2005). This narrow spatial focus is slightly unfortunate in that it tends to bypass the issue of economic scale and whether the entire (spatial) economy could comprise a series of eco-industrial complexes or whether some other form might be required. Ever since the pioneering work of Schumacher (1973) there has been an interesting alignment or convergence of interests in those concerned with devolved democracy, local control, self-reliant development, sustainable economics and appropriate technology. The Schumacher approach was in deliberate contradistinction to the ‘big is best’ philosophy of traditional neo-classical economics, the legacy of which is still often seen in arguments in favour of economies of scale in the automotive industry. In terms of spatial organization, the seemingly relentless trend of urbanization in most societies of the world has long been a facet of the concept of agglomeration economies of scale, but intriguingly scant attention has been paid to the energy foundations of such urbanization processes and the economic benefits that centralization confers. Perhaps with decentralized (and renewable) energy then the case for urbanization becomes less compelling; our great megacities are constructed on oil, with all the consequential environmental burdens that entails. Distributed economies (Johansson et al., 2005; Mirata et al., 2005) consider the spatial structure of a networked economy of small firms. This is where ‘a diverse range of activities are organized in the form of small-scale, flexible units that are synergistically connected with each other and prioritize quality in their production’ (Johansson et al., 2005: 971). The literature on distributed economies makes two essential claims: the first is that small-scale, flexible and high-quality businesses are the basis for a more robust economy with a range of environmental benefits that potentially includes reduced material intensity; the second is that of emancipation, whereby local communities have a greater vested interest in production and consumption patterns, greater control over their own destiny and greater levels of reinvested wealth. Sustainable entrepreneurial ecosystems (Cohen, 2006) extend the cluster concept that is usually premised on specific industrial sectors (Porter, 1998). Entrepreneurial ecosystems may be defined as ‘an interconnected group of actors in a local geographic community committed to sustainable

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development through the support and facilitation of new business ventures’ (Cohen, 2006: 3). The intended outcomes are broader in that the aim is to create social, environmental and economic value including, for example, improved health and a reduction in poverty. Despite the broader aims, the focus of analysis is very much on the wealth-generating linkage between innovation and entrepreneurship, albeit in technologies that are considered to be of environmental benefit (examples cited include solar powered traffic light systems for instance). Regenerative eco-localism (Bristow and Wells, 2005) encompasses but is not limited to traditional profit-maximizing business ventures, in that it further seeks to integrate social enterprises. Thus there is a posited combination of what might be termed ‘vernacular industry’ (industry embedded in and reflective of its locality) and a wide range of intermediate organizational forms that in various ways bridge the public–private divide. A similar concept to that of regenerative eco-localism, namely sustainable local enterprise networks, has been developed by Wheeler et al. (2005). Their research has highlighted, in a developing country context and in antithesis to the multinational-centric approach of Hart (2005), the pivotal part played by local, not-for-profit organizations integrating with business. These are then ‘relatively dense communities of for-profit businesses, local communities, not-for-profit organisations, and other actors working in a self-organising way to create value in economic, social, human and ecological terms’ (Wheeler et al., 2005: 53). There have been others that have argued for a return to localism, on a variety of grounds including social stability, economic resilience and political autonomy (Douthwaite, 1996; Hines, 2000; Desai and Riddlestone, 2002; McIntosh, 2002), and it is likely that the arguments in favour of reversing global economic integration will be stronger in the future as a consequence of the financial crisis. There is a difference between economic diversity as a form of self-reliance and regional specialization that can actually result in greater vulnerability to external economic events (Desrochers and Sautet, 2004). At best this is suggestive of a tension between the concepts of diversity, and those of economic decentralization and self-reliance. Perhaps in a sustainable world places are actually more like each other in an economic sense, because each place is more likely to require a full range of economic activities to be self-supporting, rather than relying on comparative advantage and trade as the means of fulfilling needs. These sorts of tensions are not conducive to resolution except through practice. As Chapter 3 goes on to illustrate, the use of the concept of diversity as applied to the automotive industry is not entirely straightforward. In particular, there are some forces that appear to act to increase or at least

Diversity and the industrial ecology metaphor

57

retain a high level of diversity, while there are others that act in the opposite direction to decrease diversity. In a sense, this dilemma can be viewed as the tension between the demands of the (economic) production system for standardization and the demands of the local social and cultural structures for differentiation. There is unlikely to be a permanent and stable resolution of such tensions, but rather there will always be a flux towards one direction or the other, subject to wider forces of change such as available wealth and the state of concerns over environmental issues.

3. 3.1

Contemporary global diversity and cultures of automobility INTRODUCTION

The contemporary automotive industry actually exhibits more diversity than might at first be suspected given the comments in the preceding two chapters. Many analysts and academics tend to conceptualize the industry as being essentially global and uniform in character when in many important respects it is not – particularly in terms of the interface with the market. As a consequence, there have been several critiques of the crude ‘globalization’ concept (Rugman and Hodgets, 2001; Edensor, 2004). What these critiques have tended themselves to ignore is the rather more nebulous dimension of automobility cultures that can be quite distinct around the world, and in the future could play an important part in shaping the emergence of a more sustainable industry and sustainable mobility. This chapter therefore seeks to show that there is already a level of diversity in the industry in terms of the business structures and market structures that can be collectively described under the concept of cultures of automobility. Evidence will be provided to show that markets and cultures of automobility vary in an enduring and significant manner, and this undermines the ability of the automotive industry to achieve standardization. On the other hand, this cultural diversity could help provide the basis for multiple innovative pathways to sustainability in the future. Indeed attempts at producing a ‘world car’ have manifestly and repeatedly failed, as have attempts at producing global multi-brand conglomerates. The re-emergence of the ‘value car’ segment offers some potential for a global commodity car, but only to a few companies. Similarly there has already been a proliferation of new underlying technologies in cars as products (including fuel systems), albeit with relatively minor levels of market penetration to date. Thus this chapter seeks to argue that upon closer examination there is already a ‘seedbed’ of latent diversity in this industry as in many others. As the hegemony of production economies of scale is eroded, so the scope for that latent diversity to be realized grows. 58

Contemporary global diversity and cultures of automobility

59

This latent potentiality will be translated as a further fragmentation of the market for new cars, thereby undermining the scope for economies of scale still further. The automotive industry, like many others, of course seeks some salvation in the form of standards and other regulatory mechanisms to counteract the tendency towards difference. Economic hegemony likewise is instrumental in reducing the chaotic inclinations evident in markets: dominant companies are able to impose their own technical standards on the market. To some degree standardization has been achieved in a technical sense: a good example is that of the European Union where there is now a single common Type Approval process where previously individual countries had their own. At the same time, however, this example only serves to exemplify further the point that differences at the level of the market, which are deeply embedded in and arise out of the socio-cultural differences of places, are extremely resistant to standardization. Thus to date it has not been possible for the European Union to arrive at a common policy on vehicle taxation and fiscal policies between the various Member States. These differences can result in important market distortions. Similarly, there remain (even with the relatively integrated structure of the EU) differences between such issues as speed limits, drink-driving laws and approaches to car insurance. Some resilient differences, such as the French market for voiture sans permit (VSP) vehicles, have been rather awkwardly accommodated by other Member States. In France it has long been acceptable for young people to drive low-powered cars without a full driving licence but this practice is not acceptable in, say, Germany. It is interesting to note that in Canada experiments are being conducted to allow the use of electric vehicles on the road even though they do not meet all the normal safety requirements of standard vehicles. This is an example of new regulatory liberalism at a local level, suggesting that such differences between places are not just historical baggage but constantly re-emerging.

3.2

LATENT DIVERSITY AND INDUSTRIAL STRUCTURE

Many analysts of the industry, and indeed industry insiders, take the view that repeated bouts of consolidation are inevitable under the inexorable pressure to achieve greater economies of scale. Under this logic there would be five or six major groups, each with an output of about ten million units per annum around five main platforms (giving optimum production economies of scale of two million units per annum per platform).

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This pattern has manifestly failed to emerge, for two main reasons. First, existing attempts at consolidation have foundered (as outlined in Chapter 1) and secondly, new contenders have emerged to join the ranks of the automotive industry. Hence there has been a distinct phasing of the process of consolidation in the automotive industry. In the very earliest years when there were many craft-scale producers the process of consolidation was relatively rapid, particularly once all-steel technology was developed (Nieuwenhuis and Wells, 2007). This consolidation happened in the period just before and after the 1939–45 war, and was conducted within each of the industrial countries. Ultimately this process gave rise to vehicle manufacturers that were relatively dominant within their own national boundaries, and of course to various forms of ‘national champion’ state-owned companies. Then, from the 1980s, a further phase developed with the integration of previously distinct national markets – most obviously of course in Europe. This was the era of so-called triad globalization (Ohmae, 1985), which saw increased consolidation between vehicle manufacturers from North America, Europe and Japan – and can be argued to have found its ultimate expression in the form of the DaimlerChrylser combine that included share ownership in Mitsubishi and Hyundai. The opening up of new markets in Russia, India, China and elsewhere, however, put increasing strains on the automotive industry as a whole, while simultaneously providing the conditions for new entrants to reshape the industry in a further round of consolidation and, crucially, fragmentation. Thus just as new groups are being formed so some of the existing ones are being broken up, with the result that the degree of concentration remains significantly below what would be anticipated in a purely economic analysis. Companies such as Hyundai (South Korea), Tata (India) and SAIC (China) enjoyed the protective embrace of virtually closed markets while they developed sufficient scale and competence to enter full competition with existing vehicle manufacturers. Table 3.1 shows the contemporary consequences in the case of China. It is notable that Brazil, in contrast, was unable to develop and then protect its own industry in the way that occurred in places such as Russia, China, India and much of the rest of Asia. The result is similar to that presented in Table 1.10 in that the market is highly fragmented with about 50 brands competing for a share. In addition to this latent diversity in terms of industrial structure there are differences in terms of what might be termed regimes of automobility culture. These regimes comprise the myriad rules, regulations, norms of behaviour and attitudes, economic possibilities and even topographical and climatic realities which are combined to result in characteristically

Contemporary global diversity and cultures of automobility

Table 3.1

61

Passenger vehicle sales in China, 2007 and 2008 by major brand

Brand BAW BMW Brilliance BYD Auto Changan Group Changfeng Changhe Chery Chrysler CMC Soueast Dongfeng Europestar FAW Fiat Ford (incl. Volvo) Foton Fuqi Geely Group GM Buick GM Cadillac GM Chevrolet Great Wall Guihang Haima Harbin Aircraft Ind. Honda Hyundai Hyundai (Kia) Isuzu JAC Jiangnan Lifan Auto Mazda Mercedes Benz Mitsubishi Nanjing Auto New Dadi Auto Nissan PSA Citroen PSA Peugeot SAIC

2007

2008

10 163 32 249 126 571 100 126 322 296 25 758 7 295 379 261 9 277 7 729 22 196 0 210 603 15 525 180 476 1 717 294 220 832 330 726 4 384 193 150 64 732 8 130 988 167 165 422 345 243 989 101 436 1 257 48 114 5 444 30 099 91 366 6 882 41 475 371 14 472 281 520 115 036 92 219 19 680

12 063 35 164 103 737 170 882 276 519 26 886 8 294 356 093 11 200 11 849 23 611 107 228 454 – 161 758 3 470 88 221 151 279 238 2 633 203 674 73 030 – 96 099 148 673 470 033 308 155 142008 671 58 237 13 099 33 112 112 711 14 356 21 170 – 27 147 361 015 101 933 76 375 35 208

% change 18.7 9.0 −18.0 70.7 −14.2 4.4 13.7 −6.1 20.7 53.3 6.4 – 8.5 – −10.4 102.1 −70.1 0.1 −15.6 −39.9 5.4 12.8 – −26.6 −11.1 11.3 26.3 40.0 −46.6 21.0 140.6 10.0 23.4 108.6 −49.0 – 87.6 28.2 −11.4 −17.2 78.9

62

Table 3.1

The automotive industry in an era of eco-austerity

(continued)

Brand

2007

2008

Shuguang Auto Suzuki Toyota VW VW Audi VW Skoda Wuling Zhongxing Motor

7 108 160 849 455 140 755 489 92 197 30 902 464 118 6 971

4 881 178 853 543 106 822 314 100 782 60 340 545 239 6 126

−31.3 11.2 18.8 6.0 9.3 95.3 17.5 −12.1

6 072 000

6 491 544

6.9

Total

% change

Source: Wells and Magalhaes, 2009 using data adapted from Automotive News Europe/ JATO Dynamics.

distinct ‘carscapes’. As Table 3.2 illustrates, these carscapes are potentially quite different from place to place. At a finer level of spatial disaggregation there are even more quirky distinctions. It is commonplace for example for vehicle manufacturers to have enhanced sales in their local area, such that in Trollhatten, for example, there is a very high concentration of Saab models just as around Sunderland there is a very high concentration of Nissan models. Equally one can find surprisingly high concentrations of Saab models in some States in the USA such as Colorado where conditions in some respects mirror those found in Sweden. Similarly it is difficult to say whether the inclination towards ‘pimping’ a car in the USA (i.e. customizing with a very visible display of wealth) arises out of the more general ‘bling’ culture (Henderson, 2005) or helped to create it. Among other distortions of local carscapes, the influence of used cars is an interesting dimension. Some locations have historically been recipients of large numbers of used cars, including New Zealand and Ireland (both with many Japanese used cars), Eastern Europe and Africa (with cars from Western Europe) and the Middle East (with cars from North America, particularly light trucks). Obviously this makes for a relatively aged stock of cars in circulation. This observable difference in carscapes may be an indicator of both existing differences in car cultures and in the scope for acceptance of alternatives to the mainstream car, and hence to innovation and more sustainable automobility. It could be the case that the automobility regimes that arise out of distinct cultures of automobility (and these cultures are themselves an aspect or manifestation of broader cultural differences between

Contemporary global diversity and cultures of automobility

Table 3.2

63

Distinct carscapes around the world: some examples

Location

Feature

Comment

North America

Large market share for ‘light truck’ segment, peaking at about 50% of new passenger vehicle sales in 2007/08

United States

‘Pimped’ cars – highly customized, usually older models with e.g. expensive music systems Large market share for ‘kei’ class of very small passenger cars Tiny market share for imports

Now under threat from changes to fiscal regime and CAFE but still echoes notions of the frontier spirit. Also a feature of e.g. Thailand Often not legal in other markets but a key element of the ‘bling’ culture of America

Japan

Japan

Korea Australia

Tiny market share for imports Large, rear-wheel-drive cars

Europe

Diesel cars with around 50% market share

Europe

Car-derived vans

Germany

Large cars with high power outputs

UK

Large market for imports (over 70% of new car sales)

UK

Cherished cars

Suits the congested conditions of urban Japan, bolstered by tax and other measures Reflects a strongly nationalist car-buying tradition and inability of other vehicle manufacturers to produce cars to Japanese tastes and values Reflects a strongly nationalist car-buying tradition Served by e.g. Holden brand (GM) and other vehicle manufacturers with models just for this market Even higher in France (over 70%). In other markets diesel is reserved for commercial vehicles Used by many small businesses, almost equivalent to the pick-up truck in North America Wealth plus autobahn system supports bias towards these cars from Audi, BMW and Mercedes Lack of a domestic champion plus market-centric approach from consumers support high level of imports The UK has an unusually large number of car enthusiast clubs

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Table 3.2

(continued)

Location

Feature

Comment

France

VSP models

Cuba

Cars from the late 1950s

India

Auto-rickshaws and models from the 1950s

China

Three-wheel vehicles

World

Left-hand drive/right-hand drive

Vehicles of small size and very low power and restricted use, primarily for drivers without a full licence Once Cuba was isolated from the world due to trade restrictions, the carscape became frozen in time Most famously, the Hindustan Ambassador (formerly the Morris Oxford) and the Padmini Fiat – both used largely as taxis Often used in light commercial applications, with crude twostroke diesel engines Approximately 25% of new cars are right-hand drive

societies) are actually time-lagged more or less. Thus the automobility regime is relatively slow to change even in the face of changing cultural attitudes to automobility, and these regimes can become a hindrance to change. Automobility regimes can thus be understood as the framework for car ownership and use that has emerged as a historically and spatially specific set of formal laws, regulations and infrastructures, and around which distinct cultures of automobility accrete. A characteristic feature of automobility regimes is that they are relatively slow to change, and hence the process of convergence of regimes is also inevitably slow. As a result visible islands of difference in carscapes remain in the global automotive industry, and are manifestations of enduring symptoms of underlying structural differences.

3.3

AUTOMOBILITY CULTURES

Cars have long been more than just a means of transport (Urry, 2004). From the earliest days of car ownership and use, there has been an association with status and, more nebulously, with statements about the self and one’s place in society. Cars are cultural objects, imbued or attributed

Contemporary global diversity and cultures of automobility

65

with values and meanings by those that own them and those that look upon them. Similarly the way in which we use cars is not entirely reducible to the performance properties of the car or indeed to such matters as the legal framework, the physical infrastructure or the conditions within which cars are being driven. Equally there can be little doubt that the car features strongly in modern cultures around the world, and notably in many and various sub-cultures, as diligently chronicled by the Hollywood film industry over many years. For some critics the industrialized societies as typified by the United States have become in thrall to the car (Williams, 1991), and the populism and idealism that underpin the attitude of such societies to the car do not bear close examination compared with the empirical reality. Yet these cultural associations are resilient to change. It is worth noting, for example, that in the USA approximately 35 000 people per annum die as a result of road traffic incidents, an order of magnitude greater than the number who died as a result of the attacks on the World Trade Center, but there has been no corresponding ‘war on cars’ as a result. The established industrial nations have, however, had the opportunity to develop in tandem with the car and increased motorization over a period of decades. There is an inherent circularity in the relationship between the available vehicle population and cultural attitudes to transport and mobility that has been somewhat conditioned by the set of possibilities presented by the automotive industry (Urry, 2007; Staley, 2008). That is, car cultures are a neglected aspect of the automotive industry that shape, and are shaped by, the characteristic form of automobility evident in different spatial locations (Hagman, 2003; Wright and Curtis, 2005). In those countries that underwent industrialization at the time that the automotive industry was being established, cultural aspects of the car developed relatively slowly along with the industry. In turn this has allowed a process of adjustment and understanding of the multiple facets of motorization including the issue of road safety. In these locations, the car as a product developed alongside its practical use, and alongside the cultural expectations of what constituted a car. In the early years of the industry there was scant control over the use of cars, their design or their maintenance; the resulting loss of life and limb on the roads in countries such as America was hardly surprising but at a social level somewhat acceptable. Ultimately as the social costs rise so attempts to mitigate those costs gain primacy and lead to regulation over many aspects of the car. Indeed this process is ongoing. Hence along with increased car ownership has come a hard and soft infrastructure of roads, parking facilities, service stations, retail outlets, traffic police, driving instructors, ambulance services, insurance companies, and of course laws governing car use.

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Moreover motorization has been accompanied by, in general, increased personal wealth and in many countries a managed transition that meant the carless did not have to walk on the roads used by vehicles. In countries undergoing rapid motorization, the adjustment processes are too slow with respect to almost every aspect of automobility culture and this is one of the most important factors behind the high social costs associated with automobility (congestion, poor air quality, deaths and injuries, etc.). It is probably not necessary to belabour the point that the automobile is a powerful cultural object, items whose many and varied attributes carry significant meanings for the societies in which they are used. Cars are objects of great passion for some people, as evidenced by the plethora of ‘owners’ clubs’ in many countries, organizations dedicated to the celebration of a particular brand or model of car (Nieuwenhuis, 2008a). In the UK there is a distinct enthusiast culture in which there are a great many car clubs dedicated to specific brands and models, and an historic interest in many forms of motor sport. As Nieuwenhuis (2008a) argues, one interesting aspect of these car clubs and the broader enthusiast sub-culture is that cars are cherished and car longevity is valued. In turn this has potential implications for ‘long-life’ cars (Nieuwenhuis, 1994) based on an emotional attachment that transcends economic rationality. The significance of product longevity is often overlooked by environmentalists and indeed policy-makers, where innovation, newness and the replacement of existing products tend to be prioritized (Cooper, 2005). However, as Chapman (2005) has cogently argued, developing a durable emotional bond between product and consumer is a key strategy in the more general attempt to shift from a high-consumption, materialist and throw-away culture into something more sustainable. Moreover, as is noted in Chapter 6, vehicle manufacturers such as Morgan which develop a close business relationship with their customers are simultaneously able to nurture a strong emotional attachment to the product, thereby increasing its financial value as well as the prospects for enhanced product longevity. It is not even necessary that cars given such treatment are objectively ‘good’ in performance or aesthetic terms compared with others: in the UK there is a Morris Marina Owners’ Club (http://www.morrismarina.org.uk) even though most experts would agree it was one of the worst cars ever produced in the country (by British Leyland in the nadir of that company’s existence) and less than half of one per cent of all the models produced still survive. The car has also been, for many years, the symbolic and real manifestation of individual freedom. The many forms of advertising, and the treatment of motoring in movies, songs and other cultural forms of expression, have tended to reinforce this status and emphasized the idea of the freedom of the open road. Moreover as the car market developed

Contemporary global diversity and cultures of automobility

67

in sophistication, so the car became one means of asserting personal taste, wealth and lifestyle choices. Over time in the established markets at least, the cultural position of the car has changed with a stronger emphasis on the car as a protected personal space within which to traverse an implicitly hostile urban environment. Along with greatly enhanced levels of personal comfort and more robust security systems, the emphasis on the passive and dynamic safety features of a car has helped to foster an image of virtual impregnability – and probably strengthened the bond individuals feel that they have with the machine. The strong association of the car with America in the early phases of mass motorization, when America was also associated with the emergent mass media, further served to underline the cultural status of the car as a sign of economic power at both the national and individual levels. Hence the car industry became one of the most potent and substantial of all industries of the post-1945 era, both in America and in other industrial nations and the car became a potent visible manifestation of economic power. Simultaneously the nations that were early adopters of mass motorization were inevitably the nations that started to build their social and economic fabric around the car and its use. Arguably no nation went as far as America in this regard but many others created a built environment predicated upon car ownership and use. The dispersed, low-density pattern of urbanization typified by cities such as Los Angeles was made possible by the widespread ownership of cars, and further accelerated car ownership because for many people it was barely practical to live in such a city without a car. Hence societies in America and elsewhere generated a form of path dependency upon the car as a mode of transport, thereby bringing together the cultural and practical significance of the car (Sperling and Gordon, 2008). Cars became necessary to support an entire suburban lifestyle because of the spatial separation of work, employment, habitation, leisure and much more – a feature often formalized in zoning approaches to urban planning. There are negative associations or consequences with distinct automobility cultures. In the USA, for example, there has long been an ambiguous attitude to the state by a substantial portion of the population with a tendency towards libertarianism. Perhaps as a result there has been a long history of at least some Americans being unwilling to wear seatbelts or, when on motorbikes, wear helmets. Vehicle manufacturers and their suppliers developed air bag systems to protect American drivers from themselves in this sense, and also to avert potentially expensive litigation. In the US automobility culture, therefore, there has been a strand in which the occupants of cars do not regard their safety in the event of an incident

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The automotive industry in an era of eco-austerity

as being their own responsibility, it is down to the vehicle manufacturers to provide ‘safe’ vehicles. Meanwhile those occupants wanted the personal freedom to choose whether or not to wear a seatbelt. Similarly, as in the epic film Easy Rider, a proportion of motorcyclists do not want their personal freedom constrained by having to wear a helmet, despite all the evidence that to do so vastly decreases their risk of death or serious injury. In contrast there is little doubt that China is a strange market to those used to conditions in the saturated markets of the West. For a start it is a market where about 85 per cent of car purchasers are buying a new car for the first time – indeed it is a nation of learner-drivers. It is also the case, as is shown in Table 3.1, that it is a market with an unusual mixture of over 50 brands in which the dominant group (VW) has less than 13 per cent market share. In terms of car culture, it is a country that offers vehicle manufacturers almost a ‘clean slate’ upon which to attempt to write their concepts and values. Expectations about cars are less developed than might be the case elsewhere, a feature that has interesting possibilities for the establishment of values centred on sustainable mobility. There is an argument to say that positive attitudes to the car and to automobility are slowly eroding away in Western societies as utility declines and control increases. In terms of technology the trend has been to remove control over the car from the driver to the car itself or indeed to some sort of external controlling infrastructure (Table 3.3). Not all of the new technologies shown in Table 3.3 are concerned with safety, though many of them are. There is a general trend to move towards increasingly complex ‘driver assistance’ technologies that convey information and sometimes intervene directly to help the driver. Collectively these technologies make the contemporary car more complex, more expensive and more likely to intervene in instances of inappropriate driver behaviour. The proliferation of these technologies is not absolutely certain. There are remaining issues concerning cost, weight, reliability, longevity and customer acceptance. It may be that in the current climate of financial stringency and fuel consumption awareness the penetration rate of some of the above technologies will be reduced. Overlaid on these technologies concerned with the vehicle dynamics are an increasing array of technologies that might be described as ‘infrastructural’. Early indications of this sort of technology include the London congestion charging scheme that uses image recognition cameras to detect car licence numbers and hence to ensure compliance with the payment of the fee to enter the central area. Alternatively in the USA there has been much interest in the concept of ‘platooning’, whereby individual cars are electronically linked together to form a sort of train, all travelling at the same speed and in the same direction and thereby reducing the chances of

Contemporary global diversity and cultures of automobility

Table 3.3

69

New collision avoidance technologies

Item

Example

Comments

Parking sensor systems

Multiple applications

Collision avoidance and mitigation systems Intelligent speed/ cruise systems

Emergent technology with Mercedes

Stability control systems (mandatory soon in Europe and North America)

Very widespread

Driver awareness systems

Rearward cameras

Nissan is developing some applications here, e.g. vision monitoring systems Volvo is developing some applications here. Already some aftermarket products available Mandatory in many markets for mobile phone users while driving, although enforcement efforts as yet incomplete Emergent, e.g. Mercedes

Help to avoid low-speed impacts that result in body panel repairs The ultimate target is a car that does not get involved in accidents Ensures drivers keep a safe distance from the car in front when on motorways Reduce the severity of accidents, which may actually aid the body repair sector by helping turn an event that would normally lead to a write-off into an event that leads to a repairable car Could help to reduce the incidence of accidents caused by drivers losing concentration These prevent the car being used if the driver is impaired by alcohol

Blind-spot warning systems

Emergent, e.g. Mercedes S Class

Driver interlock systems (alcohol sensors)

Hands-free telephones

Again an emergent technology

Supposedly helps the driver to maintain concentration, hence reduces the rate of accidents

Used to fill in ‘blind spots’ and hence reduce accidents, e.g. on motorways Can use other systems to detect objects in the blindspot area. The Mercedes system uses six radars in front and rear bumpers

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Table 3.3

(continued)

Item

Example

Comments

Active throttle

Emergent, e.g. Continental AG

Night vision systems

Mercedes

Pressure-sensing tyre systems

Multiple examples

Run-flat tyre systems

Emergent examples, as used e.g. on some BMW models Nissan, for example; many others under development

Provides an alternative source of information to the driver when a danger emerges Uses infrared systems to reveal living objects that might be missed by normal lighting systems Can provide advance warning of a problem, hence allowing the driver to take action before it is too late Allows the driver to retain control in the event of a catastrophic tyre failure Intended to warn the driver of accidental drifting out of lane, hence reduces accidents

Lane departure warning systems

Source:

Compiled from a range of company and news sources.

an accident. In the future the external infrastructure might control vehicle speed, or enforce the switch to zero emissions mode when entering an urban area, or even de-activate a car when it is used to enter a prohibited zone. All of these measures in one way or another reduce individual control over the car, and contribute to the erosion of the ‘freedom’ offered by the car – and hence constitute a further dilution of the real mobility offered by the car.

