The Automotive Industry in an Era of EcoAusterity: 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)

Printed and bound by MPG Books Group, UK

02

v

Contents

List of abbreviations vi

Preface: the era of eco- austerity viii

Acknowledgements x

1 The automotive industry in crisis: economic and environmental

failure 1

2 Diversity and the industrial ecology metaphor 39

3 Contemporary global diversity and cultures of automobility 58

4 Emergent diversity in the global automotive industry: the policy

agenda 78

5 Alternative business models as the basis of a new industrial

ecology of the automobile 99

6 Enablers and limiters of change 130

7 Conclusions 163

Bibliography 171

Index 193

vi

Abbreviations

ACEA European Automobile Manufacturers’ Association

AEB Association of European Businesses

AMP Automotive Mission Plan (India)

ASA Advertising Standards Agency (UK)

ATS Automotive Transformation Scheme (Australia)

bbl Billion barrels

BRIC Brazil, Russia, India and China

CAFE Corporate Average Fuel Economy (US)

CARS Car Allowance Rebate System (US)

CAW Canadian Auto Workers

CNG Compressed natural gas

EBIT Earnings before interest and taxes

ELV End of Life Vehicle

EPA Environmental Protection Agency (US)

ERG Electric Recharge Grids

EU European Union

EV Electric vehicle

FAPRI Food and Agriculture Policy Research Institute (US)

GMAC GM Acceptance Corporation

GMD Gordon Murray Design

HCNG Hydrogen compressed natural gas

HCV Heavy commercial vehicle

HFCs Hydrofl uorocarbons

IEA International Energy Agency

JAMA Japan Automobile Manufacturers’ Association

KAMA Korea Automobile Manufacturers’ Association

LCV Light commercial vehicle

LPG Liquid petroleum gas

M&A Merger and acquisition

mbd Million barrels per day

MDI Motor Development International

MFR Micro Factory Retailing

mpg Miles per gallon

mtpa Million tons per annum

MY Model Year (US)

Abbreviations vii

NAP National Automotive Policy (Malaysia)

NGO Nongovernmental organization

NGV Natural gas vehicle

NHTSA National Highway Traffi c Safety Administration (US)

OECD Organization for Economic Cooperation and Development

OEM Original equipment manufacturer

OICA Organisation Internationale des Constructeurs d’Automobiles

OIE Offi ce of Industrial Economics (Thailand)

PBP Project Better Place

ppm Parts per million

PSS Product service system

RAC Royal Automobile Club (UK)

RNPO Renault Nissan Purchasing Organization

SMMT Society of Motor Manufactures and Trades (UK)

SNM Strategic Niche Management

TPS Toyota Production System

UAW United Auto Workers

UNECE United Nations Economic Commission for Europe

V2G Vehicle- To- Grid

VSP Voiture sans permit (France)

WHO World Health Organization

viii

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 diff erent.

There is a real and justifi ed 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

eff ect from the urban poor of America to the glittering bonus payments of

the City of London. Factories and offi ces 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 experi￾enced 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 fundamen￾tally, we cannot allow a repetition of the fevered bubble of speculation

upon which our economic lives fl oated – 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 scientifi c 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 fi sh 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 aff ord to be

green. Well, we don’t have the money any more, but we cannot aff ord 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.

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 cir￾cumstances, 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 alterna￾tive scenario might be one of social implosion and global population col￾lapse 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 fi nancial 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 fi rst 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 fi restorm of creative destruc￾tion, which in turn creates the conditions for a radical transformation of

our lives. The fi nancial 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 diver￾sity, fl exibility, 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.

x

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 eff ort 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 fi rst opportunity.

1

1. The automotive industry in crisis:

economic and environmental failure

1.1 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 automo￾tive industry was itself part of the ‘circumstances’ in so many ways; and

secondly, while the fi nancial upheavals unfolding from late 2007 onward

might have been the proximate cause of market collapse and hence cor￾porate 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 fi nancial crisis had its roots in massive trade

imbalances, and in consumers, governments and companies spend￾ing 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

2 The automotive industry in an era of eco- austerity

can be resolved by government fi nancial 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 fi gures 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 diff erent 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 fi rst in the world to truly face the reality that it is not sustainable.