3.4

VALUE-FOR-MONEY VEHICLES AND THE EROSION OF DIVERSITY

The antithesis of the car as an object of desire and strong emotional bonds is the notion that the car is simply a means of transport, or a way of getting from one point to another. It is probably fair to say that many environmental critics of the car consider that it is more or less a material object

Contemporary global diversity and cultures of automobility

71

with all the inherent excitement and aesthetic appeal of a microwave oven. Seen from a perspective of rationality and logic it is apparent that cars are grotesquely inefficient devices, and the sensible way forward is to control and constrain them to minimize the excessive social costs and externalities. For individual consumers the strangulation of automobility freedoms coupled with decreasing functionality and increasing costs may find their expression in a rejection of pro-automobile culture. This is a key dilemma for many in contemporary society: people need the car but perhaps do not really want it and certainly do not love it. In other words people are compelled to be drivers by circumstance and are unwilling accomplices of the automotive industry. This is a rather different set of circumstances from those surrounding the nascent mass automobility of countries such as India, but the interesting result is that from these very different starting points it is possible to arrive at the same conclusion: a growing market for high-utility, low-cost, value-for-money motoring. Recent years have been witness to the entry onto global markets of models that have been explicitly aimed at the ‘value for money’ segment of the new car-buying public: notable examples could be said to include the Fiat Palio, Renault Logan and of course the much anticipated Tata Nano. Those with longer memories of the automotive industry will recall that there has long been a portion of the market for new cars accounted for by ‘cheap and cheerful’ brands. In Western Europe many of these brands were based in the formerly Communist Eastern Europe (e.g. Moskvitch, Wartburg, Trabant, Skoda, FSO) while more recent years have seen the emergence of minor brands such as Proton, Daewoo, Ssangyong, and Mahindra and Mahindra with varying degrees of permanence and success. Going even further back, it could be argued that the humble Volkswagen Beetle and indeed even the Model T Ford represented deliberate (and highly successful) attempts to capture the market for low-cost or valuefor-money motoring. Two questions follow from this. First, now that economic circumstances are changing around the world, is the ‘value car’ about to make a large-scale comeback? Secondly, if the value car does make a comeback, what does this mean for environmental concerns and the possible suppression of diversity? Consumers have several choices when contemplating the purchase of a car, including the choice of whether or not to buy new or used. Given that in mature markets the average car can lose 50 per cent of its value over three years, but retain a high proportion of the total expected lifetime mileage, there is some merit for the value-conscious consumer to buying a used car. It has been common practice for vehicle manufacturers to sell highly discounted cars into the daily rental sector, often with agreed buyback rates, and then recycle the cars through their own franchised dealer

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networks, thereby providing dealerships with useful showroom traffic and additional sales volume. These ‘nearly new’ cars are usually issued with some form of warranty and are described as ‘assured’; these cars therefore represent a specific category of value-for-money motoring. Similarly in mature markets such as the UK, Germany and the Netherlands a large share of the new car market is accounted for by company car sales, again with high levels of discount for large fleet buyers. These cars become ‘offlease’ after three to five years and again represent a specific category of choice for consumers. Additionally many cars are sold to employees and their families, to suppliers to vehicle manufacturers and to other categories that obtain some degree of discount on the full new price. Indeed in many mature markets cars sold new, for full price, to retail consumers, are actually a minority category. Not surprisingly, it is rather difficult to gain a precise idea of the size and monetary worth of the value sector of new cars in markets around the world. In the case of many markets in Asia it seems as if the motorcycle represents the first step in automobility, despite the obvious difference in characteristics compared with cars. Notwithstanding this problem, some estimates may be made for mature markets at least. Typically, marginal brands competing on little more than price (and often with previous generation versions of models produced by the existing dominant companies) could never claim more than 1 per cent of the market each, with less than 5 per cent of the whole market occupied by all such brands. This reflects a more general truth, that value brands are often new entrants and inherently rather weak compared with the entrenched opposition: the task then usually is to move the brand up-market. In part this is about issues such as the coverage of dealerships in a given market area, or indeed simple consumer awareness. Still, it can take many years to move the brand upwards in terms of market perceptions. Added to this share, there have traditionally been another few percentage points occupied by the entry-level versions of mainstream models, while these vehicle manufacturers from time to time will keep an old model in production as a ‘classic’ offered at a much lower price than the new replacement model. Over time, the received wisdom has been that the mature, established markets have become less receptive to value models and brands, symbolized perhaps by the manner in which the ‘specialist’ BMW 3 Series now outsells the ‘mass produced’ Ford Mondeo in Europe. Equally there has been a perception that the emergent markets have a stronger demand for more basic products shorn of needless luxury and suited to the more rugged road conditions to be found in these markets; a line of thinking that resulted in the Fiat Palio for instance. Put this equation in another way, and it is apparent that as a

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generalization contemporary cars designed for existing, mature markets are more or less unsuitable for emergent markets with a stronger valuefor-money orientation. These observations do not necessarily apply to the more elite consumer segments in the automotive industry – it is plainly the case that in many emergent markets there are plenty of fabulously wealthy individuals able to purchase whatever new car they care to own. Countries such as Brazil, India and increasingly China exhibit a markedly uneven distribution of income such that the middle classes are only now gaining sufficient wealth to join the ranks of car ownership. Indeed the trio of world value models of the recent era (Fiat Palio, Renault Logan and now Tata Nano) are testimony to this fact. All three were designed for the emerging markets and with the idea that they would not be sold in significant numbers in the established markets. It is possible to distinguish a variety of strategies being adopted by vehicle manufacturers or groups as they seek to create value offerings in established and emerging markets. These strategies include: ●

●

●

Create a new brand. It is difficult to reconcile the expense of creating a new brand with the aim of developing a value proposition. It makes more sense for up-market brands such as Lexus (Toyota) where the higher margins can absorb the enormous marketing and advertising costs involved. This route is also only viable as a longterm strategy. A good example is the GM Saturn brand in the USA, which reportedly never actually made a profit and in 2009 was sold off as part of the wider GM restructuring. Revitalize an existing brand. This strategy has been one of the most successful over the years, as long as the vehicle manufacturer group has a suitable brand within its portfolio. To date the best example has been Skoda under the umbrella of the Volkswagen Group. Others that have worked reasonably well include Renault (with Dacia) and GM with respect to Chevrolet, effectively taking over the Daewoo name in most global markets and extending the Chevrolet as a worldwide value brand. An advantage here is that the infrastructure of dealerships and so on is already in place. Continue production of ‘classic’ models. As noted above, previous generation models may be continued (often in lower-cost production locations) as ‘classic’ models that co-exist in the product range with the new (replacement) models. With tooling costs already amortized and no major efforts at facelifting the vehicles, extra production can be squeezed out at relatively little marginal cost although this strategy generally has a limited life-span of a couple of years and is often used just to clear excess stock.

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●

Introduce a value model. This is what Renault has done with the Logan, and of course Tata with the Nano. Existing vehicle manufacturers may have trouble reconciling the value model positioning against their aspirations for the brand values for the rest of the range, and the value model will almost certainly steal some sales from other models in the range. Introduce a ‘value’ sub-brand. In effect this is what several vehicle manufacturers are already doing with their green sub-branding strategies, because the low-CO2 emissions variants so branded often have the smallest engines and are de-contented to reduce vehicle mass. The issue of sub-branding in the context of environmentally friendly models is discussed further in Chapter 6.

The received view that the established markets have moved on from value segments has never been entirely accurate, not least because nearly new cars have tended to perform this function. A combination of recessionary conditions in the established markets, along with a new generation of brands with the potential to become the value propositions of the new era, has altered these comfortable assumptions. Additionally there are Chinese brands anxious to enter European and other markets – most likely with very low-priced models. It is true that with the Logan Renault never quite achieved the €5000 car it had intended to achieve; just as with the Tata Nano the ‘1 lakh’ (100 000 rupees or about £1300) target only applies to the most basic version. Interestingly, both the Fiat Palio and the Renault Logan were not initially intended for mainstream markets in Europe, not least because of concerns over the impact of such models on the rest of the range. However, the demand evidentially existed and was sufficiently strong to warrant action. Providing that local regulatory standards can be met (and this has been an issue with some potential value imports that are unable to meet prevailing emissions or safety norms), it would appear that there is potential for a significant convergence of interests here, leading to a global value segment that will embody the highest growth and the tightest margins. Herein is the challenge of course. Established vehicle manufacturers with their expensive manufacturing footprint have escaped cost competition in a variety of strategies including added-value technological sophistication. If, as appears to be the case, the new era is going to be one of engineering minimalism then much of that expensive overhead is under threat. Hitherto value segments might have occupied around 5–10 per cent of the total market for new (and nearly new) cars in established markets; in the current conditions this share could increase to nearer 15 per cent or even more.

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The case for value for model motoring is clear enough in this era of eco-austerity: that the only way to keep consumers and win new ones is to reduce the cost of the car, a process that results in incremental technology change, least-cost materials and an emphasis on manufacturing price rather than, for example, product longevity or indeed loyalty to established production locations. The car becomes a truly global commodity. Right now, vehicle manufacturers must do all within their power to lure buyers back into the market, and value models appear to be one way of achieving this – but only the least-cost producers will make any profit from the segment. With this approach to the market, the car becomes rather like the contemporary ball-point pen, ubiquitous, un-remarked, cheap, disposable and unloved. Suppliers are inevitably banished to the least-cost locations of the world. This might become a car sold outside the franchised dealerships, via supermarkets or the Internet perhaps, such is the need to achieve market volumes. In other words, the danger with this strategy is that the car could lose its ability to act as a social and cultural status symbol and become again a mere thing – the car as ‘white good’. With no emotional bond, the car becomes an object to be discarded all too readily (Nieuwenhuis, 2008a). Other vehicle manufacturers are already following the template of the Tata Nano, while others have anticipated the development (with for example the Renault/Dacia Logan or the earlier Fiat Palio) in somewhat less successful executions of the value segment concept. Dunford (2009) ascribes the failure of the Fiat Palio to the lack of liberalization in key emergent markets. The Toyota IMV (International Multi-purpose Vehicle) project launched in 2002 is also typical, in that it sought to create several different vehicle configurations from the one platform in order to access multiple world markets, with production in Thailand, Indonesia, South Africa and Argentina (Johri and Petison, 2008; Toyota, 2009). In contrast, the Tata Nano is simply one design, produced in one main location. While the approach of Toyota is claimed to enable global knowledge creation and hence add value to the corporation (Ichijo and Kohlbacher, 2007), the added design and managerial complexity of these multi-location strategies (see for example Iijima and Sugawara, 2005) probably also add to the cost. There are distinct limits to the growth prospects for car sales in the market in India, and these are not just economic or attributable to the level of personal wealth in the country. A critical factor is looming infrastructural collapse under pressure from relentless urbanization and population growth. The road building programme appears mired in political, financial and technical problems and is proceeding at a much slower rate than

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Table 3.4

Vehicle sales, 2003–04 to 2008–09 in India (units)

Item

2003–04

2004–05

2005–06

2006–07

2007–08

2008–09

902 096

1 061 572

1 143 076

1 379 979 1 549 882

1 551 880

Passenger vehicles Commercial vehicles Three-wheelers Two-wheelers

260 114

318 430

351 041

284 078 5 364 249

307 862 6 209 765

359 920 7 052 391

Grand total

6 810 537

7 897 629

467 765

490 494

384 122

403 910 364 781 7 872 334 7 249 278

349 719 7 437 670

8 906 428 10 123 988 9 654 435

9 723 391

Source: Society of Indian Automotive Manufacturers, http://www.siamindia.com/script/ domestic-sales-trend.aspx (accessed 9 January 2010).

anticipated or indeed needed. The next two years are going to be critical for the market because this period will provide the test of whether the Tata Nano concept, that motorcycles can be replaced by cars, really holds water. As can be seen from Table 3.4, about eight million motorcycles and three-wheelers combined were sold in India in 2008–09, compared with about 1.5 million cars sold.

3.5

CONCLUSIONS

As was argued in Chapter 2 the automotive industry does not show a great deal of diversity where it matters, in terms of different underlying technologies. The tendency of the industry is to reduce technical diversity in order to reduce costs. Despite this tendency, as this chapter has sought to show, there remains an undercurrent of diversity in cultures of automobility. There is a dynamic tension to the situation in that the logic of the industry is to keep pushing towards standardization and yet market and other pressures conspire to prevent uniformity being achieved. What is less clear is whether divergent automobility cultures are a good thing or not from the perspective of sustainability. The value of divergent cultures is that they may provide the seedbed for locally specific and appropriate automobility solutions to emerge. Actually, strong cultural affinity for the car, long bemoaned by environmentalists, might also provide the basis for a more benign form of automobility because such affinity may include important values such as the primacy given to product longevity. Furthermore, connectivity with the car could encourage innovation by consumers-owners to enhance sustainability – thereby greatly increasing the number of intelligent and interested minds being used rather than just

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relying upon the R&D departments of vehicle manufacturers and their suppliers. There is nothing to match the ingenuity of people! On the other hand, the imposition of automotive minimalism in the form of the Nano and similar products could be a critical means of breaking the often negative aspects of contemporary cultures of automobility. All too often in these cultures there is a delight in wastefulness and profligate behaviour, in designs that concretize over-engineering and that celebrate noise, pollution and pointless resource consumption. Ultimately the innovative business models that are a feature of Chapter 5 in this book need to define and capture new forms of automobility culture, and thereby help to create new regimes of automobility that are more sustainable. Thus there needs to be a resonance with both the technological form of the car, the business model that brings it to market, and the cultural understanding of car ownership and use. In effect, there is a need to tap into latent sub-cultures of would-be green motorists and to make these marginal sub-cultures the mainstream.

4.

4.1

Emergent diversity in the global automotive industry: the policy agenda INTRODUCTION

This chapter will look at localities and their differences in terms of the recent history of emergent diversity of the automotive industry. Chapter 6 will consider the future prospects for change, including in policy terms. The essence of the discussion is to argue that not all places are equal: they have different problems with respect to automobility, different cultures of automobility and differing degrees of scope in terms of fostering alternatives. Hence at a simple level sugarcane ethanol is possible in Brazil but not in Finland, where cellulose-derived fuels may make more sense. The chapter will show that there are myriad examples of local initiatives with respect to novel automotive technologies, usually involving state intervention, and that these initiatives intersect with other aspects of state intervention such as cluster policy, low-carbon programmes, local economic development initiatives, strategic energy independence, and so forth. It is often thought that localities are in this sense in competition with each other (Bristow, 2005), but in fact this need not be so. Indeed the more that independent, self-reliant development is able to prosper, the less are locations in competition with each other. More recent analyses appear to support this stance with, for example, an emphasis placed on the recursive quality of the relationship between local economy development and skilled labour migration suggesting that individual places develop unique dynamics (Storper and Scott, 2009). At the basic level the argument is that sustainability requires sensitivity to local context. Hence the ‘one size fits all’ approach cannot be enforced in all places simultaneously. Neither can success in one location simply be emulated in another. Indeed to do so may entail substantive ecological and economic inefficiencies through the failure to capture the potentialities of place (Desrochers and Sautet, 2004). Future transport transformations are more likely to depend upon the co-evolution of niche developments, and on diversity (Nykvist and Whitmarsh, 2007). Rather sustainability is 78

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more likely to emerge out of multi-agency networks that can orchestrate pathways towards sustainability (Malmborg, 2006) rather than seek a quantum leap to such a state. This chapter is mainly concerned with a selection of automotive industry policies at the national level by various governments around the world. There is no particular logic in this selection other than a concern to illustrate briefly the theme of diversity that seems likely in the search for sustainability. The basic premise is that it is worth highlighting positive examples that, in their context, make a lot of sense. One of the best examples is that of Brazilian bio-ethanol derived from sugarcane, for which a more extensive case study is provided. In other respects it might be argued that the policy framework around which the automotive industry has to work is already rather diverse and likely to become more so – particularly with respect to environmental measures; an example being the proliferation of car-free zones, low-emission zones and related measures in some major cities. In what follows there are some cameos of individual country policies, all of which really would merit much greater study in depth. Space precludes such an exhaustive analysis, but it is hoped that even this relatively superficial sweep across the automotive industry policy landscape will be sufficient to convey the very different underlying assumptions and aspirations for policy in each case.

4.2

POLICY AND DIVERSITY IN THE GLOBAL AUTOMOTIVE INDUSTRY

All the major countries and many of the lesser ones have policies for the development of ‘their’ automotive industry and in total these plans are incompatible, in that not every one can succeed on their own terms. In this respect the automotive industry is a classic illustration of the madness of inter-locality competition on a global scale. The automotive industry is also often given privileged status as an inward investor because it is seen as a vital contributor to economic growth and social aspirations to materialism and mobility. Hence such inward investors, even where they are unable to attain financial control of enterprises within the host country, can avail themselves of many tax benefits, incentives, soft loans, and so on. This kind of development is thus often wasteful of economic resources. As Humphrey (2003) explains, economic liberalization and the opening up of economies such as India and Brazil to inward investment were shaped by the desire of those and other countries to capture a higher share of economic value added; there was no desire to support

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so-called ‘screwdriver’ factories or indeed assembly plants that essentially put together kits of cars that were actually manufactured elsewhere. As a result, not only did vehicle manufacturers arrive with large investments, so too did their suppliers or, where possible, local suppliers were cultivated and developed. If the wider policy arena is expanded to include sustainable mobility then to some extent the same considerations apply, but the results are less malignant because policies concerned with local economic development that are also tied with local transport policy, the available industrial base, R&D resources and the desired outcomes in terms of innovation and growth necessarily need to relate to the established local capacity in these terms. Put simply, localities have to play to their strengths and this inevitably leads to myriad solutions according to place. This phase marks a decisive moment for the emergent automotive industry of some countries, because the pursuit of a local environmental agenda or ‘green car’ strategy may not resonate so clearly with the international vehicle manufacturers which remain the dominant economic entities. As is noted below, countries such as Malaysia, Australia and Thailand do not all recognize the imperative that in order to retain an automotive industry of any sort, there is a growing requirement to align industry development policy with wider environmental and sustainability goals. India In the case of India, as articulated by the Automotive Mission Plan (AMP) 2006–16 released in 2006, the intention is no less than to become a global automotive hub offering not just to support local demand but to generate a substantial export business (Wells and Sadana, 2007). In this regard the AMP is not greatly dissimilar to the strategy adopted by the government in Russia outlined in Chapter 1. The main features of the AMP discussion are: ● ● ●

● ●

delineation of the separate roles of government and industry; support for green vehicles in terms of alternative fuels (notably biofuels) and hybrids; and of small cars; support for inward investment that not just meets the needs of the local market but provides a platform for exports, possibly through the use of Special Economic Zones or special taxation treatment; multilateral or bilateral trade agreements with selected countries and regions to establish export markets; identification and removal of barriers to growth in the local market;

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promotion of three key export hubs in Mumbai, Chennai and Kolkata with suitable dedicated facilities; support for technology development in India.

The largely unwritten agenda is of course competition with China, the only really comparable country in terms of domestic market size, market growth, inward investment levels and national ambition for a place in the global industry. Indeed, China has something of a head start on India. According to the AMP China has a cost advantage of 23 per cent over India on a like-for-like basis, largely attributable to differences in taxes. The AMP included some ambitious targets that may not subsequently be met, including: ● ● ● ● ●

a 16 per cent per annum growth rate for the next ten years; industry turnover to reach US$145 billion up from the current US$34.6 billion; creation of an additional 25 million jobs; doubling of the share of GDP from 5 per cent to 10 per cent; growth in component exports from US$1.8 billion to US$25 billion by 2015.

Not surprisingly, in turn the growth hoped for can only be achieved via a step-change in levels of corporate investment in the country, estimated at up to US$40 billion to 2016. The government is doing its part with, most importantly, a substantial programme of investment in automotive R&D and testing facilities. India has been at the forefront of adopting compressed natural gas (CNG) as a fuel, for commercial vehicles (buses, taxis and rickshaws) and more recently for cars. The strategy is premised on the need to improve air quality in the 12 major cities in India, and has helped to create a small but growing market for CNG vehicles (Ritch, 2009). Leading vehicle manufacturers had been coping by fitting cars with conversion kits, though in mid-2009 Maruti Suzuki announced it was to provide a factory-fit CNG option from 2010 – probably on the Alto model. Malaysia Malaysia has had a National Automotive Policy (NAP) since 2006, as with the case of India. In 2008, however, the Ministry of International Trade and Industry was reportedly considering reviewing the NAP to address ‘certain unresolved issues’ and re-tabling it to the cabinet by the end of 2008 (Isaiah, 2008c). The NAP was conceived in rather traditional terms to provide

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protection for those vehicle manufacturers active in Malaysia (Menteri, 2005) and hence was not widely supported by those importing into the market. In contrast to other instances of national automotive industry policy, the NAP adopted by Malaysia does not appear to go beyond seeking to position the country as a regional automotive manufacturing and assembly hub and to be ‘progressive and dynamic’ for the long term. What is notable, in fact, in the 2006 policy is the absolute lack of environmental issues in the policy; only a concern for the fate of the largely national vehicle manufacturing industry and rather weak domestic suppliers (Rosli and Kari, 2008) in the face of global rationalization. The government still uses what it terms the Industrial Adjustment Fund to support the local producers, Proton and Peruda, which would otherwise be unlikely to withstand international competition. In the case of Malaysia the primary competition is with Thailand, seen as an exemplar of successful strategy with respect to becoming a global export hub. In this regard it is perhaps unsurprising that in September 2009 the entire NAP was up for review, with critics pointing out that protection of a ‘national’ industry had left Malaysia uncompetitive compared with Thailand, despite having a larger domestic market. The 9th Malaysia Plan (2005 to 2010) included the development of a hydrogen fuel cell vehicle, though it has yet to materialize. It is likely that the revised NAP will incorporate environmentalism at some level, at least in terms of promoting R&D links with universities to help develop new technologies, but equally it does not appear it will be all that imaginative. Thailand The Thai automotive industry dates back to the early 1960s when the first domestic component manufacturing operations were established. Over a period of about 40 years to the early 2000s the central thrust of policy was import substitution (Office of Industrial Economics (OIE), 2002). Thereafter in response to the growing climate of trade and investment liberalization, Thailand shifted policy in an attempt to create an export hub in the country (Techakanont, 2008). For some mainstream analysts, the removal of local content requirements was the vital step allowing the country to develop as an export hub for vehicles (Kohpaiboon, 2008); the local market for pick-up trucks helped the country develop a specialization in this area that has served as the basis of the export platform since then. Between 1989 and 2006 production capacity in Thailand grew from 160 000 units per annum (and 10 vehicle manufacturers) to 1 576 000 (and 12 vehicle manufacturers). Moreover, the lack of an indigenous vehicle manufacturer meant that there was no ‘national’ motor industry to protect, as was the case in Malaysia, which arguably gave policy-makers more latitude.

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Aware of significant shifts in the requirements of key export markets, and particularly the trend towards low-CO2 emissions vehicles, Thailand announced its ‘eco-car’ strategy in mid-2007 as a deliberate attempt to expand upon the comparative success already enjoyed with the pick-up and light truck segment. Under the rules of the eco-car strategy qualifying investments must: ● ● ● ●

have a production capacity of at least 100 000 units per annum from the fifth year of operation; the car should not consume more than 5l/100 km petrol (or 120 g/ km CO2 emissions); meet or better EURO IV emissions standards; meet UNECE regulations on passenger safety for front and side impact.

To stimulate local demand for eco-cars the Thai Finance Ministry offered a 17 per cent excise tax rate on eco-cars that have engines smaller than 1300 cc for petrol engines and 1400 cc for diesel engines. This compares with the standard excise tax rate of between 30 per cent and 50 per cent, reportedly equivalent to reducing retail prices for buyers by US$2000 compared with standard passenger cars. In practice the eco-car project appears to have struggled given overall financial conditions (Badenoch, 2009). By July 2009 it was being reported that the Thai government was under pressure to provide support and stimulus to the programme and its automotive industry more generally. As a result tax exemptions were introduced to apply to automotive components that are currently not produced in Thailand and would have to be imported by the carmakers, specifically for the eco-car project. Atchaka Brimble, Secretary-General of the Board of Investments, announced that tax reductions were expected to lower the tariff cost of importing parts by 90 per cent for the eco-car project and would be in effect for two years. She added that this would allow carmakers to reduce the cost of producing the eco-car by Baht 100 000 (US$2940). Six vehicle manufacturers had publicly announced their commitment to the eco-car project – Honda, Mitsubishi, Nissan, Tata, Toyota and Suzuki. However, with the economic downturn several vehicle manufacturers had suggested delays or expressed some concerns about the project itself. Tata in 2009 commented that it would be asking the Thai government to waive the minimum 100 000 annual output threshold for the eco-car project. Thailand has also been promoting natural gas vehicles (NGVs) as an alternative to mainstream fuels. The primary mechanism has been manipulation of the import duties, which were reduced in 2008 for NGV

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equipment and components (Badenoch, 2008). At the same time PTT, the state-owned gas and oil company, announced that it would continue to support its NGV business, despite continued losses. The company recorded cumulative losses over the three years to April 2009 of Baht 6.4 billion (US$183m) in its NGV business, but committed to expanding its NGV gas stations to 450 from the current 355 by mid-2010. The company plans to have 1000 NGV gas stations by 2015 and predicts that NGVs in Thailand will reach 400 000 units by 2013, from 122 576 in 2008. Australia Australian Prime Minister Kevin Rudd announced on 10 November 2008 an AUS$6.2 billion (US$4.3 billion) plan to make the automotive industry in Australia more economically and environmentally sustainable by 2020. The plan featured an expanded AUS$1.3 billion Green Car Innovation Fund which will provide government funding for companies to design and sell environmentally friendly cars. The Australian government will match industry investment in green cars by providing 25 per cent funding for approved projects. The ‘New Car Plan for a Greener Future’ plan is expected to generate AUS$16 billion in investment in the Australian automotive industry over the 13-year life of the project. The overall plan will provide the following: ●

●

●

●

● ● ●

A better-targeted, greener, AUS$3.4 billion assistance programme, the Automotive Transformation Scheme (ATS), running from 2011 to 2020. Changes to the Automotive Competitiveness and Investment Scheme in 2010, consistent with the recently published Bracks review proposals, to smooth the transition to the ATS (AUS$79.6 million). AUS$116.3 million to promote structural adjustment through consolidation in the components sector and to facilitate labour market adjustment. AUS$20 million from 2009–10 to help suppliers improve their capabilities and their integration in complex national and global supply chains. AUS$6.3 million from 2009–10 for an enhanced market access programme. A new Automotive Industry Innovation Council, bringing key decision-makers together to drive innovation and reform. An AUS$10.5 million expansion of the liquid petroleum gas (LPG) vehicle scheme, to start immediately, that doubles payments to purchasers of new vehicles using LPG technology.

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The government announced that besides funding initiatives, automotive tariffs would be cut to 5 per cent, giving Australia the third-lowest tariff regime among economies with a well-developed automotive industry. The government said, ‘Australia will continue to pursue a free trade agenda because the future of the industry lies in innovation and global integration, not industry protection with old fashioned quotas and tariffs’ (Carr, 2008). Australia has been one of the countries to give an early welcome to Project Better Place (PBP), an initiative to accelerate the introduction of electric vehicles through the co-ordinated deployment of vehicles and infrastructures (see Chapter 5 for more details), and is working with Renault-Nissan to achieve similar aims. Renault-Nissan formed a partnership with the government of Victoria in mid-2009; Canberra signed an agreement with PBP in mid-2008 and had been selected to initiate an electric vehicle infrastructure in Australia because of its size and high vehicle density. Canberra has a high proportion of two-car households and households with garage parking suitable for home-based overnight recharging. Iceland Since the 1990s Iceland has nurtured the possibility of geothermal power providing the fundamental energy source to support a hydrogen fuel cell network. The first commercial hydrogen refuelling station was established in 2003, to refuel a fleet of three Mercedes fuel cell buses run by Straeto, the local bus company. An industry–government consortium called Icelandic New Energy (including Shell, Norsk Hydro, Daimler, Iceland National Power Co., Reykjavik Energy and the University of Iceland) was established as part of a wider strategy to encourage the transition to becoming the first hydrogen economy in the world (Árnason and Sigfússon, 2000; Sigfússon, 2007). In 2007 two Icelandic energy companies, Nýorka and Vistorka, planned to import 30 hydrogen vehicles to Iceland and were talking in confident terms of hydrogen cars competing on the market within five to ten years. The first fuel cell car running in Iceland was a converted Mercedes A-Class F-Cell, in 2007. Despite a promising start the programme by mid-2009 was all but moribund according to reports in the New York Times (NYT, 2009). This pattern reflects a more general position with respect to hydrogen fuel cells and the wider concept of the hydrogen economy on a global basis (Hellman and Hoed, 2007). In the late 1990s the hydrogen fuel cell appeared to offer technological salvation, particularly in terms of zero emissions cars. Ten years later the prospects are not nearly as appealing. In most cases (and Iceland was an exception) a major concern was the need

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to generate hydrogen using fossil fuel or nuclear sources. For the automotive industry the technical complexities of hydrogen use, and particularly storage on the vehicle, allied to the issues regarding infrastructure have also been challenging. As has been identified, vehicle manufacturers will not offer fuel cell vehicles unless there is an adequate infrastructure, while infrastructure providers have no incentive to do so until there are sufficient cars (Schwoon, 2006). As is discussed in the case of Vancouver below, a pattern of co-development is required. Attempts at so-called hydrogen highways have been made elsewhere, notably in California (see Ogden, 1999 for an early study), but again the relative lack of progress is palpable. In any case, in a global survey Solomon and Banergee (2006) conclude that serious questions about the sustainability of hydrogen can be raised, while McDowall and Eames (2007) concluded that for the UK the hydrogen economy was not automatically the most sustainable option. Still, Iceland represents an interesting case because of the enormous potential of geothermal energy and the contained nature of an island (Deschenes and Chertow, 2004) that offers some advantages from a policy perspective. Vancouver and British Columbia Vancouver is arguably the best-case example of a cluster based on hydrogen fuel cells, and as a result the location has long been associated with attempts to bring the automotive industry into the hydrogen economy. Interestingly the city has long had a source of waste hydrogen, a byproduct of a sodium hydrate plant in North Vancouver, that has been estimated as being able to supply 20 000 vehicles every year if used in internal combustion engines. The efforts in British Columbia and Vancouver to nurture the fuel cell industry go back a long way, and have included support from the national government. For example, on 9 October 2003 Canada announced a research programme of C$215 million (US$159.1 million) on the hydrogen economy, with the emphasis very much on demonstration projects and the industrialization of the technology (Wells, 2003). Introducing the funding, Herb Dhaliwal, Minister of Natural Resources said, ‘We want the world to turn to Canada when looking for the technology needed to address climate change’ (Industry Canada, 2003). Fuel Cells Canada and the National Research Council Canada Fuel Cell Institute have been particularly instrumental in creating the infrastructure to allow the fuel cell industry to prosper in Vancouver. The entire approach is premised on the understanding that Canada can only compete on the world stage by partnership, networks and pooling of

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resources. Hence the Canadian approach explicitly seeks to bring together the various government departments and agencies, higher education institutions and many aspects of the industrial base. The region has, however, equally been pursuing other low-carbon and zero-emissions technology options, particularly in terms of public transport, with experimental trials. In 2004, for example, Westport Innovations announced that it and a consortium of partners had secured a funding commitment (subject to contract completion) of more than C$5.8 million (US$4.3 million) from Sustainable Development Technology Canada to develop and demonstrate hydrogen technology in energy and transportation applications. The Vancouver-based project includes the proposed demonstration of up to five transit buses fuelled with a blend of hydrogen and compressed natural gas known as HCNG. According to the agency, the buses use a blend of 80 per cent CNG and 20 per cent hydrogen, obtained through the Integrated Waste Hydrogen Utilization Project (IWHUP). This results in the engine producing 40 per cent fewer nitrogen oxides, 20 per cent fewer hydrocarbons and 11 per cent fewer greenhouse gas emissions, compared with using CNG alone. The local transit company, TransLink, has run a range of different buses including blended bio-diesel, diesel-electric hybrids, hydrogen fuel cell, ultra-low sulphur diesel and pure CNG. In this respect, there has not been a narrow focus on the hydrogen fuel cell. In 2008 Vancouver also passed legislation to allow the use of low-speed electric vehicles on the roads, on a three-year trial basis, even though these vehicles may lack the full range of safety features found on standard cars. The pivotal company in the region as far as automotive fuel cells are concerned had long been Ballard. However, in 2007 Ballard agreed to sell its automotive fuel cell assets to Daimler and Ford in exchange for all of the 34.3 million Ballard shares held by the two vehicle manufacturers. These shares, valued at US$168 million, were then cancelled, leaving Ballard with US$95–105 million on the transaction. In news reports, John Sheridan, Ballard President and Chief Executive said: ‘This transaction will enable Ballard to concentrate on growth in fuel cell applications which provide clean energy solutions in commercial markets. It also lowers Ballard’s risk profile by addressing the realities of the high cost and long timeline for automotive fuel cell commercialisation’ (In Tech, 2007). A new private company, Automotive Fuel Cell Cooperation, was set up at Ballard facilities while Daimler and Ford contributed US$60 million to the new company and Ballard also invested US$60 million, leaving the company 50.1 per cent Daimler, 30 per cent Ford and 19.9 per cent Ballard. Daimler’s history with Ballard goes back to the mid-1990s, when the first trial fuel cell buses were running. At that time, the company view

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was that the fuel cell had the best possibility of competing with the internal combustion engine (Panik, 1999). Indeed Daimler became a driving force behind the surge of interest in fuel cell vehicles. In other words, the risks and the long-term nature of the investments required to break into the automotive industry in the end became too onerous for Ballard alone, and the participation of major vehicle manufacturers was required. In turn, this suggests that the nascent fuel cell cluster around Vancouver is also vulnerable, which is hardly surprising given the lack of market penetration for fuel cell technologies and the more recent prioritization of pure electric vehicles and plug-in hybrids as being more likely to yield rapid reductions in CO2 and toxic emissions. Other locations continue to pour money into hydrogen fuel cell vehicles and infrastructures. For example, on 14 October 2008 the EU and European industry and research partners formally launched plans to make fuel cells and hydrogen one of Europe’s leading new strategic energy technologies. The European Commission, with 60 industrial partners and more than 60 research members, collectively created a public–private Joint Technology Initiative to invest together nearly €1 billion (US$1.46 billion) over six years in fuel cells and hydrogen research, technological development and demonstration. The Vancouver/British Columbia case suggests that pouring research money in alone is insufficient. Denmark Denmark offers a somewhat different prospect with a potential for windpower electric vehicles. Denmark does not have an indigenous vehicle manufacturer, and for many years has operated a punitive new vehicle taxation scheme to restrict car ownership and use. In 2008 the Danish (stateowned) energy company Dong Energy signed an agreement with PBP to establish an electric vehicle recharging infrastructure (of some 50 000 points) with the specific advantage of being able to store (on the vehicles recharging overnight) the unstable wind-generated electricity in a manner that allows the turbines to be used at maximum efficiency. The concept of using battery electric vehicles as energy reserves has been examined before (Kempton et al., 2001), though the wind-generation context is different (Jorgensen, 2008). So-called Vehicle-To-Grid (V2G) systems offer the potential for vehicle owners to sell back electricity to the providing utilities in periods of peak demand, and can actually offer a valuable peaksmoothing facility (Turton and Mourab, 2008; Guille and Grossa, 2009). It is not clear at this stage whether PBP proposes such re-sale of electricity back to the grid, a strategy which may involve regulatory and technical innovation (Pillai and Bak-Jensen, undated; Kempton and Tomić, 2005;

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Tomić and Kempton, 2007). Crucially then, the overall finding is that V2G can greatly improve the economics of the electric vehicle system, and thus help mitigate some of the higher initial purchase costs and battery renewal costs evident in electric vehicles. Interestingly, a study by Jacobson (2009) for the US case found that of all the potential energy source, fuel and vehicle technology options to reduce CO2 emissions, wind-generated electricity and battery electric vehicles came out as the best choice, and also offered the best option for reducing mortality from air pollution and for least impact on wildlife. In 2009 Dong Energy joined a group of investors backing a local company called Lithium Balance, a specialist in systems to enable the optimum interaction between electrical systems (including electric cars) and batteries. This sort of development is an interesting illustration of the sort of local economic advantages that may emerge around the fragmentation of the existing automotive industry. It is equally illustrative that although PBP partnered with Renault-Nissan to bring electric vehicles to Denmark, the Chinese company Build Your Dream chose the country to be the first European market for their electric vehicles from 2011 onwards (Proctor, 2009d). Build Your Dream cited the favourable tax regime for electric vehicles as being a key factor in its decision to start European sales in Denmark, though probably the lack of a locally dominant competitor had also guided the decision. Israel In the case of Israel the basis of a future sustainable automotive industry and automobility may well be solar-powered battery electric vehicles. In January 2008 it was announced by the Israeli government that it had entered an agreement with PBP to bring a fleet of electric vehicles to market. The infrastructure to support this fleet would be built by PBP. The initial stage was expected to cost US$200 million, which the firm has so far managed to raise. An additional US$800 million was required to be raised for further infrastructure and vehicles. The plan calls for the establishment of 500 000 recharging points and battery-swap stations for electric cars to be set up within 18 months. The Prime Minister, Shimon Peres, said at the time the plan was launched that it would reduce Israel’s oil imports by 50 per cent within just a few years. By building solar energy generation plants, the country could eventually stop importing oil altogether. According to calculations by PBP, if Israel’s two million cars were all electric, they would require 2000 MW of electricity a year. This electricity could be generated by a one-off investment of US$5 billion in solar plants. Moreover, because Israel is a compact country the average

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daily distance driven is small which, allied to the benign climatic conditions, reduces the energy demand on the batteries in electric vehicles. In mid-2008 Israel Corporation (a holding company with diverse interests including Quantum) announced plans to increase investments in PBP. To date, the concept of Solar-To-Vehicle (S2V) energy is relatively underdeveloped, though it has some potential in the right locations including California (Birnie, 2008) and of course Israel. The technology in terms of placing panels on cars is relatively undeveloped, notwithstanding the vehicles shown in the Solar Challenge (http://www.wsc.org.au/), and cumbersome (Letendre, undated). It is notable that the third-generation Toyota Prius launched in 2009 could be obtained with a roof-mounted solar panel. An optional Solar Pack for the new Toyota Prius T Spirit models provides independent cooling of the vehicle cabin when parked. The Solar Pack option in the UK cost £1450, including 15 per cent VAT, when launched in 2009. As a sign of increasing market preparedness, in mid-2009 Renault showed the Fluence EV based on the Megane car. The Fluence had been specifically configured for the PBP battery-swap system that will be branded ‘Quick Drop’ according to reports. The battery is located behind the rear seat with an opening beneath the boot for swift unloading/ reloading. At the same time, Renault showed two other versions of the Fluence EV’s battery recharging system. The first of these used a standard 220 volt/10 or 16 amp socket and would require six to eight hours to charge the battery pack fully at the user’s home. The second is intended to be a 400 volt industrial recharge unit with a three-phase, 32 amp socket, to be located in factories, offices or dedicated recharging stations, which would be capable of an 80 per cent charge in 30 minutes.

4.3

BRAZILIAN BIO-ETHANOL: AN EXAMPLE OF LOCAL POLICY DIVERSITY FOR INCREASED SUSTAINABILITY

One of the best-developed examples of local sustainability in terms of renewable fuels for vehicles is probably Brazil. The use of sugarcane ethanol as a fuel for cars in the country goes back several decades, and the original motivation for such usage was certainly not environmental. The case of Brazil also raises intriguing questions in the contemporary era, most notably as to whether the most recent developments in the sugarcane ethanol sector can be considered as a deepening of sustainability or a negation of it (Wells and Faro, 2009). As an example of local diversity, notwithstanding the remaining concerns over the use of ethanol

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in internal combustion engines or indeed the wider social and environmental costs of the car, Brazil is interesting because it shows just how much can be achieved when local need is matched to local capabilities (Nardon and Aten, 2008; Zapata and Nieuwenhuis, 2009). The case is presented in rather more detail than the others listed above; they too would merit similar treatment to elucidate in detail the complex interplay between technological innovation, social and political circumstance, environmental potential and business strategy. Unfortunately, there is not sufficient space available. In 1990 the future of the Brazilian sugarcane ethanol industry and its ‘alcool’ programme for pure ethanol-powered cars looked bleak. The policy initiated after the 1973 oil shock had initially been successful, and Brazil had led the world in alternative fuel production and use. But then a combination of falling oil prices and rising sugar prices created the conditions for a switch away from ethanol production and left motorists with pure ethanol-powered cars stranded. As a consequence, sales of ethanolpowered cars fell from 92 per cent of the total in 1985 to just 20 per cent in 1990. By the pre-crisis era of the mid-2000s the world had changed again. Oil prices were beyond US$100 per barrel and seemed unlikely to fall in the face of burgeoning global demand and seemingly unstoppable economic growth; concerns over global warming had underpinned the motivation for the creation of a huge domestic and export market for sugarcane ethanol; and, crucially, automotive technology had been created to allow ‘flexifuel’ vehicles able to run on either ethanol or petrol or a combination of the two. Flexifuel cars in 2008 constituted over 85 per cent of all new car sales in Brazil, meaning that consumers were no longer locked into a single source. One of the reasons for the continued success of the Brazilian ethanol industry is that there has been continuous improvement in production processes (Goldemberg et al., 2008). On an index basis, production costs per litre are half that of US corn ethanol and one-third that of ethanol produced in the EU. Moreover, it is intended to phase out the practice of crop burning in Sao Paulo State where 75 per cent of Brazilian cane sugar is produced (which is mainly used where manual harvesting is still adopted and one of the least environmentally friendly aspects of canederived ethanol) by 2017 at the latest and by 2014 for areas with mechanized production. The production of ethanol from cane is in any case more cost effective than, say, corn but it is also the case that in all stages of the process greater efficiencies have been achieved. According to UNICA (the Brazilian Union of Sugar Cane Industries) about 54 per cent of the 415 million metric tons of 2007/08 sugar cane production was turned into

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ethanol, yielding around 18.8 billion litres (see http://www.unica.com. br/). All phases of the production process are subject to innovation and change. Indeed this was one of the defining features of the sector in the early 1990s. The main process steps are: ●

● ●

●

●

Washing. The cane must be clean before going into the process. Traditionally done with water, the cleaning process generated problematic liquid waste. Consumption has fallen from 21 000 litres of water per metric ton of cane, to less than 5000 litres. An innovation here is cleaning by air and agitation, which produces less waste. Fragmentation. Here the cane is chopped between blades to produce many small fragments. Crushing. Crushing involves squeezing the chopped cane between heavy rollers with teeth that squeeze out the cane liquid. This is an aggressive environment for machinery, and the rollers need to be re-machined every year. A new approach is to use a tunnel structure (120m × 2.5m × 2.5m), along which the chopped cane is moved with warm water. At the end of the tunnel, a smaller roller squeezes out the juice (called Garapa). This extracts more saccharose than normal crushing, but can introduce some impurities and enzymes into the liquid that make it unsuitable for sugar production. Fermentation. The liquid is fermented in special yeast for 24 to 36 hours. The yeast is kept live and returned to the process. New yeasts recently developed will sediment out from the liquid, thus avoiding the need to use a centrifugal action to separate the yeast from the liquid. Yeast used to be discarded; it is now re-used. Distillation. The final main process step is to distil the liquid to extract the alcohol. A by-product is vinhaça, 93 per cent water, 6 per cent organic matter, 1 per cent mineral salts, which constitutes 7 parts by volume for each 1 part of alcohol produced and is used as a liquid fertilizer.

The crushing process results in a solid waste called bagaçe. This material is used for co-generation of power for the plant to operate. The bagaçe is sent to a furnace where it produces vapour for the distillery and electric power. In fact not all the waste is used. The Minister responsible recently estimated that 14 400 MW of electricity could be generated from unused bagaçe. Another alternative under exploration is to use hydrolysis to turn the bagaçe into methane. Alongside the technical developments, the economic and political processes of constructing a growing industry and market have proceeded

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apace. Brazil has been assiduous in winning export markets in the EU (notably Sweden) and most importantly in Japan. Brazil has a target to double exports of ethanol in the next ten years. In 2005 the estimated world ethanol output (fuel and industrial) was: ● ● ● ● ●

Brazil 16.1 million k/l; USA 16.2 million k/l; China 3.8 million k/l; EU 2.2 million k/l; India 1.7 million k/l.

These countries constituted over 90 per cent of global production according to the Japan Institute for Energy Economics (see http://eneken.ieej. or.jp/en/). Advanced industrial nations like Japan, dependent upon imported petroleum and keen to reduce their national CO2 emissions, are beating a path towards Brazilian ethanol. Japan has a target to reduce fossil fuel dependency by 20 per cent by 2030. The country uses some 60 million k/l of petrol each year; by contrast in 2006 actual ethanol production was just 30 k/l. In July 2007 Japan and Brazil reached an agreement to expand output and exports of ethanol to Japan, with the Japan Bank for International Cooperation funding new ethanol plants, storage tanks, pipelines, port facilities and tankers to export the bio-fuel to Japan. Behind these inter-governmental initiatives, corporations have also taken steps. One such case is that of Mitsubishi Corporation, which in 2007 signed a 30-year contract for the supply of bio-ethanol with a subsidiary of Grupo Sao Martinho of Brazil, one of the world’s largest producers of sugarcane and ethanol. This one agreement would be large enough for 15 per cent of Japan’s ethanol needs each year. Similarly, both Mitsui and Itochu Corp. (both of Japan) signed separate deals with the Brazilian monopoly supplier Petrobras to import large quantities of ethanol back to Japan. Moreover Brazil has instigated a deliberate strategy to promote sugarcane ethanol as a global commodity product with endeavours to encourage production in other countries. One example is that of the Congo, where an agreement was reached in December 2007 to provide finance, expertise and technology in sugarcane and palm oil use for bio-fuels. Similar discussions are reportedly underway with South Africa and various countries with suitable tropical or sub-tropical climates. While this all looks very promising for Brazil, some caution is needed. At a global level recipient countries are already concerned at the relative paucity of supply both now and in the future: of the leading producers only

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Brazil has a decent prospect of export surpluses. Although some analysts fear over-supply, the emerging situation may result in over-demand at the global level. Secondly, Brazilian consumption is still growing. In 2009 a threshold was passed in Brazil in that more than 50 per cent of petrol consumption by cars had been substituted by ethanol. The trouble is that strong export and local demand will drive up prices to the detriment of consumers in Brazil. By 2020 Petrobras expects domestic demand to reach 29 million kl, and exports to reach 16.5 million kl (interview with UNICA representative, Sao Paulo, 13 December 2008). In anticipation, Petrobras has created an ethanol production subsidiary and also bought into more than 40 distilleries. Moreover, foreign ownership started to become significant in the Brazilian ethanol sector during the 2000s – with uncertain consequences. The spectre emerges of local production of cane-derived ethanol controlled by foreign multinationals and exported out of the country to markets where consumers will pay more. Brazilian government energy policy clearly has a delicate path to tread to make the most of what is widely regarded as one of the most sustainable fuel sources around today. Initially, the economic convulsions sweeping much of the world economy from 2007 appeared to have passed by Brazil as a whole and the sugarcane ethanol business in particular. There had been one or two high-profile casualties; most notably Novamerica and Santaelisa Vale – one of the largest companies and one that by 2008 was reportedly seeking to re-negotiate US$300 million debts (interview with UNICA representative, Sao Paulo, 13 December 2008). Oil prices did not fall below the critical US$40 per barrel that would have rendered sugarcane ethanol uncompetitive and domestic demand remained sufficiently robust to absorb the majority of output. A key problem, however, remains that of investment from 2009 onward. Investment in new capacity, updating technology and simple maintenance all have to go on while cash flow is reduced – financing that cash flow with working capital might be a bigger problem from 2009 compared with previous years due to the global financial crisis. The previous three years had been witness to a long boom in the sector, with over 200 new projects announced according to UNICA (interview with UNICA representative, Sao Paulo, 13 December 2008). Less than half actually started, but still these operations represent investments of US$33 billion through to 2012. The short-term danger is that capacity will expand faster than demand, and thus it is unsurprising that a brake has been put on investments. The interest of multiple parties in the future of Brazilian ethanol is being driven by the fundamentally sound future prospects for the sector – both in terms of demand and supply. Ethanol production in Brazil has a foundation demand in the domestic market, virtually assured by the total

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dominance achieved by flexible fuel vehicles in new car sales. The Brazilian Automotive Manufacturers’ Association estimates that by 2017 pure ethanol or flex-fuel vehicles could account for 80 per cent of the total fleet of 37 million cars in Brazil (and even the petrol sold in Brazil is a mix with 25 per cent ethanol; interview with senior representative from the Centre for Strategic Management and Studies, Brasilia, 8 December 2008). In addition Brazil is a vital test-bed for the use of ethanol in buses, with Scania running a trial fleet of converted diesel engine buses in 2009 under a programme part-funded by the European Union (BEST – BioEthanol for Sustainable Transport). Demand from outside Brazil is likely to remain more problematic, particularly as the global recession may have the consequence of reducing carbon emissions, and hence of the necessity for some key countries to import bio-ethanol as a means of reaching Kyoto targets by 2012. By mid-2009 Sweden consumed about 800 million litres of ethanol per annum, with half supplied by Brazil. Other important markets are also in the EU, Japan and the United States. From the supply side increased production is largely expected to derive from higher yields rather than turning new land over to sugarcane. Outturn ethanol production in Brazil in 2008 is estimated to have increased by 15 per cent to 19 per cent, reaching as much as 27.4 billion litres. Exports were estimated to rise more than 23 per cent, to 4.2 billion litres in 2008, but could reach 8.3 billion litres by 2017 according to the Food and Agriculture Policy Research Institute (FAPRI, 2008). This growth in exports is indicative of the possible transformation of the sector. Indeed, the sector stands on the threshold of a new era of professionalization characterized by: ● ●

● ● ● ● ● ●

scientific agriculture bringing new varieties, novel crop management techniques and optimization of yields; mechanization of harvesting. In 2008 some 50 per cent of the total crop was mechanically harvested, a figure that should rise to 70 per cent by 2010. innovation in milling, fermentation and distillation technologies including power generation from the waste products; further innovation with second-generation cellulose-processing technology; higher-volume distilleries, up to 7 mtpa (crushing capacity); higher-volume distribution infrastructures including pipelines, export terminals and purpose-designed shipping; global integration via trading partners and agencies; venture capital and other investment vehicles bringing contemporary business management philosophies.

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In many respects, the size of the potential sugarcane ethanol industry is considerably greater than that shown in Brazil alone. There are well over 100 countries producing sugar and more or less able to enter the sugarcane ethanol business. In the medium term, FAPRI (2008) expects global production to grow from 61.84 billion litres in 2007 to reach 122.39 billion litres by 2017. Researchers at Imperial College, London have estimated that in favourable circumstances bio-ethanol of all types could replace up to 20 per cent of global demand for petrol by 2030, equivalent to some 566 Gl (Walter et al., 2008). Obviously this is a contested process and views differ on the extent of the potential – but companies that seize a share of the activity in Brazil are going to be well placed to capture these emergent opportunities also. Brazil has mounted a concerted and largely successful campaign to refute claims that sugarcane bio-ethanol has contributed to food price inflation, and indeed to present a strong case for the environmental credentials of the fuel. The country has about 330 million hectares of arable land, of which just 7.8 million hectares in 2008/09 will be given over to sugarcane production. Thus far, the country has been less successful in breaking the many trade restraints (e.g. tariffs imposed by the USA and Europe) or achieving technical standardization for bio-ethanol, but over time free international trade will be a pre-requisite for the widespread adoption of the fuel. The immediate competition is for control over the linear supply from the plantation onwards to the pumps supplying consumers. For many reasons, this is essentially an area of business open to influence from a wide range of potential parties including: ●

● ●

●

existing sugarcane plantation owners, who also have distilleries. These are often relatively small-scale, single-plant operations but have the advantage of economies of scope and greater flexibility of operation than the bigger operations; sugar producers that want to expand into ethanol, including producers from outside Brazil; the emergent consolidators such as Cosan that are seeking economies of scale by purchasing smaller, less efficient businesses, and driving up per unit revenues by capturing more of the downstream operations (in April 2008 Cosan purchased Exxon’s assets in Brazil for US$826 million); traditional petroleum businesses that want to diversify their portfolios and leverage their expertise and assets in distribution and retailing. These include the investment of US$60 million by British Petroleum to create Tropical BioEnergia with joint venture partners

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●

●

●

●

●

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Santaelisa Vale and Maeda Group, and the entry by the state monopoly petrochemical company Petrobras; equipment and production process consultancy companies, that in some cases can now offer a turnkey operation to those wishing to enter the sector for the first time; investment vehicles, banks, hedge funds and venture capitalists, often motivated by the twin aims of high returns and sustainability, and that act either as consolidators or bring into being new capacity; scientific agriculture companies from the bio-technology sector (such as the US group Amyris Biotech joint venture with Crystalsev to produce sugarcane diesel, and global leaders such as Monsanto), exploiting the fact that compared with other agricultural products sugarcane is relatively under-represented with such approaches; international trading houses such as Mitsui and Itochu, that have sought to secure long-term supply by entering into joint venture investments and other arrangements; international agri-business companies such as the American giants ADM and Cargill, that see sugarcane ethanol as having the potential to be a new world commodity; chemicals and plastics companies such as Solvey and Dow, that are just bringing onstream major new investments that will turn ethanol into plastic, mostly for sale at a premium to Japan, Europe and the USA. The automotive industry is a significant potential market for bio-plastics.

In mid-2008 there were some 387 distilleries in Brazil, and about 30 more are being added each year. The majority are single-distillery businesses. The former market leader, Cosan, has just 9 per cent of the total business while the top five suppliers control less than 20 per cent. In 2007 the co-operative group Copersucar became a limited liability company, and secured for itself the leading position in the sector – with aggressive expansion plans. Copersucar (in 2008) was responsible for 33 mills, accounting for 14 per cent of all the sugar and 14 per cent of all the ethanol sold in Brazil in 2008. The company also buys sugar and ethanol from independent producers, a business model of quasi-consolidation that is becoming more widespread in the sector. Some uncertainty remains in the minds of potential investors, not least because there may be new restrictions placed on foreign land ownership. In addition, international attention will ensure close scrutiny of new land brought into sugarcane production – already Sao Paulo State has

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introduced land zoning policies to restrict the expansion of land given over to the crop. Experts in the sector in Brazil, such as the renowned physicist Jose Goldemberg, are adamant that the entire global bio-ethanol sector cannot be regarded as offering a solution for automobility with zero carbon emissions, and that in any case Brazil alone cannot constitute a global supply base (Goldemberg, 2008). Brazil has already started to export some of its technology to other markets, most notably some in equatorial Africa; meanwhile China is steadily expanding its own sugarcane ethanol production capacity, and with diversity of supply the prospects for internationally traded ethanol are becoming much brighter. Other solutions, including the widespread adoption of hybrid cars and other fuel efficiency measures, will be vital. However, the sugarcane ethanol sector has the potential to make a substantial contribution over the medium term, which in turn will further enhance the prospects of the internal combustion engine remaining in use. In the longer term, the real commercial prize may be with ethanol as a materials feedstock to many sectors, not just the automotive industry.

4.4

CONCLUSIONS

Several countries or locations have been put forward in this chapter as offering potential examples of diversity with respect to the automotive industry, sustainability and policy. The list was by no means intended to be exhaustive, but should serve to illustrate that the fragmentation of the industry is likely to be a feature for some time. This is not to forecast unrelenting diversity any more than it is to refute the possibility of convergence. Rather, the conclusion to be drawn is that in the quest for sustainability, including the goal of economic benefits, then different places may arrive at different policy solutions and priorities. In turn, as was intimated in the case of Brazil, there may be widespread changes in industrial structure and business strategy as different interests compete for the emergent market opportunity. This idea is carried on into Chapter 5, which looks more explicitly at the question of designing radical business models that more adequately correspond with the requirements of the era of eco-austerity. Again the approach is not prescriptive. Rather, the intention is to illustrate some of the possibilities. Indeed it is to be anticipated that multiple innovations will occur with respect to business models, not least because of the need to be sensitive to the differences between localities.

5.

5.1

Alternative business models as the basis of a new industrial ecology of the automobile INTRODUCTION

This chapter explains why new business models are needed as the mechanism for the delivery of a sustainable automotive industry. As such, it will draw on a range of existing examples including Tata Nano, Project Better Place, Gordon Murray Design, the MDI Air Car and Riversimple to demonstrate the scope for different approaches to the manufacture and use of cars. It will further argue that innovative technologies may create the space within which alternative business models can prosper, while the crisis that has engulfed the mainstream industry may significantly reduce the ability to retain barriers to entry. The core idea here is that ‘technology’ as such is not the problem. The technologies that could underpin sustainable automobility and a sustainable automotive industry are there, or nearly so; the problem lies in finding an economic incentive and structure for businesses to benefit from these technologies. It is notable that a significant report on the adoption of electric vehicles in the USA highlighted that the twin business model innovations of switchable batteries and pay-per-mile contracts would be the key to the rapid expansion of the market share of these vehicles (Becker, 2009). The creation of alternative business models requires a degree of fit with prevailing cultures of automobility, but also in many cases changes to such cultures, probably resulting in a much-reduced reliance on the car. The first half of this chapter is primarily concerned with elaborating the meaning of alternative business models while the second half provides a range of automotive industry examples.

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ALTERNATIVE BUSINESS MODELS AND SUSTAINABILITY

The role of business models in the achievement of sustainability has been relatively neglected. This is something of a paradox, given that one of the three ‘legs’ of sustainability has traditionally been ‘economic’, by which we may include business. The focus of effort has been on the ‘greening of industry’ in a general sense in search of eco-efficiency and in the environmental improvement of functional operations in a more specific sense, with the development of sub-disciplines such as green marketing, green logistics, green accounting, and so on. Some research has shown that the lack of organizational sustainability (in business) may undermine technological sustainability (Hoverstadt and Bowling, 2005) or, to put it another way, that technology alone cannot ensure sustainability. The key to understanding business models as discussed here is the viable and enduring creation and capture of added value (Stabell and Fjelstad, 1998; Adner and Zemsky, 2006) through differing configurations of the value system. The business model can be understood as applying to a single corporate entity, and is nested between the more nebulous idea of the business concept and the more specific operational articulation of the business plan. The business model therefore defines the operational norms and practices of the business in broad terms (Walters, 2004). It should describe how the firm adds value but also how the firm competes in capturing value against other firms (Voelpel et al., 2004) or how it articulates its core competence (Hamel and Prahalad, 1990). Following an early interest in the innovative business models in e-commerce and the Internet (Dubosson-Torbay et al., 2001), Osterwalder et al. (2005: 5) arrived at the following broad definition: A business model is a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific firm. Therefore we must consider which concepts and relationships allow a simplified description and representation of what value is provided to customers, how this is done and with which financial consequences.

Inevitably, the business model in a manufacturing sector is informed by (and equally is itself strongly influential on) issues such as choice of product or service offering, product technology (including materials), production technology, established market practice (including routes to market) and consumer expectations, legal, fiscal and regulatory issues, financial constraints, and many other related matters. Neither is the business model simply interchangeable with strategy – though clearly they are closely linked. The business model does not emerge in a vacuum but out

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of contingent possibilities, as was most obviously the case when a surge of innovative business models appeared seeking to exploit the specific commercial potential of the Internet (known widely as the dot com boom). As a result, in a mature sector such as the automotive industry there tends to be an overall convergence of the business model employed by all firms around a quasi-formulaic notion of ‘this is how we do business in this industry’. That is, often the overall business model becomes essentially implicit and unchallenged, except perhaps with respect to a specific aspect of the model that might be subject to innovation. This is, of course, precisely the territory described by Bower and Christensen (1995) in the concept of disruptive technology, a theme which is returned to below. The business model need not be entirely static, indeed a degree of change over time is endemic in most industry sectors, and in time a new orthodoxy may emerge that is evidentially different from that which preceded it. Despite this, there is also a strong case for arguing that a successful business model within a company may actually constrain the search for new, alternative models (Christensen, 1999; Chesbrough and Rosenbloom, 2002) and hence a business can become stranded with an outdated business model when circumstances change sufficiently. With respect to the automotive industry, such a transition could be argued to have occurred over the period from the 1990s as a result of the application of the ideas of lean production (Womak et al., 1990), leading to a new but ultimately modest revision of the prevailing business model. In the same way, it is not always straightforward analytically and empirically to define a new, revolutionary or radical business model. A business model might be ‘new’ to a certain sector of economic activity, or new to a certain place, or new in parts. At issue is the relative scale and pace of change, and ultimately these are therefore comparative judgements rather than absolute truths. Of particular interest here are those approaches to business that seek to redefine the value creation system, as this system goes to the heart of what constitutes a business model. In this respect there are overlaps with concepts such as remanufacturing and reverse logistics (Wells and Seitz, 2005) and the broader notion of closed-loop systems. Similarly, there may be potential in integrating previously distinct or disintegrated parts of the value system, and thereby redefining the value offered to consumers – typically, product service systems (PSSs) would fall under this category but so too could the concept of material leasing. The business models literature has had scant contact with the concerns of sustainability, as is shown in Table 5.1. Osterwalder (2004) developed a conceptual description of a generic business model based on the e-commerce sector. Perhaps because his work was grounded in e-commerce, he did not seek to integrate sustainability or

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Table 5.1

The main elements of the business model

Pillar

Element

Description

Product

Value Proposition

Customer Interface

Target Customer

A Value Proposition refers to a package of products and/or services that collectively have a monetary value for consumers The Target Customer is the individual or class of customer for whom the product and/or service is intended

Infrastructure Management

Financial Aspects

Distribution Channel

A Distribution Channel is the mechanism or process by which products and/or services are brought to the customer

Relationship

The Relationship describes the link between the customer and the business in all its forms The Value Configuration is the arrangement of the component elements of the business to deliver value to the customer

Value Configuration Capability

A Capability is similar to the core competence of a business, in that it describes the activities a business can repeatedly undertake in order to create value-added propositions

Partnership

A Partnership captures any form of joint venture or alliance or contractual relationship with other companies in order to create added value The Cost Structure is the financial cost of all the activities in the business whether or not they contribute to added value

Cost Structure

Revenue Model

Source:

The Revenue Model describes the way a company makes money through a variety of revenue flows

Derived from Osterwalder, 2004: 43.

connect with the concept of non-linear value systems, though the notion of ‘value configuration’ could potentially include a range of value creation architectures. At the least, therefore, the framework from Osterwalder needs augmenting with an explicit pillar on sustainability that would capture the environmental and social aspects of the business model.

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Reverse Logistics and Remanufacturing There is an emerging literature on both remanufacturing and reverse logistics to suggest that these are activities of growing importance with the advanced industrial economies. In a simple sense this is a reaction against the waste (economic and physical) of the ‘throw-away’ society. At the same time there is an intuitive sense in which these activities might be expected to be an important element of strategy to enable businesses to meet the growing demands of corporate social responsibility, and to meet wider social goals to reduce the resource intensity of contemporary economic life (Hart, 1997; Desai and Riddlestone, 2002). From a practitioner perspective it is illustrative that the US organization representing remanufactures stresses in its literature the environmental benefits of the activities of its membership (Steinhilper, 1998), a claim echoed elsewhere (EPA, 1997). From an academic perspective these measures reflect the philosophy of eco-efficiency (Schmidheiny, 1992) and eco-modernism (Ayres et al., 1997) in that both reverse logistics and remanufacturing represent attempts by business to deliver the ‘triple bottom line’ of social, business and environmental benefits (Hawken et al., 1999). More profoundly such initiatives represent the first step in the creation of a circular value creation system rather than the traditional and almost universal linear value chain. For the establishment of such a repeatable cycle certain elements are required within the supply chain. Reverse logistics has been subject to many definitions and much debate (Tibben-Lembke and Rogers, 2002). Reverse logistics popularly means bringing the product back once it has been used and has ceased to function, from consumers and via a return network, to the original point of manufacture – though some definitions would include, for example, the return of packaging in businessto-business transactions or the return by consumers of faulty products. Ultimately one could envisage an almost continuous cyclical flow from the point of manufacture, out to consumers and then back to the point of manufacture whereby the flows out and the flows in are of the same magnitude: the product returns, almost like a battery to be recharged (and of course revalued), and is sent back out again. In this sense consumers (or markets) hold the stock of product, with the manufacturing operation acting like a pump driving new stock in and old stock out but with no net growth in consumption of the product or of the materials required to make the product. While clearly idealistic this description is at least approaching reality for some materials such as aluminium where the energy cost of creating the material is high compared with re-melting. It is this circulating stock of materials that resulted in the concept of ‘technical nutrients’ popularized by the architect McDonough (McDonough and

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Braungart, 2002). In brief, technical nutrients are synthetic materials that do not harm the environment and are relatively stable (and hence able to be circulated in closed-loop industrial systems) and in the McDonough concept they are part of a broader approach to artefacts in which the aim is eco-effectiveness rather than eco-efficiency. Interestingly McDonough and Braungart also identify a category of ‘biological nutrients’ to be used as materials for products. These biological nutrients are simply materials that, after use, can be returned to the natural biological system and reused. In a perfect world the remanufacturing operation would simply recover products which have ceased to function (King and Burgess, 2006) with no new net consumption of materials other than those consumed during transport and processing (e.g. energy). The raw material input to the operation would be the old product, which would arrive at the same rate at which ‘new’ (i.e. remanufactured) product left the plant. Such a model may be considered as showing some of the fundamental, normative ideals of a sustainable business founded on reverse logistics and remanufacturing. Clearly this model is far from complete. There is no net growth in terms of units sold or material consumed, but equally there is no change in market share. There is no change due to technology evolution. It is, in effect, the description of a static business caught in an endless loop of activity without change. It is not clear how capitalist business practices that are founded on the notion of growth can be adapted to this essentially static vision. Given that ‘sustainability’ is as much a process as an end condition, it is constituted by the act of becoming more sustainable and hence dynamic, and so the above model is clearly both a simplification and a distortion. Still, if it represents the extreme of closed-loop practices, it provides a basic metric against which to compare contemporary practice and guide future directions. Closed-loop Supply Chains The above describes what might be termed a closed-loop supply chain from producer to consumer and back again, along with remanufacturing to reintroduce the product as if it were new. In terms of sustainability the above sequence has merit in principle because the product is not thrown away after it ceases to function – thereby reducing landfill, pollution and related environmental costs while raw materials are saved because a completely new product is not made. Again this view does not consider the difficult question of technology change, whereby technical improvements to the product may result in significant improvements to environmental performance. Neither does this view allow for obsolescence due to innovations

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‘outside’ the product itself (e.g. CDs rendering traditional vinyl records obsolete). Neither of these two issues are amenable to control or regulation, either by a company or by government. Traditionally companies protect their intellectual property rights with patents while the market for those rights is exploited. Two of the key contributors in the area of closedloop supply chain management, Guide and Van Wassenhove (2002), define a closed-loop supply chain as comprising the following elements: product acquisition, reverse logistics, inspection, testing and disposition, remanufacturing, selling and distribution. However, there is no specific indication whether selling and distribution refer to what might be defined as a ‘premium’ market (original products) or a ‘secondary’ market, such as the automotive aftermarket. In their work Guide and Van Wassenhove give various examples of closed-loop supply chains. Some of them are ‘fully’ or ‘genuinely’ closed, whereby returned and remanufactured products (or more accurately parts thereof) are incorporated in the production of new, premium products: for example photocopying machines where some of the new machines may contain remanufactured parts. But there are also supply chains in which remanufactured products are classified and sold as ‘second class’ products on a secondary market, such as retreaded tyres. This loop should rather be defined as a ‘modification’ of the closed loop, since the remanufacturing output is not classified as new and is sold on a non-premium market. In practice to date reverse logistics rarely seems to involve complete products being returned by consumers and certainly not on the scale of new product supply, most probably because products are not designed for such a process. An oft-cited example is that of photocopiers (Kerr and Ryan, 2001), but of course this is not a ‘mass manufactured’ product that is used by individual consumers but a particular case of business-tobusiness relationship. In the literature the case of refrigerators has been raised as a potential example. However, it is important to realize that even in cases such as this, the priority is to adapt the reverse logistics process to the demands of the existing forward logistics and manufacturing system, which itself is seen as sacrosanct (Sherwood and Shu, 2000). In terms of remanufacturing it is evident that there are many activities that might variously be described as repair, refurbishment, rebuilding, reconditioning or refitting that in one way or another serve to extend the life of the product, but these activities are rarely undertaken by the same business that provided the product as new, and even more rarely in the same plant. It is notable that the practice of remanufacturing is most evident in the capital goods sector (again, note, a business-to-business relationship), where large items of production equipment and machine tools, generators, ships, aircraft, even complete buildings can basically

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be remanufactured. Sometimes this involves return to the original point of manufacture (though equally the work might be done on site), often it involves upgrading rather than straight repair (e.g. fitting electronic control systems to an old machine tool) and is essentially motivated by economic rationality: the capital equipment is a valuable, durable asset that would be expensive to replace and is therefore worth reinvesting in. Frequently, remanufacturing is undertaken by entirely independent businesses, separate from those that originally manufactured the item in question, occupying marginal markets that mainstream manufacturers consider too small to be worthwhile. In these respects, then, both reverse logistics and remanufacturing occupy the margins of mainstream manufacturing. In itself this suggests that ‘normal’ business does not fit very comfortably with reverse logistics and remanufacturing, and it is worth considering why this might be so. In essence the issues may well be those of complexity, uncertainty and control. Mainstream manufacturing with forward logistics in a linear value chain, particularly for mass consumer markets, is concerned with high throughput of standardized products to exacting quality levels and with minimal stock of materials, work in progress or finished product. The entire business is about flow and throughput, in which value is added as quickly and efficiently as possible, and realized in the market equally quickly. The business is premised on the revenues generated by the sale of new products, so the entire system is oriented towards the most efficient means of creating and then distributing that product out to consumers. Inevitably this results in certain characteristics, for example the primacy of economies of scale in original manufacturing (and hence capital intensity with dedicated automation); the vital importance of high throughput rates; a tendency to make the product a commodity with low margins per unit; cost reduction as the route to profitability as opposed to premium or cost-plus pricing; and an approach to the market best described as ‘fire and forget’ production. With the returned product being remanufactured it will clearly be necessary to have disassembly process steps, ideally designed into the original product. In addition the (re)manufacturing process is likely to be more manual than, say, contemporary car manufacturing. A highly modular and flexible manufacturing approach is needed, with major sub-assemblies either bought in or put together in enclaves away from the main assembly line. A product that is very complex – as is the case with a car, having several thousand parts, diverse materials and many different process steps – is clearly going to be particularly difficult to design with remanufacturing in mind. Different types of product exhibit different qualities of closed loop that

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therefore have different characteristics with respect to re-use and reverse logistics. The following are identified as essentially sequentially ‘larger’ or more extensive closed loops (Wells and Seitz, 2005): ●

●

●

●

Internal. The internal closed loop occurs within the point of manufacture, and is confined to the reuse of materials collected as waste from manufacturing, such as in plastic injection moulding. Post-business. As with the internal closed loop, material may be collected and returned for reuse between distinct business entities. This type of closed loop may bring in a third party to receive the recycled material, necessitating separate logistical management. It is used in the car industry for scrap steel from press-shops, some of which is taken and used by those making cast iron components. Post-consumer. The post-consumer closed loop occurs when the consumer has finished with the product, but is difficult to put into operation. Again the questions of how closed the system is, and how far the product loops back into the original manufacturing process (to be remanufactured), are of significance here. Right now, complete cars are not taken back by consumers to the original manufacturer in order for them to be remanufactured. Post-society. Post-society loops are the most expansive, and inevitably involve materials recycling rather than forms of remanufacturing. This form of loop is the most akin to contemporary practice, whereby many mixed and diverse products are eventually disposed of and the metal content is recycled via an entirely independent network. Generally this practice involves cross-contamination of materials and a high degree of ‘down-cycling’.

Under the post-consumer closed-loop model, remanufacturing is retrofitted into the principal activity of the original manufacturer. That is, the normal manufacturing operation consists of a chain or linear set of processes: inbound logistics, manufacturing, outbound logistics, marketing and service support. This model does not readily apply to other valueadding business structures, such as those founded on networks or on the intensive application of expertise (Stabell and Fjeldstad, 1998), but is a reasonable shorthand description of the automotive industry. Given that reverse logistics and remanufacturing are potentially significant moves away from longitudinal value-added structures, two potentially interesting conclusions arise. First, with an existing value-added structure in place and a ‘normal’ forward manufacturing and logistics system, the nature of the remanufacturing and reverse logistics system will be shaped by and secondary to the existing system but will also require changes to that

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system. Secondly, linear value-added systems appear uniquely inappropriate for reverse logistics to be adapted around them, despite this strategy being advocated by some (Guide and Van Wassenhove, 2002). Historically the automotive industry has shown a modest extent of remanufacturing or refurbishment of components and sub-assemblies. This has involved parts with a high rate of wear (e.g. tyres, clutches, brakes, starter motors and other electrical motors) and to a lesser extent expensive parts that are salvaged from scrapped cars (e.g. metal panels). Product Service Systems A PSS has been described as a system of products, services, supporting networks and infrastructure that is designed to be competitive against other companies, to satisfy customer needs and have a lower environmental impact than traditional business models (Mont, 2002a). At its core the PSS concept is based upon a fundamental shift in the relationship between the producers and the consumers of a product or service. Instead of being centred on ‘traditional’ forms of sale, ownership, consumption and disposal of products, the PSS concept encourages a focus on the delivery of a ‘function’ to the customer that might, in practice, mean the provision of combinations of products and services that are capable of jointly fulfilling users’ needs (Goedkoop et al., 1999). In doing so the PSS concept combines several management issues such that products throughout their life cycle have a minimal environmental impact while simultaneously are made with improved resource efficiency within the context of alternative profitable revenue streams. Earlier research (e.g. Brezet et al., 2001; Zaring, 2001; Behrend et al., 2003) classified different types of PSS according to three main categories: (1) product-oriented services, where the business model is still largely associated with the sale of products to consumers, with some additional services, such as a maintenance contract or an end-of-life take-back agreement; (2) use-oriented services, where products remain central but are owned by service providers and made available to users in different forms (e.g. leasing, sharing or pooling); and (3) result-oriented services, where customers and service providers agree on a desired outcome (e.g. clean clothes) without specifying the product involved. In ‘traditional’ sales transactions the relationship between the manufacturer and ultimate consumer of a product is very limited, distant and often intermediated, as is the case in the automotive industry where franchised dealerships are the point of customer contact. In most cases once products leave manufacturing sites they are distributed to a network of independent retail outlets, where consumers purchase them. Aside from

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product warranty and safety concerns, the manufacturer has no further interest in or responsibility for the product. Following purchase, the responsibility for product use and disposal lies with the consumer. Within this business model, beyond their basic contractual and legal obligations, manufacturers have no responsibility towards the product following its sale, and the intermediate retail function means that there is rarely any direct contact between producers and purchasers. Within a closed-looptype PSS, a product still forms the basis of the relationship between producer and user. However, instead of purchasing the product, the user buys only the output of the product according to the desired level of use (Tukker, 2004: 249). In such a way, the manufacturer retains ownership of the product and utility is provided through the sale of functional ‘service units’. Although the idea of ‘functional sales’ is not entirely new (see for example Mont, 2002b), when employed as part of a closed-loop PSS, such an approach has the potential to radically change the behaviour of both manufacturers and users. Product Take-back As outlined by Toffel (2004: 121–3) manufacturers already have a number of motivations voluntarily to recover their products following use. Old parts can sometimes be re-used in new products at a cost saving, while at a wider scale the adoption of product recovery strategies can help with the advancement of an image of good corporate citizenship and corporate responsibility, can pre-empt legislative or regulatory action, can help protect aftermarkets and can meet specific customer demands. In the automotive industry the instigation by the EU of a recycling requirement in cars (to be 95 per cent able to be recycled by 2015) is one such instance that might stimulate action. Moreover the retention of ownership of the product evident in some business models (see for example Riversimple below) within a closed-loop PSS will provide the incentive for manufacturers to engage in product take-back. Interestingly, under this perspective products become assets to be utilized to the maximum advantage by the manufacturer, and of course lower costs for those assets will help profitability. Design of Products and Services The changed incentives in relation to the management of products at the post-consumer stage may also have a number of implications for the way in which companies approach the design of products and services. To begin with, they will benefit financially by designing products that are easier, and

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therefore generally cheaper, to disassemble, refurbish or recycle after the initial use phase. In addition, manufacturers may be motivated to improve the durability of products in order to realize the maximum amount of revenue through use of the minimum amount of resources. If the lifetime of a product is extended, more potential profit may accrue through an accompanying increase in the sale of ‘functional units’. For example, if a car is leased on a ‘pay per mile’ basis, a more durable and reliable engine will result in a greater overall mileage and thus a greater return on the initial investment. On the other hand, the pay-back time might be longer than is the normal expectation. Within this context concepts such as product modularity and upgradeability may become an increasingly important part of the design process. If individual components or ‘modules’ are regularly repaired, replaced or upgraded as part of an ongoing contract between producer and consumer, the concept of producing entirely new products and disposing of used ones becomes increasingly obsolete. Earlier studies have already alluded to this potential. For instance Garud et al. (2003: 2) assert that modularity facilitates the retention and reuse of system parts, whereas Krikke et al. (2004: 31–3) point to the fact that value recovery from returns is best accomplished in closed-loop supply chains based on modular reuse, because much of the added value of the forward chain is regained while quality upgrades are possible to assure customer value. Moreover the development of mass customization ‘requires modular product designs for cross compatibility of components’ (Krikke et al., 2004: 31). To return to the above example, if a car is designed on the basis of modular principles it is possible that regular technical or aesthetic upgrades could be offered as part of a closed-loop PSS. Moreover if modularity extends to a separation of body and chassis, it is possible that more fuel-efficient, or even alternatively powered, powertrains could be installed in existing models, thus extending vehicle lifetime and environmental performance simultaneously (Williams, 2006).

5.3

DISRUPTIVE INNOVATION

The concept of disruptive innovation (Christensen and Overdorf, 2000) has gained much currency among academic and business circles. There has been much debate and research about the potential of innovative business concepts to exploit markets at the ‘bottom of the pyramid’ (Prahalad and Hart, 2002), and for some the Tata Nano is a good example of precisely such a disruptive innovation (Waeyenberg and Hens, 2008). To date, however, there has been scant consideration of the consequences of strategies to exploit underprivileged markets for the affluent and established

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markets. Hart and Christensen (2002) put forward the idea that (implicitly Western multinational) companies could introduce an innovative and in some respects disruptive product into markets at the bottom of the pyramid and then subsequently seek to bring them to the established and affluent markets, but thus far empirical research appears to have focused on the former rather than the latter. The Nano is potentially rather more disruptive in that it is being produced by a virtual ‘outsider’ to the established automotive industry order. In the disruptive innovation model, there is a progression whereby at first the innovative business introduces a low-cost and low-specification product into an existing market, and then seeks to push further up-market, taking an ever-greater share. At first the established companies may relinquish sales at the low-price, low-margin end of the market, but with time their volume base is eroded and the cherished premium markets are threatened. The Nano is not in itself a particularly ‘environmental’ car although it has reasonable fuel economy. On the other hand it is the product manifestation of an innovative and disruptive business model that could be important for the future of the industry as a whole and for greater sustainability. For example, if Nano is successful itself and also emulated, then the value-for-money segment will expand worldwide, undermining profit margins at many vehicle manufacturers and consequently reducing their ability to fund the technology innovations needed. The Tata Nano The Tata Nano is essentially a conventional if ingenious package: internal combustion engine in an all-steel structural body seating four to five people. Nothing that appears on the Nano is really radical or new – though it is arguable that the execution is (Wells, 2008d, 2009b). The car is slow (0–60 mph/120 kph in about 25 seconds) with a top speed of just 65 mph/140 kph in base form. There is a 30 litre fuel tank. Drum brakes are used at the rear in another cost-saving move, with disc brakes at the front. The Nano is 3.1 metres long, 1.6 metres high and 1.5 metres wide. It uses a 0.65 litre twin-cylinder direct-injection aluminium engine offering 32 hp (24 kW), designed and supplied by Bosch. The car is expected to achieve in the region of 57 mpg (20 km/litre) and meets the Euro 3 emissions standard (now outdated in Europe but still in use elsewhere). The car lacks, as standard in the most basic of the three variants, items considered normal in most markets: air bags, side impact beams, anti-lock brakes, radio, air conditioning, power steering and various other items. The Nano is not a ‘platform’ in that it is not designed to yield multiple body configurations and variants. There is just one body shape and three trim levels. Thus the

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Nano does little to cater for mass customization and the consequent high levels of manufacturing flexibility that are endemic in products designed for the mature and saturated markets (Schuh et al., 2007). A critical part of the programme was therefore that these leading suppliers had to embrace the frugal engineering philosophy propounded by Tata (Connell, 2009). The Nano has always been a bit different. It started out with the Chairman of the company, Ratan Tata, announcing his intention to bring to market in India a car for less than 100 000 rupees (1 lakh) (US$2500). This staggeringly low price was sufficient on its own to generate huge media and consumer interest. The marketing strategy was designed to run in parallel with the manufacturing strategy with the same underlying philosophy: achieving the most for the least. Key points of the marketing strategy outlined on the Tata Nano website (http://www.tatanano) include: ●

●

●

● ● ● ●

●

●

After the 23 March 2009 debut in Mumbai, the Nano officially went on sale for a limited period only: from 9 to 25 April 2009. For a fee of around 300 Rupees (US$6), customers could obtain a booking form to purchase a Nano. The application forms were available at more than 30 000 locations across India via Tata dealerships, the State Bank of India, other preferred finance providers, and outlets of Westside, Croma, ‘World of Titan’ and Tata Indicom. Tata signed agreements with 12 main banks to provide finance for the Nano, which also had the effect of greatly increasing the penetration of the sales network into rural India. Orders could also be submitted online. Tata Motors reportedly expected to earn around Rs300 million (US$6.1 million) from the sale of order forms. 51 000 booking forms were sold in the first three days. Ultimately 610 000 forms were purchased from the booking centres. The booking amount was Rs95 000 for the Nano Standard, Rs120 000 for the mid-range Nano CX model and Rs140 000 for the premium Nano LX model. Actual full prices range from Rs123 000 to Rs185 000 (i.e. nearly 25 per cent more expensive than originally claimed for the base model). The initial 100 000 Nano customers were chosen randomly via a computer system within 60 days of the closure of bookings on 25 April 2009, with the first actual deliveries anticipated in July. In the sale period, there were 203 000 fully paid bookings amounting to nearly Rs25 billion (US$508 million), of which some 70 per cent were financed and 30 per cent paid cash.

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Customers who were not chosen in the initial draw had the option to retain their deposit on which Tata will pay an interest of 8.5 per cent for people who have to wait between one to two years to get their Nano, and 8.75 per cent for over two years. Customers can ask for the deposit back if they wish. The Tata Nano online game (made in conjunction with Zapak Digital Entertainment) had over 1.2 million test drives by the end of April 2009. The www.tatonano website received 30 million hits between the launch of the car and the closure of the booking period. Some 4000 customers booked their cars via the website. Tata reported that some 140 000 people went to dealerships or other Tata outlets to see the car. Bookings were distributed with 20 per cent for the Nano Standard, 30 per cent for the Nano CX and fully 50 per cent for the Nano LX. The Tata Motors communications agency claimed that between showing the car at the Auto Expo in Delhi in January 2008 to the launch in March 2009 more than 50 000 articles were written about the Nano worldwide. Tata has focused on print (especially regional language press to reach a mass audience), radio and the online medium for its campaign and eschewed the usual (but expensive) television commercials. The Tata group has also channelled marketing efforts through for example Tata Sky (satellite television) where new customers can obtain a special 20 per cent discount on their satellite connection by submitting their booking proof for Tata Nano at any authorized dealer. In addition, the Tata group-owned lifestyle retail chain Westside advertised the Nano through text messages to customers.

Getting potential customers to pay for bookings helps raise money but also helps an initial validation of customers. One of the risks for Tata in trying to expand its penetration into the ‘pyramid’ is that poorer customers may have higher rates of delinquency on finance. Tata has clearly seen the importance of reaching beyond the major metropolitan markets to capture more sales in rural India, and has achieved enormous impact compared with the size of the marketing budget. On the other hand because of the problems discussed below, Tata has not yet been able to roll out the ‘open distribution innovation’ manufacturing strategy that was a feature of the original plan (Hagel and Brown, 2008). This curious combination has resulted in the somewhat ironic position whereby the ultimate cheap, mass-produced car is in chronic under-supply (Srivastava, 2009). In 2008 Tata said it spent nearly Rs15 billion (US$338 million) to build

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the Singur factory, 45 miles north of Kolkata. In addition, some 60 suppliers invested an estimated Rs5 billion (US$112.7 million) to locate on the Singur complex. Following violent protests by farmers that their land had been taken, Tata decided to close the plant and move production. In mid-2009 the Nano started being built at the existing Tata Motors’ factory in Pantnagar, at a paltry annual capacity of only 50 000 units. A new factory is being completed in Sanand, in the western state of Gujarat, and is expected to come into production in 2010 and have an annual production rate of 350 000 units. This could be increased to 500 000. Tata said it planned an investment of Rs22 billion (US$453 million) in the new plant while in addition the cost of relocation would be Rs6.5 billion (US$132 million).

5.4

ALTERNATIVE BUSINESS MODELS IN THE AUTOMOTIVE INDUSTRY

We can distinguish several versions of business models in the automotive industry, and it is worth exploring a few of them here to elucidate their similarities and differences. The main models, described in approximate order of ‘distance’ from linear value chains, are: ● ● ● ● ● ● ● ● ●

traditional Fordist production; modern, Toyota Production System; contract assemblers; low-volume specialist assemblers; kit car suppliers; Gordon Murray Design (GMD); Motor Development International (MDI) Air Car; Riversimple; Project Better Place.

Fordism and the TPS In the case of the automotive industry, which has developed over a period of more than 100 years, it can be argued that the emergent business model has not just converged towards a singularity (with the notable exceptions discussed below) but has also atrophied into a formulaic response of decreasing utility compared with the challenges that the industry faces. That said the bare outlines of the vehicle manufacturer business model in the contemporary automotive industry are simple to delineate. The main features are:

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Capital-intensive production processes requiring large investments in plant and equipment, and viable only at high levels of capacity utilization, driven by a continuous search for improved economies of scale. Large production volumes for individual models (and, more recently, platforms) of an essentially standardized format for a period of several years in a system that is fundamentally inflexible both between different types of car and in volume-of-output terms. Centralized manufacturing plants with long logistics lines from often (but not always) dispersed suppliers and to networks of geographically dispersed independent franchised dealerships that sell the product. Revenues largely predicated upon the continued sale of new cars and associated services (particularly finance packages to consumers), with secondary incomes generated by the sale of spare or replacement parts for vehicles in use. High per-unit spending on marketing and advertising to promote the brand and individual models. Subordination of workers to the demands of the production system, most notably in the form of multi-semi-skilling in vehicle assembly.

Of critical importance in understanding this business model is the relationship between three elements: product technology, production technology and business structure. None of these is uniquely determining, but in general terms a process of mutual reinforcement between these three elements is observable. It is insufficient to consider just the technology of the product, or of novel production process (Wells and Orsato, 2005). Rather the transition to sustainability involves the creation of a new business model and hence a new set of product–process–structure relationships. Equally, however, it also means that in various ways innovation in new product technologies may provide an opportunity to redesign the entire edifice. There are many examples of niche projects that have environmentally advantageous characteristics but lack any notable element of a novel business model. This is not to denigrate such projects, particularly as many of them can be understood as highly location specific. That is to say, given the overall thrust of this book and the argument that in order to be sustainable it will often be appropriate for automobility to derive from locality, these niche projects have their own value. Examples include the Tango in California and the Carver in the Netherlands – both of them examples of vehicles that fit between the categories of car and motorcycle. Tango, for example, was designed as a narrow vehicle and as such two could fit into a ‘high occupancy’ lane in California. This sort of design solution is a recognition that typically cars in places like the USA and much of Europe are used as commuter vehicles with one (or at best two) occupants.

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ELVs Vehicle manufacturer R&D; Engine; Body; Materials; Components. Manufacture and assembly

Trade -ins

Distribution (NSC)

Cars Wholesale finance Retail finance Parts

Material + Component suppliers

1st Tier Franchised dealers

Extent of vertical integration (Europe)

Used cars

Parts + SMR

Independent garages Parts

2nd Tier Franchised dealers + Repairers

Extent of vertical integration (US)

Independent component suppliers (aftermarket)

NSC = National Sales Company; SMR = Service, Maintenance, Repair ELV = End-of-Life Vehicle

Figure 5.1

Used cars

1st Customer Cars + Retail finance SMR

The Fordist business model Independent finance + Leasing

Retail finance

T3 Component suppliers

Vehicle manufacturers; R&D; Assembly; Engine T2 Sub-system suppliers

1st Cars Customer SMR

Distribution (NSC)

Cars Wholesale finance Retail finance Parts

T1 Modules + system suppliers Material suppliers R+D capable

‘Approved used’

ELVs Used cars Used cars

Used cars

2nd Customer Used cars

Independent garages

Trade-ins Single-tier franchised dealers

Extent of vertical integration

Note:

For abbreviations see Figure 5.1.

Figure 5.2

The TPS (an extended view)

The difference between the Fordist model and the TPS is essentially one of differing degrees of vertical integration. As has been argued elsewhere, Fordism included the technologies of the all-steel body but also items such as the marketing approach of the annual model change and the provision of customer finance that were innovations associated with GM in the 1920s (Nieuwenhuis and Wells, 2007, 2008). Figures 5.1 and 5.2 illustrate in schematic form the Fordist and TPS business models.

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The business models here give primacy to the vehicle manufacturers themselves as the most important economic actors in the value chain, and portray the value chain as linear and unidirectional. The extended view of the TPS seeks to illustrate that very modest circularity in the value creation system can occur. Contract Assemblers Contract assemblers were vehicle manufacturers but lacked any form of retail and distribution outlet. They could sometimes have a brand that was applied to a car (as in the famous Karmann Ghia VW built between 1955 and 1974), but were essentially rather denuded compared with mainstream vehicle manufacturers. Contract assemblers had developed, over the years, capabilities in whole or part vehicle design and integration as part of the service they would offer to vehicle manufacturers. The amount of manufacturing and assembly undertaken would also vary, but typically a contract assembler would be supplied with vehicle bodies, engines, other running gear and so on as for the mainstream model from which the low-volume variant built by the contract assembler would be derived. Contract assemblers would then press some additional panels, undertake some welding, paint, and then do final assembly of the car. The complete vehicles would then be supplied into the client vehicle manufacturer’s distribution system where it would be delivered and sold in the normal way. Contract assemblers were a way for vehicle manufacturers to achieve lower volumes on specialist models without disruption to the mass flow of their own manufacturing systems, and in this sense were an indicator of lack of flexibility. Since the mid-1990s the opportunities for contract assemblers have dwindled as mainstream vehicle manufacturers improved their flexibility, leading to the demise or near-demise of companies such as Matra Automobile, TWR, Heuliez, Bertone and others. The contract assembler business model is illustrated in Figure 5.3. The interesting feature of this model, however, is that these specialists in low-volume production could be highly suitable for the nascent market in electric vehicles and other alternatives, working for third parties. Low-volume Specialist Assemblers There are several apparently anachronistic and ‘backward’ companies that in the view of many are simply irrelevant to a consideration of the contemporary automotive industry. Some, such as Morgan Motor Company, are worth highlighting for features such as:

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Vehicle manufacturer; R&D; Engine; Chassis; Sub-assemblies

Mainstream high-volume production

Distribution (NSC)

Markets as in Fordism and TPS models

Post-built vehicle + Components

Material + Component suppliers

Contract assembler

Material + Component suppliers

Note:

For abbreviations see Figure 5.1.

Figure 5.3 ●

●

● ● ● ● ●

●

●

The contract assembler business model

A family-owned business that is not driven by a relentless search for short-term profit growth but by an inter-generational approach to the business that accentuates the need for a long-term outlook. An approach to production and the market that always seeks to ensure an under-supply relative to demand, with any excess demand absorbed by greater or lesser waiting times for customers (sometimes measured in years). Production is of the order of 500–600 cars per annum. Subsequently there are high residual values for used Morgan cars. Also as a direct result, there is a long track record of steady employment and profitability going back 100 years in the same locality. A close relationship between the owners of the business and their staff, with the owners directly involved in day-to-day operations. An open approach to the public at large. People are allowed to tour the factory unguided and interact with the workers. An enriched work environment for the workers, in contrast to the high pace and pressure of the normal vehicle manufacturer assembly plant. A very close, often personal relationship with customers, who frequently arrive at the factory to see their cars being built or to pick up the completed vehicle. In addition cars are often highly customized to individual taste, thereby reinforcing the commitment of customers to the brand and, by extension, residual values of the vehicles. Cars that are, despite the performance heritage, surprisingly efficient in environmental terms. In addition Morgan buys in engines and other parts from other companies and thereby benefits from their

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Engines, etc.

VM

Vehicle manufacturer; R&D; Body manufacturer; Assembly; Some SMR

Cars, etc.

1st Customer

Franchised dealers

Used cars

Direct factory sales

Material + Component suppliers

2nd Customer

Finance; Cars; SMR

Cars returned for SMR

1st Customer

Used cars

Independent specialist garage

VM = mainstream high-volume vehicle manufacturer Note:

Use of high-volume parts from mainstream models.

Figure 5.4

● ●

The low-volume specialist vehicle manufacturer business model

economies of scale and the relative ease with which such parts can be serviced. Production processes and materials which are also relatively sustainable. A willingness to embrace radically new technologies to take the company into another era without compromise to the core values of the business, most obviously with the 2008 concept car the LIFECar.

The production process at Morgan is resolutely non-Fordist. There is no moving assembly line; cycle times are measured in the tens of minutes; the workers perform multiple tasks at each station – in many cases using skill, judgement and experience to complete their tasks. Certainly the layout and processes are less than ideal but they are sufficient, stable and viable. Over-investment, either in a new factory or a new model, could mean ‘betting the company’ in a high-risk move that would put at jeopardy the entire business. Hence the approach is to develop a new concept or model, and then ensure by close customer contacts that a sufficient demand exists before committing to production. Figure 5.4 summarizes the business model for low-volume specialist vehicle manufacturers. It is notable that vehicle manufacturers with much larger volumes have sought to emulate features of the low-volume specialist approach, most particularly in terms of customer collection centres. Vehicle manufacturers such as Mercedes, Porsche and Audi have all established such centres alongside their factories, allowing customers to pick up their cars directly while having a tour of the plant, and perhaps other events. Not only does

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this save the vehicle manufacturers money in distribution, it also makes the whole purchase more ‘special’ and helps tie the customer into the brand. A somewhat different variation on this theme is the VW Autostadt experience centre built in 2000 and located at the HQ at Wolfsburg, where customers and tourists can play in a ‘Tellytubbies’ landscape with distinct pavilions offering interpretations of the values of the brands under the VW Group banner. Museums used to be places where vehicle manufacturers might keep old cars, more or less suitably displayed for visitors to peruse a partial history of the brand(s) and technology. However, recent years have seen the emergence of three distinct elements that are being increasingly brought together: the heritage of a brand, the creation of ‘brand experience’ centres and the concept of customer collection of new cars from the factory. Individually, any of these three elements is about enabling vehicle manufacturers to enhance customer loyalty to the brand but collectively the strategy becomes much more powerful. In 2007 BMW inaugurated its new museum, showroom, experience and delivery centre known as BMW Welt, alongside the group headquarters in Munich. With an investment of more than €200 million, the concept of the whole complex is to offer visitors a full experience of the ‘fascination’ of the BMW brand through plant tours, innovative exhibitions, new presentation technologies and new media, thereby replicating the brand’s differentiated features of quality, innovation and power. In contrast the very futuristic Toyota Amlux Auto Salon, situated in Ikebukuro-Tokyo is a rather different approach. With cars spread over six floors, the showroom is one of the largest in the world. Inside this mega-structure, the group’s history is portrayed through exhibitions that range from welfare service vehicles to luxury cars. However, customers are not able to pick up cars from this site, nor is it directly connected to a factory. Rather it operates as a site to portray Toyota to the wider world, and also as a form of ‘listening post’ where information from consumers, critics and citizens in general can be collected. Kit Car Business Model The approach of the kit car manufacturers is one that has been established for many years as a niche activity serving enthusiasts and those interested in motorsport. The business model is shown in Figure 5.5, where it can be seen that the business is very limited in some key respects. In effect the customer ends up adding much of the value by providing the assembly process, though in some instances kit car suppliers will actually assemble a vehicle on behalf of a customer. The resale value of such cars tends to be extremely limited, so there is not much of a business structure

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121 Independent finance Independent garages

Engines, etc.

VM

Vehicle manufacturer; R&D; Body parts

Material + Component suppliers

Note:

Kits or plans

1st Body + Engine Customer

Scrap yards Independent suppliers

For abbreviations see Figure 5.4.

Figure 5.5

The kit car business model

beyond the first sale. Generally these cars use existing components and sub-assemblies from high-volume cars already in production, and these components can be sourced by the customer direct from the appropriate franchised dealers, or donor cars may be bought to supply the parts. Gordon Murray Design Gordon Murray is well known among automotive industry circles, particularly within motorsport, as the former lead designer for the Mercedes-McLaren Formula team. He was also lead designer on the Mercedes-McLaren F1 road car that used Formula 1 racing technology extensively and had a retail price in excess of £750 000. This may appear an inauspicious career history for somebody to develop a radical approach to sustainable automobility, but for Gordon Murray the unique T25 concept provided an opportunity to use his skills and contacts for an entirely different sort of car. The T25 is an interesting design that echoes the minimalism of the Tata Nano, but it comes with an equally innovative business model that seeks to break with the established order (see http:// www.gordonmurraydesign.com/). In brief, with the T25 GMD proposes to license the vehicle and its production system to interested parties (see Figure 5.6). This is intended to offer a faster route to market, and of course means that reliance on the existing vehicle manufacturers can be avoided. The T25 is a lightweight and compact city car with a very small internal combustion engine, and with a

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Vehicle design; R&D; Tooling + process engineering

Franchised assembler Sales + SMR

Approved component + Material supplier

Note:

Cars + Finance

1st Customer

Used cars + SMR requirements

For abbreviations see Figure 5.1.

Figure 5.6

The GMD business model

strong design language that is a long way removed from the ungainly and ugly offerings of many marginal electric vehicle or kit car producers. Underneath the T25 is a design concept called iSTREAM. A key problem to date with developing new technologies for the automotive industry, and in particular for alternative powertrain such as full battery electric and fuel cell vehicles, has been finding a viable route to market when initial volumes are inevitably small. Markets in the automotive industry are in any case becoming more fragmented every year and the model cycle is becoming more compressed. Using traditional high-volume vehicle designs with a pressed and welded all-steel body saves costs but results in heavy vehicles with compromised performance. GMD has approached the problem with an entirely fresh perspective to co-design the vehicle characteristics and the manufacturing process in order to enable a quantum leap in production flexibility. The iSTREAM process shows an order of magnitude less requirement for space, for capital investment and in terms of environmental burden in manufacturing compared with mainstream vehicle manufacturing. Allied to an electric vehicle design the iSTREAM concept offers a rapid route to commercialization, with a great diversity of actual vehicle designs able to be produced. Crucially, viability at low volume provides the business platform for the expansion of the nascent electric vehicle industry. Moreover iSTREAM is available as a complete package that could be adopted by existing vehicle manufacturers, new entrants, major customers that want control over the production of

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their own fleet, or even suppliers that want to move into vehicle production. Using essentially tubular structural components and bonded plastic panels provides the lightweight basis that is required for electric vehicles or high-efficiency, low-CO2 internal combustion engine vehicles – and simultaneously provides the technological basis for low-volume viability and production flexibility. Moreover the iSTREAM concept envisages a split body assembly process, where the chassis is assembled first with all the wiring and so on, and then the body from pre-painted panels is dropped on top. Hence the approach taken by GMD is radically different from that advocated in, say, the 5 Day Car Programme which sought to extract rapid response from an inherently cumbersome production system design. As an entirely new process, the iSTREAM production concept was designed without the constraints of having to fit into the existing manufacturing or distribution systems. It is worth noting that, by virtue of small-scale viability, it is much easier for an iSTREAM production system to be located in close physical proximity to the primary market served and hence obviate the need for extended final product logistics structures that add cost and time delay in getting order fulfilment to market. Furthermore the embedded adaptability of tubular design concepts means that there should be comparatively much more scope to utilize alternative powertrain systems of many different configurations and layouts. Pressed steel vehicles lack this degree of flexibility, particularly around key items such as the floor pan. Notwithstanding attempts to develop concepts such as variable vehicle architectures, which seek to imbue steel welded vehicles with some of the design and production flexibility of alternative body concepts, the product/process design combination of iSTREAM offers an enormous potential for design freedom that cannot be matched by contemporary mass-production systems. A somewhat related evolution has occurred with TH!NK, the electric vehicle manufacturer from Norway that, after years of convoluted and largely unsuccessful attempts to break into the market, in 2009 found business success as a supplier of electric drivetrains in a partnership with lithium battery supplier EnerDel. MDI Air Car This is a project that has been around for a long time (it was first brought to public attention in 1999) and has been discussed before (Wells, 2002, 2008e), but is mentioned again because it keeps on reappearing in one form or another and may yet find commercial expression in the form of, say, vehicles for airports (see http://www.mdi.lu/english/). Technical aspects of the vehicle have been much debated, with some disagreement as

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to the relative environmental merits of using compressed air, or indeed the usefulness of such a source of power on a vehicle. More on the technical details can be found in the sources noted above. MDI is the company formed to bring to market the ideas of the inventor of the compressed air engine, Guy Negre. The business model is the main item of interest here: in particular the ‘Dealer/Manufacturer/Partner’ concept. A key problem for new entrants is often underinvestment, particularly in terms of getting beyond a vehicle design and into actual production and distribution into the market. The MDI approach to resolving this problem is to grant licences to third parties that in effect take on an MDI manufacturing and retail franchise for a defined territory in return for the investment needed to create the factory to serve that territory – for which MDI has designed a standardized or modular factory. The factory concept has 4200 m2 of workshop space; 500 m2 of offices; and 300 m2 of showroom space. On a single shift, with 70 workers, the factory is expected to produce about 2000 vehicles per annum. In terms of operations, the factory would manufacture and assemble engines, car parts, the chassis, and undertake final assembly. The large plastic body panels would be manufactured at the factory as well. In addition the factory would be the point of sales, maintenance, repairs and service (see Figure 5.7). The combination of factory and dealership has secondary advantages in that consumers can have direct contact with the factory, helping consumer confidence while also providing the franchise with revenue streams beyond the sale of new vehicles.

Complete car design

Vehicle design; R&D; Process engineering

Car + Process design

Car + Process design

Vehicle manufacturer 1

Distribution NSC

Markets

Vehicle manufacturer 2

Distribution NSC

Markets

New entrant with MFR business model

Used cars + SMR requirements

Note:

For abbreviations see Figure 5.1.

Figure 5.7

The MDI business model

1st Customer

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MDI makes many claims for its concept, including links with Tata of India and that the vehicles will be proposed for the Paris ‘AutoLib’ concept of zero-emissions car rentals (rather similar to the popular bicycle rental scheme also started in the city a couple of years earlier). To date, however, actual factories and vehicles have not been forthcoming. Riversimple Much about the Riversimple Urban Car is new, innovative and intriguing (Waller, 2008). Both the technologies on the car, and the business model behind it, are a radical break with the past, with the automotive establishment and with conventional thinking about cars. Yet one of the key protagonists behind Riversimple could be considered European automotive industry aristocracy, because he is Sebastian Piech – grandson of the legendary Ferdinand Porsche. The Riversimple Urban Car is a modern technological miracle combining micro-fuel cell with ultra-capacitors, hub motors and a lightweight composite body of just 350 kg. It also spearheads a revolutionary business model with the cars leased their entire 20-year life cycle, with open source design and with a distributed manufacturing concept (see Figure 5.8). As with the Tata Nano, the central philosophy has been frugal engineering. In the case of the Nano, of course, this has meant a conventional design from which all unnecessary adornment has been shorn. In the case of the Riversimple Urban Car it has meant using a tiny fuel cell with ultracapacitors to provide for peak load under acceleration. In the Urban Car minimalism means using the least resources of all types (but especially energy) over the life cycle of the car. For the Riversimple concept success means being there in 20 years’ time when the first models come back to be remanufactured. Indeed in the Riversimple ideal of success, in the long term new car manufacturing actually stops. For Hugo Spowers, the creative force behind Riversimple, the task now Returned materials + Components

Vehicle manufacturer Integration of open source R&D. Assembly + SMR Component + Leased material

Note:

1st Customer

Used cars + SMR requirements

For abbreviations see Figure 5.1.

Figure 5.8

Leased cars

The Riversimple business model

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is to tie his clever new model in with a local hydrogen refuelling infrastructure. This may sound daunting but there are enough ambitious and imaginative city authorities out there to get this concept moving – just look at the rampant success of Project Better Place. The beauty of the concept is precisely that massive production volumes are not needed. For the mainstream industry it may seem a sideshow, a trivial moment. Elements of this were evident in the early business model of TH!NK (Wells and Nieuwenhuis, 1999a) and in the concept of Micro Factory Retailing (Wells and Nieuwenhuis, 1999a, 2000), as well as Indego (Wells, 2005). In mid-2004 the consultants ATKearney announced, in conjunction with ex-Ford of Europe board member Martin Leach (then later at Maserati), the Indego concept (see http://www.indegoconsulting.com/). It was an intellectual experiment in industry design: if it were possible to redesign the contemporary global automotive industry along ideal lines, and without the encumbrances of existing investments, managerial expectations and corporate structures, then what would that industry look like? The claims made of Indego were indeed bold: an operating margin of almost 22 per cent, when 5 per cent is considered good by contemporary standards for the industry. In getting this return the interesting feature of the Indego proposal is that it combines conservative with radical ideas, and thereby aids in risk reduction. The main reasons for the higher returns were said to be: ● ● ● ● ● ●

repeated leasing of the vehicle through the life cycle; product minimalism with ‘good enough’ quality; capture of downstream profits in finance, and so on; hyper-lean production system with high levels of outsourcing in development and production; low-cost, short-life tooling and facilities; direct sales and distribution.

Bluntly the capitalist version of this Indego business model assumes that most of the vehicle will be designed by external suppliers and manufactured in China. Final assembly would take place in the market being served, with four plants envisaged as assembling in the region of 250 000 units per annum. Exterior panels made from plastic and using coloured film would be manufactured locally. One key advantage for new entrants is potentially the ability to create a new market quickly. It is interesting in this regard that Riversimple, for example, has forgone the usual route of technology protection and opted for open source design. The underlying argument is simple: by being fastest to market its technology will become incumbent, no matter what

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the patent situation. Open source design is also a potentially powerful tool for extracting the latest and best in innovations because the contributing community is also potentially very large. The bundling of this business model with a ‘not for profit’ ethical stance gives some comfort to those contributing intellectual property gratis. Project Better Place PBP (now known simply as Better Place) was established in California in 2007 by Shai Agassi, after he left the business software company SAP (http://www.betterplace.com/). By 2008 PBP had already raised US$200 million in venture funding (Williams, 2008) with the intention of setting up Electric Recharge Grids (ERGs) made up of cars, batteries, charging points, battery exchange stations and renewable energy points. In setting up PBP the core idea was to create a new intermediary that, by pushing forward on the infrastructure, would be able to choreograph the multiple entities involved in creating an electric vehicle future. Along with some key intellectual property rights, the important part of PBP is the innovation in business model terms, and especially the idea that consumers would not have to purchase the expensive battery but could pay on a per-mile basis including battery swaps as required (Becker, 2009). In this regard, PBP Peak electricity

Electricity supplier

Returned batteries

Supplier

Infrastructure

Off -peak electricity

Returned batteries

Batteries

Cars VM

Distribution NSC

Cars

PBP EV infrastructure management

Cars + Wholesale finance Retail finance

Cars + Electricity + Leased batteries

Franchised dealer SMR

Used cars + SMR requirements

Note:

For abbreviations see Figure 5.4.

Figure 5.9

The PBP business model

1st

2nd

Customer

Customer

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could also be a variation on the car-sharing approach to mobility (Orsato, 2009) associated with companies like Zipcar (Keegan, 2009). Over the period 2008 and 2009 PBP announced a series of projects around the world including Israel (Lampinen, 2008a, b), Denmark, California (Proctor, 2008c), Hawaii (Proctor, 2008d), Japan (Proctor, 2008e), Australia (Proctor, 2008f) and Canada (Proctor, 2009e). In general terms the approach has been to raise funding, define a partner for energy supply with bulk purchasing to drive down costs, define a suitable area for the infrastructure, partner with a vehicle manufacturer (Renault-Nissan) but keep the design approach embedded in open standards for recharging points and battery swaps, and then develop a pricing structure for consumers. According to Williams (2008, quoting from an unreferenced Deutsche Bank report) customers will not be asked to pay US$10 000 for a battery that at best will last 100 000 miles. Rather, they will be offered long-lease contracts at say 18 000 miles a year at a cost of US$550 (£225) per month – very similar to prevailing leasing rates but with much lower per-mile costs with electric compared with petrol. Who owns the customer is an interesting question in the PBP model, as it appears to have the potential to relegate the status of the vehicle manufacturers. Indeed, PBP has stated that given a sufficiently long contract (say six years) with a customer it can afford to provide the vehicle for nothing. Moreover PBP exhibits a blurring of the boundaries between the public and private sectors in the realm of personal mobility as it requires the coordinated efforts of both to achieve the transition to electric vehicles. All in all PBP is a remarkable demonstration of the power of an innovative business model to change the terms of competition and make possible and practical technologies that were thought to be unviable. Of course many of the initial deployment locations are, in one way or another, conducive to electric vehicles, but the rapid transition to high volume is the key to cost reduction that makes the entire concept viable – including of course the possibility of selling electricity back to the grid.

5.5

HOW ALTERNATIVE? HOW SUSTAINABLE?

The global automotive industry has long been characterized as one with significant barriers to entry and exit, arising from the large investments needed to create new models, establish a manufacturing capacity, and to embed a brand along with a marketing and distribution network. There is also a reasonably long history of attempts to introduce alternative technology vehicles, sometimes within the framework of a conventional business model and sometimes with innovative business models (Orsato et al.,

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2008; Wells, 2008e). Past attempts which are not necessarily defunct but which by 2009 could not claim market success include Ridek, EcoRover, TH!NK, Local Motors, the ElectricBlue car and Indego. Others such as ZAP and Tesla appear to be deploying electric vehicles but in a conventional manner. Producers of the French VSP quadricycle models such as Aixam and Ligier have long held the potential to be producers of alternative electric vehicles, but have somehow failed to make the transition away from small petrol and diesel engines. One interesting aspect of some of the alternative business models in the automotive industry is the potential for a much better fit with strategies to reduce energy consumption elsewhere in the economy and to move towards a greater share of renewable energy production, because battery electric, compressed air or even hydrogen fuel cell vehicles can effectively act as mobile energy storage devices that are recharged when and where the energy is available (Mathews et al., 2009). With companies such as PBP making the transition to an electric vehicle infrastructure possible, the market space may be created for more new entrants and innovative business models. Equally, such developments may undermine efforts to create hydrogen fuel cell vehicles and infrastructures, even though these initiatives continue to be developed. What is more doubtful is whether the failed business model of the mainstream automotive industry will be allowed to wither away rapidly because too many economic interests are dependent upon the continuation of business-as-usual. It is fair to say that the various business models outlined above have differing degrees and qualities to which they may be said to be alternative and sustainable. This too is an indication of the theme of diversity – it is to be expected that myriad business models will emerge into the medium term as companies seek to create that winning formula of product technology, process design and value creation. Ultimately those business models founded on circular value systems can be said to have longevity designed into the business model, and approach the ideal much more closely than those cases that have innovative vehicle technology but offer little new in terms of value creation. It is also significant that any new entrant to the automotive industry must have a product and a business model that allow an initial market to be established, and then be able to protect that market and expand it in the face of competition from other new entrants or from the established vehicle manufacturers. The mainstream vehicle manufacturers are more than willing to buy into new entrants, as Daimler (Mercedes) showed in 2009 in the case of Tesla (Motavalli, 2009), the electric sports car manufacturer. Hence the business model must allow a defensible space in just the same way that patents can defend the underlying technology.

6. 6.1

Enablers and limiters of change INTRODUCTION

Here the main thrust of the discussion is to ask what makes change happen (or as importantly, not happen). This chapter will provide a critique of attempts to rescue the automotive industry during the period from 2008 when the global financial crisis started to make a measurable impact on markets and the industry. In particular measures such as scrapping incentive schemes are criticized on various criteria, but the chapter also highlights the inadequacy of many ‘technology roadmap’ policies that concentrated just on innovative technologies and neglected the business model requirement or local socio-environmental need. This chapter is important because it provides a balance and a more considered view of the prospects for future change. It therefore seeks to ensure against the tendency to exaggerate the scope and pace of change, and the often linear conceptualization of progressive environmentalists that the overall direction of change is to become simply more sustainable. This chapter will take a ‘scenario approach’ with three alternatives presented: creative destruction, managed transition and mutual co-existence. Under creative destruction it is assumed that the collapse of the existing automotive industry and its attendant cultures of automobility will allow the emergence of radically different alternatives. Under managed transition it is assumed that the mainstream practice of reconciling existing (economic) interests with the phased introduction of eco-efficiency and alternative technologies can be achieved. This is the world of the technology roadmap and social partners (Petrick and Echols, 2003), of rationalism and the triumph of science. Under mutual co-existence it is assumed that the old will continue to exist, albeit slowly fading in importance, as the new comes to the fore. The old and the new are in different places: in Detroit and Vancouver respectively for example. More profoundly the new is likely to be centred on Asia rather than the traditional heartlands of the automotive industry. These are not full scenarios in the methodological sense, but rather thumbnail sketches of the circumstances under which change may occur in certain directions and not others. Scenarios are in any event narratives about what might be but not what necessarily will be; they are intended to be

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discrete plausible future states but are also narratives imbued with imagery and evocative description (Booth et al., 2008). Forecasts are primarily useful in conditions of constrained incremental change, whereas scenarios become more relevant for discontinuities. Many concerned with sustainability appear to have implicitly linear and spatially intensive theories of transitions in socio-technical systems, from ‘less sustainable’ and towards ‘more sustainable’. It is very possible that it is necessary to take one step ‘backwards’ (or become in some respects less sustainable) in order to take two steps forwards (or become more sustainable), or indeed that a situation that was previously becoming more sustainable changes for various reasons and starts to become less sustainable (Wells and Faro, 2009). In other words sustainability is socially contested, it is a discourse about the future and it is subject to contradictory forces. Inevitably therefore, sustainability also operates at different spatial scales and means different things in different places. It is also the case that while much effort is put into the evaluation of change, not so much is put into the evaluation of non-change. For example, one can find studies that contemplate the implications of alternative fuel and power systems (MacClean and Lave, 2003), but coverage of the consequences of ten years of light truck sales as a result of weak CAFE rules is hard to find. Interestingly when new car sales fall then the replacement rate of the existing stock also falls. If the stock of cars is, say, 200 million units and new car sales are 10 million units per annum then in simple terms it will take 20 years to replace the stock assuming no overall growth in that stock. This is precisely the problem that has been exposed in the USA following the collapse in markets that started in mid-2007. In the boom times sales were increasingly dominated by large, fuel-inefficient, light trucks in a pattern that skewed fleet CO2 emissions. That distortion will take even longer to eradicate if new car sales continue at about half the previous level. While the US government introduced scrapping incentives somewhat tied to fuel economy (and hence CO2) performance, along with the usual distortion in favour of cars actually built in the USA, it will surely take many years to counterbalance the impact of the previous light truck sales. All of which leads to the conclusion that the degree and direction of change are important, but so too is the pace of change. As was made clear in Chapter 1, there is a palpable sense of running out of time here, and the slower we are to introduce changes now the more drastic those necessary adjustments will have to be in the future – indeed this was the central message of the authoritative Stern Report (Stern, 2006) to the UK government. There has been no shortage of research and official reporting into the

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sustainability of motoring in general and the issue of CO2 emissions in particular. The focus on just CO2 emissions is somewhat unfortunate, as it rather assumes this is the only problem of sustainability faced with respect to cars and their use. On the other hand, it is increasingly apparent that it is the major problem given the growing alarm over greenhouse gases and climate change in which transport is heavily implicated. The UK government, for example, has created a new Department of Energy and Climate Change as a mechanism to assist in meeting an ambitious Carbon Reduction Commitment. The UK Climate Change Act of 2008 provides for legally binding targets to reduce CO2 emissions by 26 per cent by 2020 and by 80 per cent by 2050 against the base year of 1990 (Department of Energy and Climate Change (DECC), 2009). At a global level the focus is increasingly on the attainment of 450 ppm CO2 in the atmosphere by 2050, a level that would probably incur a global temperature rise of around two degrees centigrade – although the scientific understanding of climate change mechanisms continues to develop. In the pre-industrial era concentrations of CO2 in the atmosphere averaged about 280 ppm. The level by 2009 had reached 386 ppm and has been growing at approximately two ppm per annum. The two main proximate reasons why CO2 levels have continued to grow are the failure of the United States to ratify and seek to enforce the Kyoto Protocol and the burgeoning growth of the economy in China. The automotive industry has been able to prevaricate somewhat and to argue that time was required to arrive at suitable technological solutions. It would appear that time has now run out, and a gathering sense of urgency is gripping policy-makers and citizens alike. The climate change debate, in other words, is beginning to escape from the confines of the scientists, the lobby groups and the regulators – and into the wider public realm. In the future this may even result in the acceleration and strengthening of policy, not least because it is beginning to be appreciated that the enormous time lags in atmospheric systems serve to emphasize the importance of alacrity in policy. Furthermore the ongoing economic crisis has rather undermined the case for saying that it is worth sacrificing lower CO2 emissions for further wealth creation. Now it might be the case that even if we as individuals or nations can financially afford higher CO2 emissions, we can no longer justify them. In real automotive industry terms what does 450 ppm mean? It might mean an absolute cap on new car CO2 emissions. It might mean radical downsizing. It might mean an absolute limit on new car sales. It almost certainly means that the growth bonanza anticipated in China, India and elsewhere cannot be realized. A study published in 2009 concluded that as far as the US market was

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concerned, the attainment of 450 ppm by 2050 could not be met by one strategy alone (such as improved fuel economy in cars) but by a combination of strategies (Grimes-Casey et al., 2009), including improved fuel economy, reduced distances travelled and greatly expanded use of second-generation bio-fuels. The target is daunting: the USA needs to reduce carbon emissions per vehicle mile travelled by almost 90 per cent in order to reach the 450 ppm target. Similarly, the 2009 World Energy Outlook prepared by the IEA (part of the OECD) outlined in stark terms just how challenging the attainment of the 450 ppm target is, even though this target already represents something of an admission of defeat. Not least, the IEA concluded that the overall economic cost at a global level would be in the trillions of dollars, while the investment required by producers and consumers in the vehicles sector would be about 8 per cent of anticipated global GDP (IEA, 2009). Equally nation states are engaged in a competitive race to develop the vehicle technologies and infrastructures of the future, with varying degrees of funding and different emphasis. In the UK the government is proposing various measures including a subsidy of up to £5000 for buyers of electric vehicles in 2011. In Germany the government in mid-2009 promised €500 million for electric vehicle infrastructures and technology development with the intention of making the country the biggest ‘electro-mobility’ market in the world. Interestingly this would result in an electric vehicle fleet of just five million units by 2030, compared with about 50 million petrol and diesel cars on the road in 2009.

6.2

THREE SCENARIOS OF TRANSITION

Three scenarios are briefly explored to provide a sense of the scale and degree of potential future divergence. Managed transition embraces a philosophy of damage limitation for economies and societies while seeking to attain new environmental targets. Mutual co-existence envisages traditional practices as a slowly declining ‘rump’ progressively displayed by the new, while creative destruction is a more apocalyptic vision of faster change in which the deadweight of traditional practices is rapidly abandoned in order to enable more sustainable versions to emerge. Mutual Co-existence Mutual co-existence assumes that there can be a space within economic and social systems for both the old and the new in an unproblematic manner. This is the status quo ante, or at least it appeared to be prior to the

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global financial crisis. The idea here is that environmentalism was essentially an optional extra that could be progressively expanded in a suitably incremental and painless manner with a long period of mutual co-existence between the old and the new. This is the world in which Toyota can simultaneously have in its product range the Land Cruiser and the Prius, and for this to appear to be acceptable. In essence, this scenario privileges the notion of consumer choice, albeit one that is both technically informed and somewhat guided by government tax and fiscal policies with a high degree of voluntarism. Hence under this scenario a vehicle manufacturer may have low-carbon and other vehicles co-existing in the market and indeed even under the same brand. Under this scenario government acts to define and facilitate markets, and to provide some regulatory limits alongside modest fiscal or other signals to encourage rather than compel more benign choices by consumers. In no sense is the status of the passenger car questioned, but there is a prevailing assumption that gains in eco-efficiency will generate changes of a sufficient magnitude as to mitigate or ameliorate the worst excesses of the negative costs of automobility. Technological solutions are seen as defined by relative cost compared with existing technology. Typical policies under this scenario would include scrapping incentives more or less tied to environmental targets. For vehicle manufacturers, the prospect of mutual co-existence is appealing because durable productive assets can be retained, as can brand status. It is perhaps illustrative that BMW in 2009 announced the intention of abandoning the F1 motorsport business (where in fact the company had been notably unsuccessful in any case) because it was incompatible with the image of the brand. Co-existence may also occur at the corporate level, with niche electric vehicle producers co-existing with the mainstream vehicle manufacturers. Similar comments could be made with respect to the suppliers to vehicle manufacturers at all levels. A feature of the emergent electric vehicle market is that it is bringing to the fore suppliers that were hitherto marginal to the automotive industry or not in it at all, sometimes in activities that were also previously not required. Examples include Electric Transport Engineering Corp (ETEC; battery fast-charging systems and algorithms); Enova Systems (digital power management systems) and Quantum Fuel Systems Technologies Worldwide (QTWW; fuel cell technologies, metering systems, hybrid systems). One potentially interesting aspect of this scenario is the potential for the European contract vehicle assembly sector to make a substantial contribution. These independent businesses have been present in Europe for decades, and have specialized in assembling the low-volume products of mainstream, high-volume producers. Notable companies here include

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Magna, Heuliez, Karmann, Pininfarina, Bertone, Valmet and Matra. Although described as contract assemblers, many of these companies have the capability to design vehicles, design production systems and tooling, and organize purchasing of components and materials. Though they lack a sales and distribution network, they are otherwise equivalent to mainstream vehicle manufacturers, only on a much smaller scale and usually without expertise in internal combustion engines. Valmet is an interesting example. This company from Finland has a tradition in tractor production, but has for several years produced the Porsche Boxster and more recently the Porsche Cayman. Already contracted to build the Fisker Automotive plug-in hybrid, in mid-2009 Valmet announced that it had agreed with the Finnish energy utility Fortum on collaboration to develop an electric concept car and the related recharging technology. The goal was to introduce a battery-electric concept car at the Geneva Motor Show in March 2010. According to Ilpo Korhonen, President of the company, ‘Valmet Automotive is not introducing its own electric car brand; instead, the idea is to create new solutions as a part of our service offering. By bringing together the experts in the sector, we can develop service packages for OEM customers, packages that range from electric vehicle design and manufacturing to recharging systems.’ Fortum is bringing to the project know-how related to recharging. There is already the basis for a recharging infrastructure in Finland in the form of the country’s network for plugging in engine block heaters in winter, but the widescale adoption of electric cars would require the network to be developed. Valmet in late 2009 further agreed to manufacture the TH!NK electric vehicle. Similarly Heuliez in July 2009 announced the intention to produce its Friendly three-seat battery-electric car, for a European launch in early 2010 at volumes of about 10 000 units per year (Proctor, 2009b), with the vehicle replacing the Opel/Vauxhall Tigra Twin-Top convertible on the Heuliez production line – for which the contract had ended. The Friendly is a compact two-door vehicle whose central driver’s seat is flanked by both passenger seats, positioned slightly to the rear of the driver. It is to be priced at around €15 000 (US$19 000), with a choice of battery packs providing a range of between 80 km and 270 km. The real problem for the contract assemblers is that they have not been able, in general, to develop electric vehicles fast enough to replace the work lost to vehicle manufacturers or the looming spectre of bankruptcy. Karmann had a similar project underway in early 2008 (Murphy, 2008b) but within the year had filed for bankruptcy. Pininfarina may have more success with the BlueCar (Proctor, 2009c) but again has been reported to be in financial difficulties (AutomotiveWorld, 2009d).

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Smaller, more niche firms of electric vehicles include companies such as Tesla, Miles Electric Vehicles, ZAP (Zero Atmospheric Pollution), ZENN (Zero Emission, No Noise) and Fisker; all of which have developed or are developing their own versions of electric vehicles (Connell, 2009). Mutual co-existence also implies the eco-efficiency approach to existing vehicle design, perhaps best exemplified by BMW with the EfficientDynamics programme. In mid-2007 BMW said that the 3-Series model range was to feature EfficientDynamics technology, aimed at improving fuel mileage and cutting emissions. BMW claims fuel efficiency improvements of up to 24 per cent and an emission reduction of 19 per cent, coupled with an increase in power of 21 hp (15 kW) for the new systems. BMW 3-Series variants featuring EfficientDynamics technology went on sale in Germany, the first market, in September 2007. BMW launched EfficientDynamics as part of its facelifted 1-Series and 5-Series model ranges earlier in 2007. The package comprises precision direct injection, automatic start–stop, brake energy regeneration, active aerodynamics, electric power steering, an optimum gear shift indicator and low rolling resistance tyres. In addition diesel-powered variants feature particulate filters as standard equipment. Not all EfficientDynamics measures, however, are to be standard across the entire range, as some features are incompatible with automatic transmission, for example. According to BMW the new 7-Series launched in mid-2008 means the entire BMW range now comes equipped with EfficientDynamics technologies as standard. The BMW 7-Series has its roof, doors, bonnet and side panels all made from aluminium to dovetail with the principle of lightweight engineering as well as other innovative class-leading technology which improves engine performance while cutting fuel consumption and emissions. Brake energy regeneration uses energy generated by braking to charge the battery for the car’s electrical circuit. When the driver is accelerating the alternator disengages so all of the engine’s power is channelled towards the car’s performance. Other ancillaries such as the air-conditioning compressor are also able to disengage to improve the all-round performance of the car. BMW claims that the intelligent use of drivetrain power is why EfficientDynamics technology has helped the 7-Series become a class leader in terms of performance, fuel consumption and emissions. The EfficientDynamics approach does not constitute an explicit subbrand, but is seen as pervading all the models in the entire range. Note that it is not much in terms of environmentalism, but it is consistent both with the prevailing brand image and within itself. Thus while it is hardly sustainability, it is a viable long-term strategy.

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Managed Transition This scenario rests on the possibly optimistic assumption that global collaborative action on issues such as CO2 emissions is possible, and that multiple, diverse interests can be reconciled through rationality and applied science. Importantly this scenario takes as its starting point the matter of transition (Kemp et al., 1998; Struben and Sterman, 2008). It involves multiple parties making more or less synchronous steps such that there is a coevolution of infrastructures, vehicles and supporting frameworks such as legislation and incentives (Melaina, 2003; Struben and Sterman, 2008). These matters have been extensively discussed elsewhere (Pilkington and Dyerson, 2006). It is not sufficiently appreciated, however, that for most established vehicle manufacturers it is also a matter of brand transition because the introduction cost of new (and usually more expensive) automotive technologies needs to be recovered in the market. Hence the ‘greening’ of new cars is not reducible to technology or regulation alone, but involves the degree and pace at which established brands are able to be adapted to changes in values and performance attributes. Typically the managed transition scenario is attained by using planning tools such as the technology roadmap (Petrick and Echols, 2003). A typical example, for the UK case, is that presented by Parker and McGinity (2006), where the authors identify the then-prevalent view that hybrids could offer a low-carbon pathway to fuel cell vehicles. A similar study by the UK industry representative body in 2004 came to broadly similar conclusions (SMMT, 2004). The focus of effort in such roadmaps is inevitably on technology, and hence on the idea that innovations (in this case funded by about £100 million of UK government spending on research) are the answer, almost regardless of the question. Issues such as congestion are to be resolved by more road capacity, while all other environmental problems are the domain of innovation and improved business process. No attempt is made, therefore, to challenge the prevailing orthodoxies of the demand for mobility, or indeed of the business structures that will meet this demand. The technology roadmap ultimately relies upon unproblematic operation of the ‘hidden hand’ of the market to provide profitable and sustainable mobility solutions once the actual technology has been developed. In a curiously naive approach the prevailing assumption behind all these roadmaps, devoid as they are of social and economic content, is that the existing businesses and business models that got us into this mess in the first place will equally be the ones to get us out. A report from the UK Transport Research Laboratory in 2009 followed a similar well-worn path (Avery et al., 2009). The report

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identified the following possible areas of intervention in order to assess the trade-offs concerned: hybrid vehicles; electric vehicles; hydrogen fuel cell vehicles; bio-fuel; material substitution; the ELV Directive; ecodriving; high-occupancy vehicles; car labelling; early scrappage; and road charging. In a provocative recent report by Thomas Becker of the Center for Entrepreneurship and Technology, University of California Berkeley (Becker, 2009) it has been argued that the automotive industry and its partners are now technically ready for electric vehicles and all that is needed is the right commercial approach. This is quite different from the technology-forcing perspective of the roadmap aficionados. The commercial approach advocated as the basis for the forecasts for the growth in the electric vehicle fleet is the use of switchable batteries and charging networks financed by pay-per-mile contracts. The results of the analysis are startling. Even in the baseline scenario, without significant government subsidy for electric vehicles, Becker (2009) forecasts that: ● ●

● ● ● ●

electric vehicles will account for 64 per cent of US light vehicle sales by 2030 and fully 24 per cent of the total fleet in circulation; US oil imports will be 18–38 per cent lower by volume by 2030 than would be expected if internal combustion engine cars took all the sales (even allowing for improvements in fuel efficiency); similarly, the annual US trade deficit attributable to importing oil could be between US$94 and US$266 billion lower by 2030; there is a net employment gain of between 130 000 and 350 000 jobs by 2030; health care cost savings (due to reduced air pollution) of between US$105 billion and US$210 billion; greenhouse gas emissions of between 20 per cent and 69 per cent by 2030 when non-polluting sources of electricity are used compared with 2005 US light vehicle emissions.

These are impressive claims and compelling evidence. Of course it is possible to criticize the assumptions and modelling techniques used, particularly given the low rate of vehicle sales in the USA at the moment which must cast some doubt on the anticipated replacement rates for conventional vehicles, but the outcomes are indicative of the scale and pace of change that might be attained. Indeed it is prospects like this that are encouraging locations around the world to sign agreements with PBP and it is notable that Renault-Nissan for one is getting behind these projects and designing vehicles with switchable battery capability. The more that governments

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are concerned about oil prices and CO2 emissions, the more impetus there will be for these developments. The question is – what do these developments mean for the automotive industry? The essence of the pay-per-mile concept is that it reduces the initial purchase cost for consumers and amortizes those costs over a long time period, thereby making it affordable. The industry, on the other hand, has to take on a bigger share of the risk and sink more capital into the projects. Revenue flows could change substantially, from the almost one-off hit of a vehicle sale to an annual lease-plus-miles revenue stream that per vehicle could continue for many years. In the longer term this scale of electric vehicle adoption could trigger a fundamental change in design priorities towards lightweight, long-life vehicles capable of retrofitting and refreshment. Simultaneously all those assets in conventional vehicle construction and engines are going to look increasingly redundant. These will need to be written off while new assets and capabilities are developed. Particularly given contemporary circumstances it is by no means clear that the automotive industry can actually afford this future. At the regulatory level an interesting possibility under this scenario is a more permissive approach to non-cars, or vehicles that do not sit easily within current regulatory systems. Many authors have pointed to the inefficiency of using a car weighing 1400 kg and designed for five people to convey one person in glorious isolation to their destination. Vehicles outside current categories such as the Carver One (http://www.carver-engineering.com), the Naro (http://www.naro.co.uk/ NewsIndexThruProject.htm) and the Tango (http://www.commutercars. com) are all attempts to combine (more or less convincingly) the benefits of motorcycles and cars. To date such concepts have been conspicuously unsuccessful, but it is hard to deny the logic of the argument that contemporary cars are over-engineered to seat five people, when in daily use they seat only one or two. Creative Destruction Creative destruction envisages a rather more catastrophic process of change where in the eradication of the existing industry creates the space for the emergence of a radically different new industry. The concept of creative destruction has anarchist roots, in that for some the process of radical political and social change necessarily entailed the destruction of the prevailing order. This destruction then creates the ‘space’ for new solutions to emerge, solutions that would not be possible with prevailing socio-economic structures. For non-mainstream

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economists such as Schumpeter (1942) the process of creative destruction is seen as the process whereby radical innovations power long-term economic growth through the displacement of prevailing technologies and practices (McCraw, 2007). While such a process of change may be seen as catastrophically damaging, it is interesting that in the Marxian view of capitalist change periodic crises or phases of destruction are fundamental to the system. Of course Marx saw these phases as the consequence of over-accumulation of capital via over-production, and as presaging the emergence of a post-capitalist society. The sense of the term creative destruction used here is somewhat wider in that it embraces the environmental dimension along with the economic and social. That is, the intention is to go beyond the narrowly business-oriented view of creative destruction adopted in most cases (Nolan and Croson, 1995; Hart and Milstein, 1999). Creative destruction may appear impossible to many observers in the contemporary era, where the hegemony of neo-liberal market systems is manifest. Yet it is also evident that, as the financial crisis of mid-2008 showed, large-scale economic traumas are still both possible and unpredictable. Moreover, as Diamond (2005) argues, it is entirely possible that society is able to envisage disaster, to know the causes of such disaster, to have the means to resolve or avoid disaster, and still fail to take sufficient action. For the automotive industry, then, a fundamental parameter in the creative destruction scenario is probably that the very notion of mobility is no longer given status as a social goal, but is rather seen as a derived demand for which there are many personal and social costs. Moriarty and Honnery (2008) argue that the search for technological solutions to the negative externalities of transport is insupportably optimistic in terms of the scale and pace of improvement that can be achieved. Hence mobility itself and the future of the passenger car as a concept are to be questioned. The central task at a social level is in fact to reduce the need for mobility in all its forms, and in fact to design low mobility into future transport systems. Thereafter the remaining demand for mobility is to be met in very different ways. At a regulatory level this is the most extreme scenario, possibly deriving from a lack of sufficient action in previous policy frameworks that could have curtailed levels of motorization. This scenario is also most likely to unfold in an era of faltering economic growth rates (or indeed where the validity of continued economic growth as measured by the traditional indicators is no longer assured) and of material shortages – most notably of course with respect to petroleum. It might also be argued that the lowmobility future is the most likely scenario, simply because the others are

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improbably grounded on expanding OECD levels of motorization to other countries at a time when resource, economic and climatic constraints are becoming ever-more apparent.

6.3

THE CRISIS AND POLICY RESPONSE

Table 6.1 provides an overview of the impact of the global financial crisis on the major vehicle manufacturers, excluding Chrysler and GM (GM is discussed in more detail further below). Two items are evident. First, virtually every vehicle manufacturer has experienced large financial losses in the face of sales that have collapsed but, secondly, some have fared rather better than others. The table does not include data on vehicle manufacturers based in China and India, but one of the explanations for the relatively robust performance of Hyundai is that declines elsewhere were offset by major gains in these key (and still growing) markets. It is worth bearing in mind that the vehicle manufacturers are but the tip of a very large economic iceberg – if suppliers contribute about 85 per cent of the ex-works value of a car then it is immediately obvious that there will be repercussions throughout the supply chain. Writing in mid-2008, the consultants KPMG concluded that the global industry, throughout the supply chain from materials producers to dealers, faced an unprecedented crisis; and that by then some 25 per cent of suppliers were in trouble already (KPMG, 2008). Inevitably, faced with sales declines of such magnitude, the major vehicle manufacturers have in many respects faced a battle for their own survival. Politicians, mindful of the jobs and wealth generation capacity of this huge industry, have sought to underwrite market failure. The automotive industry has had two main areas of support: consumer incentives to boost sales of new cars (scrapping incentive schemes) and variously described ‘soft loans’ to provide bridge financing, support R&D and help fund other activities such as re-tooling factories. The packages vary enormously from country to country in terms of content, amount of funding, scope, duration and intention, so only a broad summary is attempted here. While the stated intention of the policy agenda is often to help the industry adopt a more environmental agenda, it is no coincidence that these measures were announced in the context of the collapse of new car markets. In addition there has been the complicating factor (particularly in Europe) of filtering the corporate rescue packages through the multiple national interests – the case of GM Europe with operations in Germany, Belgium, Spain, the UK, Switzerland and Sweden being a case in point.

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Table 6.1

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The effect of the crisis on selected vehicle manufacturers: 2009 compared with 2008

Manufacturer

2009 unit sales

2009 revenue

2009 earnings

VW Group

H1 3.121m; down 4.4% on 2008. But Q2 sales up 1.7% on Q1 helped by 29.7% increase in Germany due to scrapping scheme

Down 9.4% to €51.202bn for H1 (from €56.5bn in H1 2008); Automotive division €44.857bn, down 12.3% on H1 2008

Mazda

Q1 181 141 vehicles, down by 43% or 136 612 units from Q1 of fiscal year 2008 (317 753 units)

Q1 44.5% decline in sales revenue to ¥428.22bn (US$4.5bn)

Renault (excluding Nissan)

H1 2009 Group sales 1 106 989 compared with 1 326 164 in H1 2008 (down 16%)

Porsche

Not available

H1 2009 revenues €15.991bn, 23.7% down from the €20.961bn H1 2008 revenue. Revenue from Automobile division sales fell 24.2% to €15.101bn Not available

VW gross profit down 27.2% to €6.445bn, with Automotive division profit down 31.1% at €5.266bn compared with H1 2008. The VW Group generated profit before tax of €803m in H1 2009, down from €3.783bn H1 2008 and net income was €494m (€2.572bn in H1 2008 Operating loss of ¥27.98bn at Mazda for the first quarter of fiscal year 2009, ended 30 June. Net loss for the quarter of ¥21.52bn. Q1 2008 net profit of ¥14.98bn The Group operating loss H1 2009 was €946m, against a profit of €845m in H1 2008. Net income H1 2008 was €1581m, fell to loss of €2712m H1 2009

Nissan

Sold 723 000 vehicles Q1 2009, down 22% on Q1 2008

Net revenue fell 35% to ¥1.51tr in Q1 2009 compared with Q1 2008

Predicted pre-tax loss of up to €5bn (US$7m) 2009 fiscal year. Previous 2008 fiscal year profit of €8.6bn A massive 85.5% drop in operating income, which fell from ¥79.94bn in Q1 FY

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143

(continued)

Manufacturer

2009 unit sales

PSA Peugeot Citroen

20% drop in sales volume H1 2009 over H1 2008

Daimler AG

Car division posted sales of 287 243 units in Q2 2009 (353 976 units in Q2 2008) or down 18.7%

Mitsubishi Motors

Q1 FY 2009 down 213 000 units, a 32% decrease (101 000 units) on Q1 FY 2008

Honda

Automobile unit sales FY Q4 2009 680 000 units compared with FY Q4 2008 1 051 000 units (down 35%)

2009 revenue

Revenue for H1 2009 fell 21.8% to €23.497bn. Automobile division revenue fell 19.8% to €18.658bn. New car revenue dropped 22.6% to €13.797m Group revenues down by 25% Q2 2009 to €19.61bn compared with €26bn in Q2 of 2008. Mercedes Benz Cars revenue down 18% Q2 2009 to €10.57bn Revenue of ¥259.1bn Q1 FY 2009 or 57.5% down on Q1 2008, a fall of ¥351.0bn

Consolidated revenue Q1 FY 2010 ¥2002.2bn, down 30.2% from the ¥2867.2bn Q1 FY 2009

2009 earnings 2008 to ¥11.6bn in Q1 FY 2009. Resulted in a net loss of ¥16.53bn (US$174.47m) Q1 FY 2009 Operating loss of €826m (US$1.16bn) for H1 2009 compared with profit of €1.115bn H1 2008

Group Q2 2009 net loss of €1.06bn (US$1.49bn), from net profit of €1.39bn Q2 2008. Mercedes Benz Cars loss of €340m

Operating loss of ¥29.6bn in Q1 FY 2009, a ¥39.5bn reversal from the operating profit of ¥9.9bn Q1 2008. The net loss was ¥26.4bn Q1 2009 compared with profit of ¥10.3bn Q1 2008 Net income loss of ¥186bn FY Q4 2009, compared with profit of ¥14bn FY Q4 2008

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(continued)

Manufacturer

2009 unit sales

2009 revenue

2009 earnings

Jaguar Land Rover

Not available

Not available

Ford

Vehicle wholesales Q2 2009 fell to 1 172 000 units, compared with 1 562 000 units Q2 2008

Revenue fell from US$38.27bn Q2 2008 to US$27.19bn Q1 2009. Automotive revenues fell to US$23.99bn (US$34.23bn in Q2 2008)

Volvo

Q2 2008 107 000 units fell to 79 000 in Q2 2009

Sales revenue of US$2.9bn (US$4.3bn in Q2 2008)

Jaguar Land Rover posted a net loss of £673.4m (US$1.1bn) for its core UK operations in 2008, compared with a net profit of £641.5m in 2007. Tata Motors said Jaguar/Land Rover lost £306m ($504m) FY ending March 2009 Net income Q2 2009 US$2.26bn, compared with net loss of US$8.7bn Q2 2008. Gained in Q2 from a special items net gain, totalling US$2.8bn, which includes a US$3.4bn gain with regard to debt reduction actions at Ford and Ford Credit Pre-tax loss widened, from US$120m Q2 2008 to US$231m Q2 2009

Hyundai

A 5.8% decline in sales volume in H1 2009, down to 1 403 931 vehicles

Fiat

Unit sales of 591 100 vehicles, down 8.3% on Q2 2008

Sales revenue down 18.4% H1 2009 to Won 14.11tr, compared with sales revenue totalling Won 17.3tr H1 2008 Group sales revenue for Q2 2009 fell 22.5% or €4bn to €13.18bn compared with

Net profit H1 2009 Won 1.04tr (US$830.95m). Up from Won 940bn H1 2008

Q2 2009 Fiat Group net loss of €179m (US$254.43m), from net profit of €646m Q2 2008. Group operating

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Table 6.1

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(continued)

Manufacturer

2009 unit sales

Toyota

Not available

BMW

In total, 615 454 BMW, MINI and RollsRoyce cars sold in H1 2009, down 19.5% (H1 2008 764 874)

2009 revenue

2009 earnings

€17.02bn in Q2 2008. Automobiles sales revenues fell 11.7% to €7.43bn (€8.41bn in Q2 2008)

profit fell from €1.13bn in Q2 of 2008 to just €158m Q2 2009. Automobiles trading profit of €227m (US$360m) Q2 2009 Net income decreased from ¥1.72tr profit FY 2007/08 to loss of ¥437 bn FY2008/09

Net revenues FY 2008/09 total of ¥20.53tr, down 21.9% on FY 2007/08 Revenues of the Automobiles segment H1 €20 432m (H1 2008 €25 916m)

EBIT loss of €282m H1 2008 compared with EBIT profit of €1,014m H1 2008. Pre-tax loss of €629m H1 2009 compared with H1 2008 profit of €864m

Notes: FY = Fiscal Year, usually starting 1 April; hence FY 2009 starts April 2009 except Honda whose financial year 2010 starts June 2009; Q1 = first quarter, Q2 = second quarter; H1 = first half. Excludes Chrysler and GM, both of which were bankrupt at the time of writing. Source:

http://www.automotiveworld.com and corporate website financial press releases.

Corporate Rescues Attempts at corporate rescue by national governments are of course nothing new, as the long history of MG Rover adequately demonstrates (Bailey, 2003). The sagas of Chrysler and GM are both worthy of a book in their own right and again no attempt is made here to provide complete coverage of events, which are in any case unresolved. In terms of timing the rescue of these two companies was further complicated by the presidential election process culminating in November 2008. In practice the incoming President Obama took a firmer line with the restructuring of both companies than was perhaps initially anticipated. As Table 6.2 illustrates, GM, Ford and Chrysler were unable to reduce capacity in line with demand as the market collapsed around them from

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Table 6.2

Item

Capacity utilization at the major vehicle manufacturers in North America, selected years Year

GM

Ford

Chrysler

Honda

Toyota

Total

Production 2008 (Units) 2007 2003

3 244 268 4 062 486 5 303 414

2 121 119 2 663 646 3 708 167

1 864 861 2 469 711 2 579 320

1 421 427 1 449 599 1 259 169

1 092 390 9 744 065 1 274 378 11 919 820 12 850 070 –

Capacity (Units)

2008 2007 2003

5 257 250 5 490 000 6 161 000

3 302 000 3 482 000 4 425 000

3 073 500 2 798 000 2 943 000

1 470 000 1 400 000 1 220 000

1 380 000 14 482 750 1 320 000 14 490 000 14 749 000 –

Utilization 2008 (%) 2007 2003

62 74 86

64 76 84

61 79 88

97 104 103

79 97 –

Note: In 2003 Chrysler was part of DaimlerChrysler Group and the figures include the Mercedes Benz Tuscaloosa plant; data do not include joint venture plants. Source:

Kahl, 2009a.

2007 onward, but also these companies actually had a much more deepseated structural problem with respect to over-capacity. Table 6.2 illustrates capacity utilization based on a standardized twoshift format. Hence it is possible for capacity utilization to exceed the nominal capacity through extra shift working, and sometimes by increasing throughput rates to a level greater than the nominal capacity. It is generally held in the industry that break-even should occur at about 85 per cent capacity utilization, although VW famously in the 1990s was unable to make Wolfsburg profitable even when capacity utilization was over 100 per cent. In any event Table 6.2 is illustrative of the structural problem that the Obama regime wanted to be addressed at GM, namely that the business model had at least to work on the assumption of a much lower market share, in a market of only ten million units. The response elsewhere has not been uniform. For example in Europe the UK government offered a modest rescue package to Jaguar Land Rover (by then owned by Tata Group of India) but in the end this was refused as being too onerous by Tata Group, which organized its own rescue package with largely Indian funding. With the other European vehicle manufacturers most of the rescue efforts concern obtaining shortterm funding underwritten by the European Investment Bank. On 1 June 2009 it was announced that the ‘New GM’ had been formed, transferring the global assets of the bankrupt old GM. It was claimed in the press release that:

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The New GM will execute the key elements of its April 27 viability plan, along with additional initiatives, to achieve winning financial results by putting customers first, concentrating on adding to the company’s line of award-winning cars and trucks through four core brands and continuing to invest in green, energy-saving technologies. (GM, 2009)

The New GM, it was claimed, would: ●

● ● ●

●

● ●

focus on four core brands in the USA – Chevrolet, Cadillac, Buick and GMC – with fewer brands and a more competitive level of marketing support per brand; effectively close the competitive gap in active worker labour costs compared with transplant auto manufacturers; more efficiently utilize US capacity while increasing over time the percentage of US sales manufactured domestically; feature lower structural costs enabling its North American region to break even (on an adjusted EBIT basis) at a US total industry volume of approximately 10 million vehicles. This rate is substantially below the 15 to 17 million annual vehicle sales rates recorded from 1995 to the end of 2007; achieve its lower structural costs in part by further reducing 2009 salaried employment in North America from its year-end total of 35 100 to approximately 27 200, and continue to improve its balance sheet by reducing retiree benefits for salaried retirees and nonUnited Auto Workers (UAW) hourly retirees; provide a higher level of customer service through a more focused US network of approximately 3600 dealers; continue and increase its investment and leadership in fuel economy and advanced propulsion technologies.

In the process the New GM had a radically revised capital structure. At the end of March 2009 GM reported consolidated debt of US$54.4 billion, along with additional liabilities, including an estimated US$20 billion obligation to the UAW Voluntary Employee Beneficiary Association (VEBA). Under GM’s agreements with the US Treasury, the Canadian and Ontario governments, and the UAW and CAW, and with the support of a substantial portion of GM’s unsecured bondholders, upon closing of GM’s sale of assets to the New GM, the New GM’s capital structure will comprise: ● ●

approximately US$17 billion in total consolidated debt; US$6.7 billion of debt owed to the US Treasury;

148 ● ● ● ●

●

●

●

The automotive industry in an era of eco-austerity

US$1.3 billion of debt owed to the Canadian and Ontario governments; US$2.5 billion of notes issued to the New VEBA; approximately US$6.8 billion of other, primarily international debt, but excluding Europe; US$9 billion of perpetual preferred stock with a 9 per cent annual dividend, payable quarterly in cash, US$2.1 billion of which will be issued to the US Treasury, US$0.4 billion of which will be issued to the Canadian and Ontario governments and US$6.5 billion of which will be issued to the New VEBA; common equity, 60.8 per cent of which will be owned by the US Treasury, 11.7 per cent of which will be owned by the Canadian and Ontario governments, 17.5 per cent of which will be owned by the New VEBA, and 10 per cent of which has been reserved for GM for the benefit of the unsecured bondholders and other unsecured creditors of GM; warrants granted to the New VEBA to acquire newly issued shares in the New GM equal to 2.5 per cent of its outstanding common equity; warrants granted to GM at closing to acquire newly issued shares in the New GM equal to 15 per cent of its outstanding common equity, with various exercise prices and expirations.

In effect, GM was nationalized in order to ensure its survival, but at a large cost to the public purse. Scrapping Incentive Schemes There has been much debate about the use of scrapping incentives to stimulate the market for new cars around the world, but the industry has lobbied hard and governments have fallen into line one way or another. Environmentalists have mounted strong critiques, pointing to marginal benefits at the cost of unnecessary waste. Economists have doubted the effectiveness of these measures, both for the industry itself and in terms of stimulating renewed growth. According to Proctor (2008b) the UK RAC Foundation advocated the use of schemes to encourage scrapping of older vehicles but with carefully controlled provisions. The RAC Foundation argued that the ideal vehicle age would be 17–18 years, as this cohort contained the last of the cars sold without catalysts. Interestingly the RAC Foundation also argued that the incentive scheme need not be linked to consumers buying a new car because the effect of the scheme would ripple up through the

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market. Indeed this is a highly pertinent observation. Most new cars are traded after three or four years, and may be sold perhaps four or five times over their useful lives. Those owning very old cars are not generally in a position to replace them with new ones, even if some incentive is provided. In practice government-sponsored scrapping schemes have combined all the worst features possible. They have been applied to relatively young vehicles (typically ten years old or more), and on the basis that the incentive is only ‘earned’ when the consumer replaces the scrapped car with a new one. Reviews of the economic and environmental merits of the schemes are mixed at best (Murphy, 2009). The UK scheme, launched in April 2009 with £300 million of government funding, pledged by way of support to allow a subsidy of £2000 per vehicle (half of which came from the vehicle manufacturer) and was claimed by 2 August 2009 to have been used in 154 927 orders and that: The figures show the average tailpipe CO2 figure for a scrapped car is at least 179 g/km, compared to a much lower 134 g/km average for cars bought through the scheme. This means a reduction of 45 g/km, which amounts to almost 70 g/km when fuel and vehicle production emissions are taken into account. (WhatGreenCar, 2009)

Telling customers that their most expensive purchases after their houses are scrap after only ten years is a terrible message that completely belies the huge strides in quality and product longevity that the industry has collectively made. It is scant compensation that a greater proportion of the average car can be recycled than used to be the case. This message tells customers that cars really are a throw-away commodity, and undermines all that vehicle manufacturers have expensively wrought in terms of brand identity and core brand values. Customers take to incentives very easily but they are addictive. If such incentives simply act to pull forward demand, it is evident that demand will collapse at the end of the incentives programme. In other words this is a multi-billion dollar gamble that the global financial recession will be short-lived and new car sales will resume as ‘business as usual’. Scrapping incentives thereby represent a negative redistribution of wealth from the bulk of taxpayers to the few that can afford to buy new cars. The schemes also distort the market, making used car prices artificially high while removing valuable work from those garages that maintain older cars. The schemes stimulate sales, that much is clear. On the other hand, the sales tend to be of the low-value, low-margin models that are the least profitable for vehicle manufacturers. For many of the more specialist

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vehicle manufacturers such as BMW, Volvo and Mercedes these schemes are virtually irrelevant and hence constitute a distorting subsidy to their high-volume competitors. Ultimately the main concern is of course that when the subsidies end, the market will collapse once again – only this time with even more vengeance (Kahl, 2009b). The US government Car Allowance Rebate System (CARS), also known as ‘Cash for Clunkers’, officially started on 27 July 2009 with the intention to run until 1 November 2009 or earlier if the US$1 billion funding ran out. In the US scheme vehicles had to be less than 25 years old on the trade-in date and be registered and insured continuously for the full year preceding the trade-in. New cars were required to have combined highway and city fuel economy of at least 22 mpg to qualify while smaller light trucks needed combined fuel economy of at least 18 mpg. New vehicles were required to have a suggested retail price of no more than US$45 000. Consumers were offered up to US$4500 towards the purchase price of the car. In the UK the vehicle manufacturer contribution of 50 per cent of the incentive (i.e. £1000 out of the minimum £2000) was effectively compulsory. This was not the case in the USA but many vehicle manufacturers did anyway seek to match the funding from government. In the USA the scheme ran out of money after just one week. The US Senate approved by a 60–37 majority on 6 August 2009 a US$2 billion extension of the programme, after the initial US$1 billion of funding approved in June had generated more than US$920 million in rebates and more than 220 000 new vehicle sales. The scheme was officially closed on 24 August; as of 20 August 2009 it had recorded 457 000 dealer transactions worth US$1.9 billion in rebates and the full US$3 billion was expected to be exhausted by 24 August 2009. Inevitably many US car dealers had, rather than give up discounts altogether and face a market collapse, started their own scheme called the Auto Stimulus Plan, proving just how addictive such discounts are.

6.4

MARKETS AND THE SCOPE FOR CHANGE

Consumers: Green Consumption and the Automotive Industry The prevalence and significance of green consumers has excited much debate in a great many industry circles, but the evidence suggests that there is a substantial body of such consumers in most established markets around the world. Whether such consumers are a feature of wealthy economies is also a matter of some conjecture. Some analysts maintain that with more stringent economic conditions the green consumer will

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disappear because such consumption is a luxury choice. Still, in many areas including food, clothing and footwear, investment trusts, furniture, paper, cosmetics, energy and tourism there is a representation by green brands of one sort or another. Inevitably there is overlap and confusion between such issues as environmental performance, corporate ethics and organic production. Further confusion, for consumers, may be introduced in the form of concepts such as product stewardship or environmental product declarations, along with a great many certification and standards schemes. In the realm of food production for example, how many consumers know what standards the UK Soil Association demands for organic accreditation? A second issue of great interest to the automotive industry is the question of whether there is a ‘green premium’ or higher price that can be charged for products that appeal to green consumers. Of course this idea rather assumes that there is a higher cost associated with green products (for the manufacturer) when actually that is often not the case, but still the idea is attractive because it might mean higher margins. For some products, at least in the short term, there would appear to be an extra margin for green consumers to pay but this is probably temporary. Thus far there has been inadequate theorization or understanding of elite consumers within the wider project of the transition to sustainability (Boykoff and Goodman, 2009) although they may offer some prospect of early adopters being willing to pay extra for innovative and environmentally friendly technology. If the ‘celebrity’ factor is also counted, as seemed important in the early market for the Toyota Prius for example (whose list of celebrity owners includes Kate Bosworth, James Rousseau, Jessica Alba, Owen Wilson, Jennifer Aniston and Danny De Vito), there may be a specific group of consumers that can be considered individuals with a substantial public profile (who lend visibility to the products and services they consume), with high net wealth (giving them the ability to buy advanced alternative vehicles outside the price range of normal consumers) and who are also ‘environmentally aware’ – a term that is defined loosely in this context but which expresses the desire to consume products that either have a positive environmental impact or create the impression that that individual is making a contribution to the environmental debate. Green consumers, however, reflect a deeper trend of great significance to vehicle manufacturers, that of increasing sophistication and knowledge among purchasers. Green consumers who have taken the trouble to organize their electricity supply to be provided by a low-carbon supplier and who select organic vegetables at the supermarket, or who go by train rather than fly to their holiday destination, are simply more likely to be

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educated and to take care over their car purchase decision. These consumers are also more likely to be in the higher income brackets, and hence to purchase new cars. These are the green consumers who will be motivated by green branding. It is important to remember that in many markets the buyers of new cars are not private individuals but, in one way or another, may be considered corporate. As such these corporate buyers are often better informed and more professional in their purchasing compared with private buyers and increasingly are seeking to meet wider corporate agendas to reduce environmental impact. It is for these reasons that the UK government introduced a taxation system for company cars based on CO2 emissions that, in simple terms, means that drivers of company cars pay a higher annual tax burden calculated on the basis of the monetary value of the car and its CO2 emissions. According to some analysts involved in green branding of consumer goods (such as www.trendwatching.com in its recent report ‘Eco-iconic’ (2008)) the issue of green consumption is becoming mainstream. The key issue as far as they are concerned is that products actually show they are green through their distinct appearance. The claim is that in general products have made a progression in the following manner: ● ● ●

eco-ugly: early products that were ugly, over-priced, low-performance, unsavoury yet eco-friendly versions of the ‘real thing’; eco-chic: eco-friendly products that actually look ‘as nice and cool as’ the less sustainable originals; eco-iconic: eco-friendly goods and services sporting bold, iconic markers and design, helping their eco-conscious owners show off their eco-credentials to their peers.

This transition is seen as a matter of status. Consumers are increasingly wishing to communicate that they have adopted (more) sustainable lifestyles through the products and services they use: hence the significance of products that overtly communicate their ‘greenness’ to the outside world, and by extension the significance of green branding. In their analysis it is vital to distance the new (greener) product from the existing (unsustainable) product. This, they contend, has been an important element in the success of the Toyota Prius: it looks different, and therefore makes a statement. In the UK Saab sponsored research into the question of green consumption (in a report titled ‘ECO-nomics’ (GM Europe, 2007)). While perhaps lacking the rigour associated with academic research, it is interesting to note the findings:

Enablers and limiters of change ● ● ● ● ● ● ● ●

153

60 per cent of the British population are ‘going green’ in a bid to save future generations; a significant minority (10 per cent) are motivated to green consumption choices by the desire to look good in front of their peers; but 39 per cent are not prepared to pay extra to be green; 41 per cent think that more green products should be available; 79 per cent think that there should be government incentives to help consumers make green choices; 78 per cent thought that there should be tax breaks for greener cars; changes to consumption in favour of more sustainable options are being led by women; Fully 39 per cent of British consumers thought that they had insufficient knowledge to make green car purchasing decisions, and a broadly similar proportion did not know anything about bio-fuels or hybrid cars.

There are a surprising number of green rating systems available to consumers in key markets but space precludes a full review here. They range widely, for example in terms of how ‘scientific’ they are or how comprehensive is the treatment of environmental issues. However, an overview gives a good basis for the reasons why vehicle manufacturers – or at least some of them – might be worried. Table 6.3 provides a summary of the systems. The most simple system in Table 6.3 is based only on fuel economy figures as obtained via the official Type Approval process, but it is relevant because it is the sort of source of information that consumers might refer to when making buying decisions. All the others have varying degrees of sophistication and, importantly, varying degrees to which fuel economy per se makes a substantive difference to the final score any one car achieves. For example, the Environmental Transport Association includes in its methodology a statistical combination of power, CO2 emissions, fuel economy (urban cold cycle), noise and safety (impact on pedestrians). It is evident that there is some, but not much, unanimity about what constitutes a green car. In part this is due to the methodology issues noted above or indeed to differences in the Type Approval regimes upon which most of the measures are based. It is also a question of priorities and acceptance. For example, the US systems tend to penalize diesel for the high levels of particulates and NOx: a position that reflects the regulatory stance taken there. The significance in terms of this report is that these environmental rating systems are becoming established as one of the tools that consumers might have recourse to when choosing vehicles. Moreover in the longer

154

Table 6.3

The automotive industry in an era of eco-austerity

Green rating systems: the key examples (2009)

System

Source and country

Main features

Green car examples

CAIR

Academic; UK/ EU

Weighting used to create index combines ‘footprint’ and ‘performance’ measures

WhatGreenCar

Private company; UK/ EU

VCD

Transport association NGO; Germany /EU

Life cycle environmental impact index out of 100 Weighting used to create score out of 10 derived from several factors

Smart ForTwo; Daihatsu Charade; Citroen C1 (and Toyota and Peugeot models on same platform); Chevrolet Matiz; Hyundai Amica Reva G-Wiz electric; Citroen C1; Toyota Prius (hybrid)

EPA

Government agency; USA

Air pollution and fuel economy score out of 10, adjusted for e.g. E85 and LPG

ETA

Transport association NGO; UK

Five factors used to create index

Green Vehicle Guide

Government; Australia

Air pollution and fuel economy score out of 20, divided into segments

Honda Civic (hybrid); Toyota Prius (hybrid); Citroen C1 (and Toyota and Peugeot models on same platform); Daihatsu Cuore; Daihatsu Trevis Toyota Prius (hybrid); Honda Civic (hybrid); Nissan Altima (hybrid); Toyota Camry (hybrid); Ford Escape (hybrid) Honda Civic (hybrid); Vauxhall Corsa diesel; Toyota Yaris diesel; Honda Civic four door (hybrid); Honda Civic diesel Toyota Prius; Fiat Punto; Citroen C3; Honda Civic; Mercedes B200

Enablers and limiters of change

Table 6.3

155

(continued)

System

Source and country

Main features

Green car examples

ACEEE

Not-for-profit environmental organization; USA

Index divided into segments and emissions categories

Carpages

Private company; UK

Purely fuel economy

Toyota Prius (hybrid); Honda Civic (hybrid); Smart ForTwo; Ford Escape (hybrid); Chevrolet Tahoe (hybrid) Seat Ibiza TDI diesel; VW Polo TDI diesel; MINI D diesel; Toyota Prius (hybrid); MINI Clubman D diesel

Notes: VCD = Verkehrsclub Deutschland; E85 = ethanol/petrol blend of 85% ethanol; ACEEE = American Council for an Energy-Efficient Economy. Sources: www.clifford-thames.com/main.aspx?PageID=78; www.greenvehicleguide. gov.au; www.whatgreencar.com/emissions; www.carpages.co.uk; www.vcd.org; http:// Greenercars.org; www.epa.gov/greenvehicle; www.eta.co.uk/car_buyers_guide.

term such systems might become the basis of a stronger regulatory or fiscal stance adopted by governments with respect to cars. The sheer multiplicity of such systems must be a concern for vehicle manufacturers because it means there is scant agreement over measurement and also of course that consumers are getting rather mixed messages. It is also illustrative of another important feature of emergent market conditions: that the car with the ‘best’ environmental performance in one market may not achieve the same ranking in another because the priorities and concerns are different. Vehicle manufacturers may complain about this differentiation, but actually there is a good grounding for the notion that environmental optimization means different things in different places. An indication of the likely future direction is that in California, from the start of 2009, new vehicles will have to display window labels that rate environmental performance on a scale of 1 to 10. A score of 1 indicates a poor environmental performance in terms of global warming and smog; a scale will be displayed for each of these parameters. The average vehicle will score a 5 in each category, with consumers encouraged to purchase vehicles with higher scores. The measure is part of the overall strategy to

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reduce CO2 emissions from vehicles by 30 per cent by 2016. In addition, in December 2007 the US Congress passed a bill authorizing the EPA to create a rating system that would allow consumers to identify the vehicles with the lowest CO2 emissions figures (as shown in the discussion above on environmental rating systems). Industry: Green Marketing The automotive industry is of course no stranger to brand management. At issue here is whether the industry is able to adopt green marketing in order to accelerate the purchase rate of more environmentally friendly vehicles. Aaker (1995) describes a brand as a mental box into which a consumer places signs, symbols, promises, pledges of satisfaction and quality. He defines brand equity as a set of assets (or liabilities) linked to a brand’s name and symbol that adds to (or subtracts from) the value provided by a product or service. Note the potential for negative brand associations. Following on from this metaphor and logic, we could define a ‘sub-brand’ as a smaller mental box, which has its own attributes, which can be placed within the larger box. It goes further than a trade-mark and is more than just a logo or graphic. It comprises a whole range of mental imagery and product orientation that manufacturers work hard to create through marketing campaigns that need to be in alignment with product attributes. The mainstream position for those that do have a strategy is to develop a sub-brand that designates a ‘high efficiency’ variant in the model range. This is the purpose of sub-brands such as EcoFlex (Opel and Vauxhall), ECOnetic (Ford), BlueMotion (VW) and Blue Efficiency (Mercedes). The precise technological package by which the high-efficiency model is arrived at varies, but will typically include a low-power engine management setup, some weight reduction (either by reducing the content or substituting steel with aluminium or plastic), aerodynamic improvements, a lower ride height, low-rolling resistance tyres, low-friction engine and transmission oil, and stop–start systems. Grant (2008) describes a green brand as one that offers a significant ecoadvantage over the incumbents and which hence appeals to those who are willing to make green a high priority. Table 6.4 provides a summary of the Ford ECOnetic range in the UK as of March 2009 against some comparison models in the range having the highest emissions and/or upper and lower price limits. Note that at the time Table 6.4 was compiled, Ford did not have an ECOnetic variant for the Ka, the Fusion, the Focus four door, the Mondeo four door, the C-Max, the S-Max or the Galaxy models. As Table 6.4 illustrates in the case of the Fiesta three-door model, to buy the low-CO2 emissions version would cost about £3000, or 30 per cent more than the

Enablers and limiters of change

Table 6.4

The Ford ECOnetic Fiesta three door in the UK, 2009

Variant

Fuel

1.6 TDCi ECOnetic 1.25i 60 Studio 1.6 TDCi Titanium 1.4 TDCi Studio 1.6 Ti-VCT Zetec S

Diesel Petrol Diesel Diesel Petrol

Source:

157

List price (£)

CO2 emissions (g/km)

12 445 9 195 13 695 9 981 13 095

98 128 110 110 139

Derived from Autocar, 25 March 2009.

entry-level model, or nearly as much as the high-performance, high-CO2 emissions variants. The ECOnetic variant offers 23 per cent lower CO2 emissions in g/km compared with the cheapest model, and 29 per cent lower than the highest CO2 emissions variant. The gains in CO2 emissions are much less dramatic compared with the other diesel engines in the range, and as shown in Table 6.4 the cheapest diesel is about £2500 (or 20 per cent) less than the ECOnetic while the CO2 emissions are only about 11 per cent lower. Renault took a somewhat different approach with the ECO2 subbranding, adopted in mid-2007, in that the company has sought a means to express the ‘Whole Life Cycle’ concept within one relatively simple brand message, and then to apply that message to whichever vehicles within the range can meet the criteria. According to Renault its ECO2 vehicles will meet three global environmental criteria: ● ●

●

be manufactured in an ISO 14001-certified production plant; have CO2 emissions lower than or equal to 140 g/km or capable of running on E85 ethanol or B30 bio-diesel (equivalent to fuel consumption of 5.3 litres/100 km for diesel and 5.9 litres/100 km for petrol engines); designed to be 95 per cent reusable by weight at the end of their lives, and constructed with at least 5 per cent of the total mass of plastics from recycled materials.

Renault claims its Clio III uses about 10 per cent (20 kg) of recycled plastic while the New Twingo uses 9 per cent (15 kg). Under ‘Renault Commitment 2009’, the company aimed to sell one million vehicles by 2008 with less than 140 g/km CO2 emissions, with a third emitting less than 120 g/km CO2. The Renault initiative is noteworthy for the way it will apply to any model in the range that meets the criteria; gives a manufacturing, use and recycling dimension; and contains a firm commitment to meet specified

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goals – albeit goals that Renault must in any case be confident of achieving. All this is packaged under the slogan: ‘Everybody talks about the environment. Renault acts.’ Renault has already had some problems with the ECO2 sub-brand. Some environmental groups have criticized the way in which the recycling percentage includes thermal recycling (i.e. incineration) of plastic waste. In March 2008 Renault was criticized by the UK Advertising Standards Agency (ASA), which ruled that an advertisement for the Renault Twingo was misleading. The advertisement in question depicted a Twingo model, set against a green background, with the heading: ‘The cost is the only small thing about it.’ Leaves were shown coming out of the exhaust pipe, with the words ‘economical ecological’ written on one of them. The ASA claims that this exaggerates the vehicle’s environmental benefits and could mislead consumers. The Agency was also critical of the advertisement’s use of the Renault ECO2 logo. According to the ASA, the advertisement did not clarify the nature of the ECO2 scheme and therefore had the effect of misleading consumers into thinking the vehicle had less environmental impact than it does. The ASA noted that the Twingo fell into the band C category of the vehicle excise duty rankings for emissions and was not included in the Department for Transport’s top ten low-CO2 cars. Renault said that it will not repeat the advertisement in its current form or the ‘economical/ecological’ logo. The vehicle manufacturer was instructed to explain the basis of the ECO2 logo clearly thereafter. Government Government at the national level can act to shape the market through taxation, incentives and other measures. A good current example of national measures is that of the ‘bonusmalus’ system in France. It was launched in January 2008 and, under the original legislation, buyers of new cars that emit more than 160 g/km CO2 are charged a one-off penalty from €200 up to €2600 for vehicles that emit more than 250 g/km. Alternatively buyers of low-CO2 emission vehicles gain a bonus, in which all cars that emit less than 130 g/km CO2 qualify. The bonus payments start at €200, rising to €700 for emissions less than 120 g/km and thence to €1000 for models with less than 100 g/km. In mid2008 the government announced its intention to turn the one-off penalty into an annual tax and the Minister concerned claimed that the policy had so far increased sales of fuel-efficient cars by 45 per cent (Wells, 2009a). In mid-2009 the government of Israel was reported to have proposed a new increased import duty on large vehicles and a corresponding rebate of US$750 to those scrapping older, higher-emitting vehicles for low-carbon

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cars such as hybrids. Duty on high-CO2 emissions vehicles would rise from 75 per cent to 92 per cent while duty on hybrids would be cut to 30 per cent. Given that Israel does not produce cars but imports all its needs this also amounts to a bonus-malus system intended to have a steering effect on consumer choice. It would have the additional by-product of earning the state in the region of US$100 million per annum. Congestion Charging Cities and urban areas within and beyond Europe are now embracing the congestion zone concept. This is something of a misnomer as in many instances the concern is with toxic emissions or CO2 emissions as much as congestion per se. In 2006 some 771 urban areas participated in European Mobility Week, along with 1019 in International Car Free day – surely an indication of a groundswell of underlying support for greater restrictions on car use in cities. About 80 per cent of the population in Europe lives in cities, with an estimated 300 000 premature deaths per annum arising from emissions-related illnesses. The (admittedly biased) International Association of Public Transport estimates that congestion has an economic cost in Europe of €63 billion per annum. London has thus been followed by cities such as Stockholm, Berlin, Oslo, Rome and most recently Milan. Stockholm is interesting because the measures were voted in following a referendum and a trial period where citizens could assess for themselves the costs and benefits of the measures. Initially over 70 per cent of residents were opposed to the plan. During the trial period charges were levied according to the time of entry into the zone at the rate of between €1 and €2.10 up to a maximum fee of €6.5 per day. During the trial period, traffic entering the zone fell by 22 per cent and CO2 emissions by 14 per cent in the central city area. Other benefits included a reduced accident rate and faster travel times. The Milan zone was introduced in January 2008 so it is too early to see the results. The scheme is called Ecopass and involves a charge of between €2 and €10 to enter the central area of the city, with variable rates according to the type of vehicle and fuel used. Residents have been given some concessions, as in the London scheme, and can buy a ‘multiple-entry’ ticket at €250. Other zones are planned or in discussion, including Dublin, Manchester, Munich, and even in American cities such as New York. Typically the initial reaction of many citizens and businesses to such a proposal is negative but over time the benefits come to be seen. In 2008 Porsche was successful in a legal dispute over an increased charge in London – a fact that might have provided some short-term comfort to Porsche but is hardly

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sympathetic to the prevailing sentiment, which in turn may have long-term costs for the reputation of the company. With a change in the political administration in London has come a change in policy: the new higher rate of congestion charge will no longer be applied. However, the initiative has proven a success in many respects and many other cities will want to follow or adapt the strategy.

6.5

THE GEOGRAPHIC SOURCES OF CHANGE

For many years the focus was on China as a market of extraordinary potential for companies from the OECD to exploit. Those with a longerterm view of the future perhaps were concerned at the ‘hollowing out’ of jobs in Europe, North America and other rich economies as production might migrate from these high-labour-cost locations to the fantastically cheap China. The fear then was of burgeoning imports of low-cost cars into the established markets. As Holmes et al. (2005) have established, the older automotive industry regions have not necessarily just faded away with time but have demonstrably been able to innovate and survive. If the automotive industry follows its traditional strategy of least cost to maximize profitability, it is difficult to envisage many of the established industrial locations enduring. While labour costs per se are not definitive in the industry, they are undoubtedly important. In this regard Table 6.5 illustrates the profound economic pressure to drive manufacturing away from high-cost locations. German workers are over 50 times more expensive per hour (including social costs) than those in China. Events of the period since the economic crisis started to unfold with the sub-prime debacle in America in 2007 have shown just how limited this vision of the future was, and just how completely it underestimated the profound change in the world order that has been underway in the automotive industry. The feared surge in imports from China has not yet happened to any substantial degree, but in many regards what has actually happened is rather more significant. This new world order is visible in several key indicators: ●

●

the market for new cars in China could overtake that in the United States in 2009, as China recovers with amazing rapidity from a brief hiatus in growth in late 2008 and as the United States continues to spiral downward; new vehicle manufacturers are emerging in China that are bypassing the cosy joint ventures established by the old state-owned companies with their Western partners, and are usurping the market

Enablers and limiters of change

Table 6.5

161

Average manufacturing wage rates (US$/hour)

Country

Rate

Germany UK USA Australia Japan Canada South Korea Mexico China

32.53 24.71 23.17 23.09 21.90 21.42 11.52 2.50 0.61

Source:

●

●

Parker and McGinity, 2006: 7.

dominance once held by these entities – BYD Auto and Chery are two prominent examples; companies like BYD Auto and others are leading the race to commercialize plug-in hybrids and pure battery electric vehicles, thus reinforcing a low-cost advantage with a technological advantage; Chinese companies are increasingly being associated with the purchase of the assets of moribund Western companies, thereby accelerating the rate at which they achieve market penetration – the latest of course being the association of BAIC with an offer of €660 million for 51 per cent of Opel.

The Chinese government has a strong incentive to promote the drive into alternative technologies. In 2008 China produced 3.725 million bbl/ day of petroleum (making it the fifth largest producer in the world, but with consumption double that rate the country imported an average of 4.21 million bbl/day in 2007 – a situation that will only get worse with time). Furthermore, according to the US Census Bureau in 2008 China already had a trade surplus with the USA of US$268 billion. With positive trade figures also evident with most of the rest of the OECD, China is awash with liquidity at a time when the world as a whole is bereft. It is a fantastic opportunity with so many established companies in financial distress, and with so much hard currency to hand, for China to complete a remarkable transformation from Communist state to global economic superpower in about 20 years. Initial evidence suggests that the trend for Asia to become a net exporter of capital was already underway in 2009. According to Achterholt (2009: 4):

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Industry dynamics appeared to play to the current advantages of India, China and South Korea, with outbound deal flow from these three countries amounting to US$3.4 billion in 2008. Even after removing Tata Motors’ US$2.3 billion acquisition of Jaguar Land Rover, this represented an increase over 2007’s US$0.9 billion deal flow. Asia was a net M&A investor in 2008, responsible for 19.9 per cent of global deal spends versus receiving 15.8 per cent (deal value of targets based in Asia).

At present, the ultimate shape of that new world order is not readily visible. It may take many years for Western consumers to abandon the comfort of their familiar brands. But in the meantime the economic power and the technological initiative will increasingly be in the hands of the Chinese companies and the Chinese government, and ultimately in the hands of the 1.3 billion Chinese people who are intent on claiming their rightful share of the world’s resources and wealth.

7. 7.1

Conclusions TIME TO CHANGE

The first decade of the twenty-first century has been a pivotal moment in world history, with a unique combination of economic and environmental crises. While the immediate policy response has been to seek a return to ‘normality’, the conclusion here argues that this moment represents an immense opportunity to change the trajectory of one of the most important industries in the world. This is a business opportunity, and also one for government policy. Given the scale of the problems our societies face as we push up against resource and environment limits, the need for drastic change is overwhelming. It is hard to be entirely optimistic about the capacity for change but this book has sought to demonstrate that there is certainly a latent ability to change. Sustainability is an inherently temporal concept, for it contains within itself a notion that an action or activity is (un)sustainable over a period of time (Held, 2001). Thus an activity may be viable for a short period of time but cannot be carried on indefinitely. Put another way, sustainability entails accommodating temporal heterogeneity (Jordan and Fortin, 2002). The ‘gap’ between these two fixed points is, however, variable according to the activity under consideration. Typically this has been the starting point for most analysis, where the question really is: ‘how long can we keep up this unsustainable activity before its lack of viability becomes manifest?’ While much effort has gone into understanding the three main dimensions of sustainability (economic, social, environmental) rather less has been invested into what may be termed the fourth dimension: that of time. The usually implicit position is that time itself is unproblematic, a universal constant that serves to measure the rate of change or provide the limits to which an activity may be deemed sustainable. Of particular interest is the relationship between time and change, because it is this relationship that goes to the heart of what we mean by or envisage as sustainability. Put simply, is a sustainable society one that does not change? Is a sustainable business one that carries on in the same manner for years if not generations? How can this be reconciled with economic or personal concepts of growth? How may non-change be

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reconciled with the notion of innovation (and hence change) as the route to sustainability? At the social level innovation creates the conditions by which companies, and indeed entire industry sectors, might also become redundant. This means that localities, communities, sometimes regions, are left economically and socially stranded. The greater the rate of innovation, the higher the level of socio-economic turbulence and the less stable is economic and social life. In short, our position on the subject of time reveals our meaning when it comes to sustainability. More relevant for economists, systems theorists and mathematicians is the way in which the temporal also involves consideration between stability and change. Both are really measured over time, but how much of either do we want? The amplitude of change can look quite different according to the time period over which that change is considered; indeed this problem underpins much of the dispute over climate change models. The brevity of the time period of ‘enduring’ is particularly acute or noticeable with respect to two key areas of endeavour: business and politics. In the realm of business, then, the next quarterly results are really the dominant planning horizon for executives in post while there is also a day-to-day concern with share price. It is also significant that the high administrative positions of management (Chief Executive Officer, Chairman, Director, etc.) are occupied, rather like senior ministerial posts, for a period of a few years at most: again there is little incentive to plan for the longer term. Traditionally economics has been less effective as a means to understanding the distribution of resources in the long term, critically because the long-run (sustainable) pathway of an economy depends upon the rate at which future consumption is discounted – and all the evidence suggests that the future is not rated highly enough. Some have argued for the adoption of economic ‘gardening’ as a guiding philosophy for sustainable development policy, but this is merely in contrast to the economic ‘hunting’ of trying to win more external foreign direct investment to the locality. As was made clear in Chapter 1 the automotive industry appeared, in 2009, to be running out of time. In environmental terms the available evidence implicates the automotive industry in no uncertain terms. Yet the society that needs to change the most, namely that in the United States, appears also to be one of the least ready to accept change – at least in terms of the pace required. Meanwhile the embrace of automobility around the world, and particularly in China and India, guarantees that the level of automotive CO2 emissions will grow. In economic terms there was, in late 2009, a palpable sense of a crisis averted in the industry along with a relief at getting back to ‘business as usual’. The perspective is deeply flawed, not least because it assumes that the industry was essentially profitable

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and viable before this ‘external’ crisis hit. Chapter 1 sought to show that the automotive industry contributed to the creation of this global economic crisis, and that in any case was in significant trouble beforehand. Moreover the damage done to the industry is not necessarily reversible. The industry is unlikely simply to return to the position of pre-2007. Rather, the economic crisis has accelerated trends evident previously, such as the atrophy of production in North America and the emergence of Asia as a production centre. The automotive industry is one in which time plays an important part, particularly for major structural and technological changes. Indeed a feature of the industry has been the staggering lack of change in some important respects; a lack that may be attributable to the long lead times in product development, to capital investment requirements in new models and to the relative longevity of capacity investments. The new business models outlined in Chapter 5 all appear better suited to a more turbulent time, as the era of eco-austerity promises to be. The traditional automotive industry demands a high degree of market stability, which can be imposed by government and by the industry itself but only at a cost.

7.2

DIVERSITY REVISITED

This book has been an attempt, albeit flawed, to explore further the metaphor of diversity and how it might be applied to a pervasive and economically important industry. It must be admitted that the message has sometimes been contradictory. The existing automotive industry has been described in monolithic terms within some of this book, especially Chapter 1, and yet elsewhere ‘latent diversity’ and ‘existing diversity’ are discussed. Diversity is also used as a term rather loosely to apply to places and to business models, to technologies and to cultures of automobility. This is a deliberate usage because the emphasis is on using diversity as an inspirational metaphor, almost an ideology, to unlock the creative potential that is needed to achieve sustainability. As Chapter 2 argued, diversity is a quality that has a normative value to be cherished as it is but also can act to guide future decisions. In the first instance it was argued that even existing carscapes have resisted attempts at standardization and uniformity, as places around the world retain distinct and evidently enduring characteristics. Even in trivial matters those issues remain. Those who have experienced the streets of Mumbai or Delhi will testify to the relentless use of the horn by drivers; it is indeed a requirement when overtaking, for example. As a consequence vehicle manufacturers have to supply cars for the Indian market with

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especially robust horns to accommodate the increased usage compared with markets in Europe (even Italy!), Japan or the USA. Beyond these minor matters, however, lie deeper pressures for diversity arising out of economic conditions, social structures and of course environmental context. Petroleum, with its high energy density and low price, became a ubiquitous fuel that over-rode local potential or priorities. Now those days are gone, and diverse energy sources and energy carriers are needed to resolve the impending climate crisis. The extent, nature and duration of diversity will of course vary widely, according to the historical juncture of each place and the inevitable variation in response that will only be explained by the specific features of each case. This book has hinted, in Chapter 3 and Chapter 4, at the possible fault lines that will fragment the apparent monolith of automotive industry technology into the future as locations are compelled to seek more or less unique solutions. Simultaneously, however, it is recognized that there are contradictory forces of an almost equally compelling nature tending towards the erosion of diversity between places. Inevitably some places will take the ‘wrong’ path and an instance of diversity will fail, in a neo-Darwinian sense. Diversity will also emerge in terms of the technologies and materials that comprise the car, as well as the supporting infrastructures that enable car use. Not only will these new technologies co-exist, rather than one technology totally replacing all others, they will also emerge at different rates in different places. This hyper-fragmentation of technologies has only been hinted at in this book, but the consequences are profound. Technological diversity in this sense makes for an extremely complex and essentially unpredictable business environment, and that in turn means higher risks. There will be plenty of failures along the way, as businesses large and small make the wrong choices or the right choices at the wrong time. Technological diversity in cars will be underpinned by significant changes in production technology, production organization and in supply chains. Indeed in part such changes in both product technology (i.e. the car) and process technology provide the conditions that can enable the third major form of diversity discussed in this book, that of business models. Surprisingly in the business studies literature the topic of business models is relatively under-explored, though the topic came to the fore with the emergence of debate over ‘bricks or clicks’ with respect to the viability of Internet-based businesses. As Chapter 5 illustrated, business models in the automotive industry have migrated from the original Fordist system of high integration, standardized mass production and modest rates of technological change to the prevailing Toyota Production System approach. In the meantime marginal business models have remained (although also slowly extinguished over time) in respect of contract vehicle assembly,

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low-volume assembly and kit car manufacturing. More recently alternative business models have emerged that sought to change the traditional linear flow of value creation in a quest for greater sustainability and an alternative way of competing with the established industry. Interestingly, if successful these alternative business models will transform what were barriers to entry for them to barriers to exit for the existing vehicle manufacturers, which will be locked into inappropriate production systems and attendant business models. There are wider lessons here, beyond the automotive industry, because a key consideration is whether standard industry practice can be made sustainable simply by the adoption of ‘green’ products and processes, or whether some more fundamental change is needed. In this book the conclusion is that the latter is the ultimate challenge because of the simple necessity to break free from linear value creation systems. All the evidence suggests that it is extremely difficult to achieve such a break, and that the creation of viable alternative business models is a task whose difficulty is an order of magnitude bigger than appears to be commonly supposed. Business and government need, as a matter of priority, to put more resources behind the discovery and exploitation of new business models, and worry rather less about the latest iteration of physical technology. As Chapter 6 sought to show, there are forces both for and against radical change, which alone suggests that government should be more focused on enabling future developments than regulating existing products. Indeed profound change in more nebulous matters such as cultures of automobility appears to be beyond any government or company or social group – but nonetheless it must be attempted if the more dramatically alternative business models are to succeed on a scale that makes a difference. Underlying the change in business models is the issue of cultures of automobility, and how in different places and times they might hinder or encourage change in automotive technologies and the ways in which cars are owned and used. Inevitably there is much work to be done in changing hearts and minds, in the realm of social psychology for example and emergent disciplines such as social marketing. Now that sustainability as a concept has migrated out of the specialist realm of science and into wider social discourse, so it must be expected that the meaning attributed to the concept will become even more contested, fluid and dynamic. While some experts may deplore the democratization of sustainability, ultimately it is likely that this is the only way in which anything approaching the ideal will be attained. Is climate change an unmitigated catastrophe, a competitive challenge or perhaps a golden opportunity to achieve wider social goals? Will it be a liberating cause or the rationale behind a new form of totalitarianism? The future of the automotive industry and of automobility will

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be decided, and re-decided, on the basis of such debates and the outcomes realized. Cultures of automobility have been dominated by the language of power and prestige, of wealth and aesthetic appeal . . . but the Toyota Prius showed that elite consumers could help pioneer a different value set within automobility.

7.3

FROM SUSTAINABLE PRODUCTS TO A SUSTAINABLE AUTOMOTIVE INDUSTRY

Throughout this book the argument has been that technology alone is insufficient to achieve sustainability. In fact some readers may be surprised at the rather thin treatment of underlying technologies such as fuel cells or battery electric recharging systems. This is not to deny the importance of innovative technologies as part of the process of achieving sustainable mobility. The issue is rather that it is illogical to have an eco-factory making unsustainable cars (Tucker and Cohen, 2008) or to have an unsustainable business making ‘sustainable’ cars. In this regard, it is illustrative that the business model for Riversimple ultimately aims at reducing the number of cars in the world, not increasing them. Policies from government have for years been focused on giving funds for technology development, on the one hand, and buttressing the economics of the industry on the other. There has been an implicit faith in the ‘invisible hand’ of the market, with an assumption that once a technology is created there is an unproblematic transition from laboratory prototype to mass consumer product, and that in this transition there is no negative impact on incumbent parties. It is an amazingly unsophisticated approach to achieving change, but also one that reveals just how deeply embedded are assumptions about the ability of capitalism to arrive at viable business models. Of all the major vehicle manufacturers it is arguable that Renault-Nissan has done the most to embrace low-CO2 and zero-emissions designs. Not only is the company closely associated with many of the PBP initiatives noted in Chapter 5, it also in mid-2009 launched the ‘Leaf’ electric vehicle that marked a noteworthy attempt to make this form of automobility affordable (Crosse, 2009) and to achieve the stated goal of a 90 per cent reduction in the CO2 emissions of Nissan vehicles by 2050. The Leaf and vehicles like it show clearly that electric vehicles can be produced for the market by the mainstream and traditional vehicle manufacturers without huge changes to their business model – though even in the case of the Leaf Nissan expects to lease the battery separately from the vehicle. There is no doubt that this sort of development in the mainstream industry is

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welcome as a contribution to the reduction of CO2 and other emissions. On the other hand the danger is that more radical alternatives will be extinguished by these events, and the possibility of a more definitive leap into another level of sustainability will be lost. It seems that so far at least the established vehicle manufacturers still envisage their future as one of selling more cars along the traditional linear value chain, and this vision limits the degree to which long-term sustainability can be attained. Much more work is needed to be done on the creation of alternative business models to achieve sustainability in the automotive industry. It is probable that the parallel development of alternative cultures of automobility and of alternative business models is a problem akin to that of the parallel development of hydrogen fuel cell vehicles and the required supporting infrastructure. In either case it is necessary for an established pattern to be broken and for a rather different alternative to be immediately viable, and for both elements of the alternative to be available simultaneously. No doubt, this is an extremely difficult task to achieve. No doubt also it is more difficult to achieve with respect to new cultures of automobility and the attendant business models than the overtly technical challenge of co-developing infrastructures and vehicles. The studious focus on technologies, by government and by existing companies, is possibly partially explained by the extreme difficulty of rewriting the meaning of automobility. The question of whether the existing industry can change, or is in fact a hindrance to change, is a vital issue of concern for the achievement of sustainable automobility into the future – yet it is also an area that is sadly neglected. The question becomes more profound in the era of eco-austerity because the choices are becoming clearer with each passing day. Are we, as a society, going to expend increasingly scarce social resources on buttressing a highly valuable yet deeply damaging industry or are we going to accept that the transition to a low-carbon and sustainable mobility future needs innovation beyond mere technologies and into new business models and policy interventions? Ultimately this is not a question that can be answered by experts, by NGOs, by companies, or indeed by governments. Rather the turbulent future to be expected for the automotive industry in the era of eco-austerity derives from the expectation that this question will never be simply resolved. Instead the expectation is for a discourse to unfold, contested and uneven, with multiple false dawns, mistakes, policy errors, failed technologies and thwarted expectations as we stumble more or less cohesively into our future. This book has at least provided some support for the idea that the solutions will increasingly reside at the local level, and that the many forms of diversity that could emerge as a result are to be celebrated rather than obliterated. No doubt much of the contention

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surrounding the introduction of novel technologies and new ways of using vehicles will come from the battle for ‘hearts and minds’ that is an inescapable component of the entire process of transition. At the most obvious level, a concern for any consumer contemplating an electric vehicle purchase is that of having the ‘comfort’ of a known brand behind that vehicle. For many innovative business models the critical issue is therefore one of achieving legitimacy and credibility on a sufficient scale to make a difference. Again compared with the efforts poured into creating new physical items of technology this is a massively under-researched area. In the end, the era of eco-austerity must encompass entirely different cultures of automobility in which the values and norms associated with mobility are radically different from those in place today. If the transition to sustainability is going to be difficult for vehicle manufacturers, it is going to be even more difficult for us.

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Index ACEA 37 Africa 33, 62, 98 aluminium industry 31–2 Anhui Jianghuai 6, 8 Argentina 3, 4, 75 Argentum Motors 19 Arvin Meritor 16 Ashok Leyland 9 Asia 31, 33, 60, 72, 130, 161, 162, 165 Aston Martin 18 ATKearney 126 Australia 3, 4, 35, 63, 80, 161 Automotive Competitiveness and Investment Scheme 84 Automotive Industry Innovation Council 84 automotive industry policy 84–5 Green Car Innovation Fund 84 New Car Plan for a Greener Future 84–5 Automotive Transformation Scheme 84 Canberra 85 Green Vehicle Guide 154 Kevin Rudd 84 Victoria 85 Austria 3, 4, 18, 26 automobility carscapes 62, 63–4 congestion charging 38, 79, 159–60 culture 58–77, 78, 99 UK 63, 66 deaths and injuries 32–3, 38, 45, 65–6 China 33 USA 65, 67–8 regimes 60–61, 62, 64 sustainable automobility 68, 77 automotive industry 2 Australia 84–5 average manufacturing wage rates 161

193

branding 12, 20, 21, 25–6, 60, 68, 71, 73–4, 115, 120, 134, 135, 137, 147, 156–8 capacity utilisation 146 consolidation 16–19, 59–60 contract assemblers 18 Denmark 88–9 diversity 52–3, 58–77, 78–98, 165–8 economic scale 5, 9, 19, 59–60 franchised dealer network 9, 10, 12–13, 75, 115, 124, 147 UK 12 US Auto Stimulus Plan 150 Geneva Motor Show global car and commercial vehicle production 2–7 global car population 30–31, 44–5 global financial crisis 1, 11, 130, 134, 141, 142–5, 164–5 global forecast 45 green rating systems 153–6 Iceland 85–6 India 80–81 investment 45 Israel 89–90 Malaysia 81–2 material consumption 28, 31–2, 44, 137, 157 market fragmentation 25–6, 122 mergers and acquisitions 16–19 platform strategies 16, 20 R&D 77, 80, 81, 141 restructuring 20–21 Russia 21–3 scenarios for change 130, 133–41 creative destruction 130, 139–41 managed transition 130, 137–9 mutual coexistence 130, 133–6 scrapping incentives 130, 131, 137, 141, 148–50

194

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UK scheme 138, 148–50 US scheme 131, 150 spiral of decline 7–16 state aid 23, 79–80 suppliers 10, 13–16, 21, 45, 75, 82, 84, 104–8, 114, 115, 141 sustainable industry 58 Thailand 82–4 world car 58, 72 Avtoframos 23, 24 Avtotor 24 AVTOVAZ 6, 8, 22, 24 Barack Obama 34, 35, 146 BAIC 161 BAW 61 beer industry 50 Beijing Automotive 6, 8 Belgium 3, 4, 5, 26, 141 Bertone 19, 117, 135 BMW 6, 8, 17, 23, 24, 61, 63, 69, 145, 150 BMW 1 Series 136 BMW 3 Series 72, 136 BMW 7-Series 136 BMW Welt 120 EfficientDynamics programme 136 F1 involvement 134 MINI 23, 145, 155 Rolls Royce 145 Bosch 111 Brazil 3, 4, 5, 21, 60, 72, 79 Alcool programme 91 bio-ethanol 79, 90–98 Brazilian Automotive Manufacturers Association 95 Brazilian Union of Sugar Cane Industries (UNICA) 91 Centre for Strategic Management and Studies 95 Copersucar 97 Cosan 96, 97 Crystalsev 96 Exxon Brazil 96 Grupo Sao Martinho 93 Jose Goldemberg 98 Maeda Group 97 Novamerica 94 Petrobras 93, 94, 97 Santaelisa Vale 94, 97

Sao Paulo State 91, 97 sugarcane 90–98 Tropical BioEnergia 96 BRIC 5 Brilliance 6, 61 business models 9, 99–129, 165 closed loop supply chains 101, 104–8, 110 contract vehicle assemblers 114, 117, 166 definition 100–102 disruptive innovation 50–51, 101, 110–14 EcoRover 129 ElectricBlue Car 129 Fordist production model 114, 116, 166 Gordon Murray Design 99, 114 Indego 126 kit car producers 114, 167 linear value chains 114, 117 Local Motors 129 low volume specialist assemblers 114, 117–20, 167 MDI air car 99, 114 Micro Factory Retailing 43, 126 product service system 101, 108–9, 110 Project Better Place 99, 114 remanufacturing 101, 103–4, 105–6, 108, 125 reverse logistics 101, 103–4, 105, 106 Ridek 129 Riversimple 43, 99, 114 Tata Nano 99 TH!NK 126 Toyota Production System 7, 49, 114, 116–17, 166 value creation system 100, 103, 106 BYD Auto 7, 8, 23, 61, 89, 161 CAIR 154 Canada 3, 4, 5, 35, 59, 86–8, 147, 148, 161 Automotive Fuel Cell Cooperation 87 Ballard 87 John Sheriden 87 British Columbia 86 Fuel Cells Canada 86

Index Herb Dhaliwal 86 Hydrogen fuel cell programme 86–8 Integrated Waste Hydrogen Utilization Project 87 National Research Council Canada Fuel Cell Institute 86 Ontario 147, 148 Sustainable Development Technology Canada 87 TransLink 87 Westport Innovations 87 Vancouver 86, 130 Carbon Carbon emissions 2, 27, 28–31, 78, 87, 88, 93, 95, 98, 131–3, 137, 139, 153, 159, 164, 169 450 ppm 132–3 CO2 atmospheric concentrations 30, 132–3 emissions regulation 34–8 Low CO2 emissions vehicle 74, 83, 87, 123, 134, 156, 156–9, 168 France 158 Israel 158–9 UK 37, 133, 149 US 28, 42, 44, 131, 152 UK Climate Change Act 132 UK government Carbon Reduction Commitment 132 US strategy for reduction 34–5, 132–3, 138 Central America 33 Cerebus Financial Holdings 18 Chana Automobile 6, 8 Changan Group 61 Changfeng 61 Changhe 61 Chery 6, 23, 61, 161 China 3, 4, 5, 19, 21, 30, 34, 36, 60, 63, 72, 81, 89, 126, 132, 141, 160, 161, 162, 164 car market 60–61, 68, 160 car production 3, 4, 5 car sales by major brand 60–61 ethanol production 98 new car buyers 33 petroleum production 161 road traffic deaths and injuries 33

195

SAIC 60, 61 trade surplus with US 161 China National 7, 9 Chongqing Lifan 8, 23, 61 Chrysler 6, 8, 17, 18, 21, 23, 61, 141, 145, 146 bankruptcy 13, 145 Chrysler Crossfire 18 Dodge 23 Eagle 21 Jeep 23 Plymouth 21 CMC Soueast 61 Collins and Aikman 16 Columbia 33 Congo 93 Contech 15 Continental AG 70 Cooper-Standard Holding 16 Cuba 64 Czech Republic 3, 4 Daewoo 22, 71, 73 Daihatsu 6 Daihatsu Charade 154 Daihatsu Cuore 154 Daihatsu Trevis 154 Daimler 6, 8, 17, 18, 85, 88, 129, 143 DaimlerChrysler 11, 17, 60, 146 Ballard purchase 87 Welt AG 17 (see also Mercedes) Dana 15 Danny De Vito 151 Delphi 15 Denmark 26, 88–9 Dong Energy 88 electric vehicle programme 88–9 Kalundborg 54 Lithium Balance 89 Dieter Zetsche 17 diversity 39–45, 49–54, 56–7, 58–77, 90–91, 165–8 Dominican Republic 33 Dongfeng 6, 8, 61 Dura Automotive Systems 16 eco-efficiency 103, 134, 136 EcoRover 129 Edscha 15

196

The automotive industry in an era of eco-austerity

Egypt 3, 4 ElectricBlue car 129 Pininfarina 135 Electric Transport Engineering Corp 134 electric vehicles 29, 37, 88, 99, 122, 127–8, 129, 134, 135, 136, 138, 168 Electric Recharge Grids 127 economic impact in United States 29 forecast for United States 29, 138 Denmark 88–9 Germany 133 Israel 89–90 Solar-To-Vehicle systems 90 Vehicle-To-Grid systems 88–9, 128 (see also Project Better Place) UK 133 EnerDel 123 Enova Systems 134 Environmental Transport Association 153 Europe 31, 34, 36, 38, 60, 63, 74, 88, 89, 96, 97, 111, 115, 134, 141, 146, 148, 160, 166 Eastern Europe 62 FSO 71 Moskvitch 71 Skoda 71 Trabant 71 Wartburg 71 Western Europe 62, 71 European Commission 37 European Investment Bank 11, 146 European Mobility Week 38, 159 European Union 32, 34, 37, 45, 49, 59, 88, 95 BioEthanol for Sustainable Transport 95 ELV Directive 109, 138 Strategy to reduce CO2 emissions 34–8 Europestar 61 Factor X 27 FAW 6, 8, 19, 61 Federal Mogul 16 Ferdinand Porsche 125 Fiat 6, 8, 19, 22, 24, 61, 144 Alfa Romeo 23

domestic market share 26 Fiat Palio 71, 72, 73, 75 Fiat Punto 154 Padmini Fiat 64 Finland 3, 4, 18, 26, 135 Fortum 135 Valmet 18, 135 Fisker Automotive 136 Ford 6, 8, 17, 18, 22, 24, 53, 144, 145, 146 Ballard purchase 87 ECOnetic sub-brand 156 Firestone case 9 Ford C-Max 156 Ford ECOnetic Fiesta 156–7 Ford Escape 154, 155 Ford Focus 53 Ford Galaxy 156 Ford Ka 156 Ford Model T 20, 71 Ford Mondeo 72, 156 Ford S-Max 156 Ford of Europe 126 St. Petersburg plant 23 Fordism 7, 114, 166 Foton 61 France 3, 4, 5, 19, 25, 26, 52 Aixam 129 ‘Bonus-malus’ system 158 car production Ligier 129 Paris ‘AutoLib’ 125 Renault domestic market share 26 voiture sans permit 59, 64 Fuji 6, 8 Fujian 7 Fuqi 61 GAZ 6, 8, 22, 23 Geely 6, 8, 23, 61 Germany 3, 4, 19, 26, 52, 59, 63, 72, 136, 141, 160, 161 Berlin 38, 159 car production 3, 4, 5 Munich 120, 159 VW domestic market share 26 VW Golf sales 26 Wolfsburg 120 GM 6, 8, 17, 18, 21, 22, 24, 63, 116, 141, 145, 146

Index Buick 61, 147 Cadillac 22, 61, 147 Cadillac Escalade 20 Canada franchised dealer network 13 Chevrolet 22, 24, 61, 73, 147 Chevrolet Avalanche 20 Chevrolet Matiz 154 Chevrolet Suburban 20 Chevrolet Silverado 20 Chevrolet Tahoe 20, 155 Fiat 17 GMC 147 GMC Sierra 20 GMC Yukon 20 GM Acceptance Corporation 11 GM Europe 13, 18, 141 GMT-800 20 Holden 63 Hummer 13, 18, 21, 22, 24 Hummer H2 20 New GM 146–8 creation of New GM 20, 21 Oldsmobile 21 Opel 18, 22, 24, 161 EcoFlex sub-brand 156 Pontiac 13, 21 Saab 13, 17, 18, 21, 22, 62, 152 Saturn 13, 18, 21, 73 US franchised dealer network 12 Vauxhall 18 EcoFlex sub-brand 156 Vauxhall Corsa 154 Gordon Murray 121 Gordon Murray Design 99, 114 business model 121–3 iSTREAM production system 122–3 T25 concept car 125–6 Great Wall 6, 8, 23, 61 green consumers 150–56 celebrities 151 Guihang 61 Haima 61 Harbin Hafei 6, 8, 61 Hayes-Lemmerz 15 Heuliez 19, 117, 135 battery-electric car 135 Opel/Vauxhall Tigra Twin-Top convertible 135 Hino 7

197

Honda 6, 8, 22, 61, 83, 143, 146 Honda Civic 154, 155 Hondaism 7 Hummer 13, 18, 21, 22, 24 Hummer H2 20 Hungary 3, 4 Hydrogen fuel cell vehicles 126, 138 California 86 Canada 86–8 European Union 88 Iceland 85–6 Hyundai 6, 8, 17, 22, 24, 54, 60, 61, 141, 144 Hyundai Amica 154 Iceland 85–6 hydrogen fuel cell policy 85–6 Iceland National Power Co. 85 Icelandic New Energy 85 Nýorka 85 Reykjavik Energy 85 Straeto 85 University of Iceland 85 Vistorka 85 IEA 133 Indego 126 business model 126 India 3, 4, 5, 21, 30, 33, 60, 64, 72, 75, 79, 112, 132, 141, 146, 162, 164, 165–6 Automotive Mission Plan, 80–81 Chennai 81 compressed natural gas 81 Delhi 113, 165 Gujarat 114 Kolkata 81, 114 Hindustan Ambassador 64 Mahindra and Mahindra 71 Maruti Suzuki 81 Maruti Suzuki Alto 81 Mumbai 81, 165 Pantnagar 114 Tata 111–14 Croma 112 Tata Indicom 112 Tata Motors 112, 113 Tata Nano 111–14 Tata Sky 113 Westside 112, 113 World of Titan 112

198

The automotive industry in an era of eco-austerity

Sanand 114 State Bank of India 112 Singur 114 vehicle sales 76 Zapak Digital Entertainment 113 Indonesia 3, 4, 5, 75 Industrial Ecology 39–43, 99–129 carrying capacity 43–5 diversity 42, 49–54 eco-industrialism 54–6 technical nutrients 104 International Association of Public Transport 159 International Car Free day 38, 159 Iran 3, 4 Iran Khodro 23 Ireland, 26, 62 Dublin 159 Israel 89–90 electric vehicle programme 89–90 Israel Corporation 90 Quantum 90 Shimon Peres 89 Isuzu 6, 8, 22, 61 Italy 3, 4, 19, 26, 52, 166 car production 3, 4, 5 Fiat domestic market share 26 Rome 38, 159 Milan 38, 159 IzhAvto 23, 24 JAC 61 Jaguar 17, 23, 144 JAMA 37 James Rousseau 151 Japan 3, 4, 10, 16, 34, 36, 60, 62, 63, 93, 95, 97, 161, 166 car production 3, 4, 5 fuel economy targets 34–7 Ikebukuro-Tokyo 120 Itochu Corp 93, 97 Japan Bank for International Cooperation 93 Japan Institute for Energy Economics 93 Kyoto 95, 132 Mitsui 93, 97 Jennifer Aniston 151 Jessica Alba 151 Jiangxi Changhe 6, 9

JL French 15 Jürgen Schrempp 17 KAMA 37 Karmann 18, 19, 135 Karmann Ghia VW 117 Volkswagen Golf 18 Kate Bosworth 151 Key Plastics 15 Kia 6, 8, 22, 24, 61 Kia Sportage 18 Koenigsegg 17, 18 KPMG 141 Kuozui 9 Kuwait 33 Land Rover 17, 23, 144 LDV 18 Lear 15 Local Motors 129 Lotus 5 LUAZ 9 Magna 13, 18, 135 Mahindra 6, 8, 19, 71 Malaysia 3, 4, 80 National Automotive Policy 81–2 Peruda 82 Proton 71, 82 MAN 7, 9 Martin Leach 126 Maserati 126 Matra 18, 135 Matra Automobile 18, 117 Mayflower 18 Mazda 6, 8, 22, 61, 142 MDI Air Car 99, 114 business model 123–5 Guy Negre 124 Mercedes 23, 61, 63, 119, 143, 146, 150 Blue Efficiency sub-brand 156 collision avoidance technologies 69–70 decline in residual values 11 fuel cell programme in Iceland 85 Mercedes A-Class F-Cell 85 Mercedes B200 154 Mercedes-Benz CLK 18 Mercedes-McLaren F1 121

Index Meridian 14 Mexico 3, 4, 161 MG Rover 17, 145 Middle East 62 Miles Electric Vehicles 136 Mitsubishi Corporation 54, 93 Mitsubishi 6, 8, 10, 17, 22, 24, 61, 83, 143 Morgan 66, 117, 118–19 Morgan LIFECar 119 Nanjing Auto 61 Navistar 7, 9 Netherlands 3, 4, 5, 26, 72 Carver 115, 139 New Zealand 62 New Dadi Auto 61 Nicaragua 33 Nissan 6, 8, 19, 22, 23, 24, 61, 83, 142 CO2 reduction target 168 Infiniti 22 Nissan Altima 154 Nissan Leaf 168 Renault Nissan Purchasing Organisation 19 Sunderland 62 (see also Renault-Nissan) Noble International 15 North America 11–12, 21, 31, 60, 62, 63, 147, 160, 165 capacity utilisation at the major vehicle manufacturers 146 GM product strategy 21 Norway Oslo 38, 159 TH!NK 123, 126 Norsk Hydro 85 OECD 160, 161 OICA 2 Owen Wilson 151 Paccar 6, 8 Penske 18 Peru 33 Petroleum 2, 29, 39, 91, 138, 139, 166 peak oil 30–31 shortages 28, 91, 140 Pininfarina 19, 135 ElectricBlue Car 129, 135

199

Plastal Holding 15 Poland 3, 4 Porsche 7, 9, 18, 23, 119, 135, 142, 159 Boxster 135 Cayman 135 Portugal 3, 4, 26 Prodrive 18 Project Better Place 99, 114, 129, 138, 168 Australia 85, 128 business model 127–8 California 128 Canada 128 Denmark 88–9, 128 Hawaii 128 Israel 89–90, 128 Japan 128 Shai Agassi 127 Proton 8 PSA Peugeot Citroen 6, 8, 22, 24, 61, 143 Citroen C1 154 Citroen C3 154 Quantum Fuel Systems Technologies Worldwide 134 Renault 6, 8, 19, 22, 24, 142 Dacia 73, 75 domestic market share 26 Renault Aventine 18 Renault Clio III 157 Renault Commitment 2009 Renault ECO2 sub-brand 157–8 Renault Espace 18 Renault Fluence EV 90 Renault Logan 71, 73, 74, 75 Renault Megane 90 Renalt Twingo 157, 158 Renault-Nissan 16, 89, 128, 137, 168 Renault Nissan Purchasing Organisation 19 Reva G-Wiz 154 Riversimple 99, 109, 114, 168 business model 125–7 Hugo Spowers 125 Riversimple Urban Car 125

200

The automotive industry in an era of eco-austerity

Romania 3, 4 Russia 3, 4, 5, 21–3, 60, 80 car production 3, 4 market liberalisation 21 sales 22–3 SAIC 6, 61 SAP 127 Scania 7, 9, 95 Sebastian Piech 125 Serbia 3, 4, 5 Shangdong Kaima 7 Shannxi 7, 9 Shell 85 Shuguang Auto 62 Sloanism 7 Slovakia 3, 4 Slovenia 3, 4 Smart ForTwo 154, 155 socio-technical change 45–9, 137 evolutionary models 46 path dependency 47–8 strategic niche management 45–7, 79 technology roadmap 130, 137–8 transformation 45–9, 78 Solar Challenge 90 Sollers Group 22, 24 Solvey 97 South Africa 3, 4, 75, 93 South America 33 South Korea 3, 4, 35, 36, 60, 63, 161, 162 Daewoo 71 Ssangyong 71 Spain 3, 4, 26, 141 car production 3, 4, 5 SsangYong 22, 24, 71 Standard and Poor 11 Stankiewicz GmbH 15 Subaru 23 sustainability 27, 104, 115, 132, 136, 167, 168–70 change over time 131, 163–4 Suzuki 6, 8, 22, 23, 24, 62, 83 Sweden 3, 4, 25, 26, 141 car production 3, 4, 5 ethanol consumption 95 Stockholm 38, 159 congestion charging scheme 38 Trollhatten 62

Switzerland, 141 Geneva Motor Show 135 TagAz 24 Taiwan 3, 4, 35 Tata Group 6, 8, 17, 18, 60, 83, 125, 144, 162 Jaguar Land Rover 23, 144, 146, 162 Pantnagar plant 114 Ratan Tata 112 Sanand plant 114 Singur plant 114 Tata Nano 71, 73, 74, 75, 76, 77, 99, 110, 111–14 Tesla 129, 136 Thailand 3, 4, 21, 63, 75, 80 Atchaka Brimble 83 automotive industry policy 82–4 Eco-car strategy 83 Board of Investments 83 PTT 84 TH!NK 17 Valmet Tower Automotive 14 Toyota 6, 7, 8, 22, 24, 62, 83, 145, 146 IMV 75 Lexus 22, 73 St. Petersburg plant 23 Toyota Amlux Auto Salon 120 Toyota Camry 154 Toyota Land Cruiser 134 Toyota Prius 90, 134, 152, 154, 155 Solar Pack 90 Toyota Production System 7, 49, 114, 166 Toyota Yaris 154 Turkey 3, 4, 5 TWR 18, 117 UAZ 7, 9, 22 UK 3, 4, 5, 18, 26, 50, 52, 63, 72, 90, 137, 141, 146, 161 Advertising Standards Agency 158 British Leyland 66 British Petroleum 96 Carbon Reduction Commitment 132 car culture 63, 66 Climate Change Act 132 CO2 emissions 29 deaths and injuries 33

Index Department for Transport 158 Department of Energy and Climate Change 132 green consumers 152–3 hydrogen economy 86 Imperial College 96 London 38, 68, 96, 159, 160 Manchester 159 market fragmentation 25–6 Morris Marina Owners Club 66 Morris Oxford 64 RAC Foundation 148 real ale campaigns 50 Soil Association 151 Stern Report 131 Sunderland 62 Transport for London 38 Transport Research Laboratory 137 Ukraine 3, 4, 5 United Company RUSAL 32 United States 3, 4, 35, 36, 44, 52, 62, 63, 65, 67–8, 73, 95, 96, 97, 99, 103, 115, 131, 132, 147, 150, 153, 160, 161, 164, 166 ACEEE 155 achieving 450 ppm 132–3 ADM 97 Amyris Biotech 97 CAFE regulations 34–5, 63, 131 California 35, 36, 90, 115 green rating system 155–6 Car Allowance Rebate System 150 carbon emissions 28, 29, 42, 44, 89 Cargill 97 car production 3, 4, 5 Colorado 62 Deaths and injuries 33, 65 Detroit 130 Dow 97 electric vehicle forecast 137 Environmental Protection Agency 34, 154, 156 Food and Agriculture Policy Research Institute 95, 96 Hollywood film industry 65 Easy Rider 68 micro breweries 50 Monsanto 97 Naro 115

201

New York 159 petroleum dependency 28, 29, 39 suppliers at risk 16 Tango 115 trade deficit with China 161 Troubled Asset Relief Program 11–12 United Auto Workers 147 Voluntary Employee Beneficiary Association 147, 148 University of California Berkeley 138 Center for Entrepreneurship and Technology 138 Thomas Becker 138 US Treasury 147, 148 World Trade Center 65 Uzbekistan 3, 4 Valmet 18, 135 Fisker Automotive 135 Ilpo Korhonen 135 Porsche Boxster 135 Porsche Cayman 135 TH!NK 135 VCD 154 Vehicle design 9, 17, 68, 116 aluminium use 31–2 architecture strategies 20, 123 all-steel body 9, 60, 111, 122, 123 BMW EfficientDynamics programme 136 CNG vehicles 81, 87 collision avoidance technologies 68, 69–70 flex-fuel vehicles 91, 95 FCVs 85, 88, 125–6, 134, 137, 138 Gordon Murray Design T25 concept 121–2 life cycle, 17, 40, 126 LPG vehicles 84, 154 NGVs 83 platform strategies 20, 111, 115 product longevity 17 design for longevity 65 Riversimple Urban Car 125 Tata Nano 111–12 technological proliferation 166 technology roadmap 130, 137–8 value-for-money vehicles 70–76

202

The automotive industry in an era of eco-austerity

zero emissions vehicles 85, 87, 88–9, 125, 168 (see also hydrogen fuel cell vehicles; electric vehicles) Visteon 15 Volvo 6, 18, 22, 61, 69, 144, 150 VW Group 5, 6, 8, 16, 18, 22, 62, 68, 73, 120, 142 Audi 5, 22, 62, 63, 119 Audi A4/S4 Cabriolet 18 Porsche 18, 23, 119, 135, 142, 159 Scania 7, 9, 95 SEAT 5, 22 SEAT Ibiza 155 Skoda 5, 22, 24, 62, 71, 73 VW 22, 24, 62, 146

BlueMotion sub-brand 156 domestic market share 26 Karmann Ghia 117 Volkswagen Beetle 71 Volkswagen Golf 26 Volkswagen Polo 155 VW Autostadt 120 Wolfsburg plant and HQ 120, 146 WhatGreenCar 154 Wuling 62 ZAP 136 ZENN 136 Zhongxing Motor 62 Zipcar 128