Being unsustainable is necessarily a temporary condition, but the auto￾motive industry like many others appeared to be managed by those that

believed that the day of reckoning could be postponed into the indefi nite

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 signifi cantly, 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 govern￾ment 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, chiefl y due to diff erences in defi nitions and the diffi culties

of double- counting kit assembly. However, the data are broadly internally

The automotive industry in crisis 3

Table 1.1 Car and commercial vehicle production by country, 2000

Country Cars Commercial

vehicles

Total Total change (%)

1999–2000

Argentina 238 921 100 711 339 632 11.4

Australia 323 649 23 473 347 122 14.6

Austria 115 979 25 047 141 026 1.2

Belgium 912 233 121 061 1 033 294 1.6

Brazil 1 351 998 329 519 1 681 517 24.5

Canada 1 550 500 1 411 136 2 961 636 −3.2

China 604 677 1 464 392 2 069 069 13.1

Czech Rep. 428 224 27 268 455 492 21.1

Egypt 39 616 20 149 59 765 −21.4

Finland 38 468 458 38 926 13.2

France 2 879 810 468 551 3 348 361 5.3

Germany 5 131 918 394 697 5 526 615 −2.8

Hungary 134 029 3 369 137 398 7.2

India 517 957 283 403 801 360 −2.1

Indonesia 257 058 35 652 292 710 228.9

Iran 274 985 3000 277 985 132.8

Italy 1 422 284 316 031 1 738 315 2.2

Japan 8 359 434 1 781 362 10 140 796 2.5

Malaysia 280 283 2 547 282 830 11.3

Mexico 1 279 089 656 438 1 935 527 24.9

Netherlands 215 085 52 234 267 319 −13.0

Poland 481 689 23 283 504 972 −12.2

Portugal 178 509 68 215 246 724 −2.2

Romania 64 181 13 984 78 165 −26.9

Russia 969 235 236 346 1 205 581 3.1

Serbia 11 091 1 649 12 740 141.8

Slovakia 181 333 450 181 783 43.3

Slovenia 122 949 0 122 949 4.1

South Africa 230 577 126 787 357 364 12.6

South Korea 2 602 008 512 990 3 114 998 9.6

Spain 2 366 359 666 515 3 032 874 6.3

Sweden 259 959 41 384 301 343 20.2

Taiwan 263 013 109 600 372 613 5.6

Thailand 97 129 314 592 411 721 27.6

Turkey 297 476 133 471 430 947 44.7

UK 1 641 452 172 442 1 813 894 −8.1

Ukraine 18 124 13 131 31 255 63.0

USA 5 542 217 7 257 640 12 799 857 −1.7

Uzbekistan 32 273 0 32 273 −27.4

Others 127 445 63 204 190 649 59.3

Total 41 215 653 17 158 509 58 374 162 3.8

Source: Derived from OICA.

4 The automotive industry in an era of eco- austerity

Table 1.2 Car production by country, 2000, 2007 and 2008

Country Cars 2000 Cars 2007 % change

(2000–2007)

Cars 2008 % change

(2007–2008)

Argentina 238 921 350 735 46.8 399 577 13.9

Australia 323 649 283 348 −12.5 285 590 0.8

Austria 115 979 199 969 72.4 125 436 −37.3

Belgium 912 233 789 674 −13.4 680 131 −13.9

Brazil 1 351 998 2 388 402 76.7 2 561 496 7.2

Canada 1 550 500 1 342 133 −13.4 1 195 436 −10.9

China 604 677 6 381 116 955.3 6 737 745 5.6

Czech Rep. 428 224 925 778 116.2 933 312 0.8

Egypt 39 616 67 149 69.5 72 485 7.9

Finland 38 468 24 000 −37.6 18 000 −25.0

France 2 879 810 2 550 869 −11.4 2 145 935 −15.9

Germany 5 131 918 5 709 139 11.2 5 526 882 −3.2

Hungary 134 029 287 982 114.9 342 359 18.9

India 517 957 1 707 839 229.7 1 829 677 7.1

Indonesia 257 058 309 208 20.3 431 423 39.5

Iran 274 985 882 000 220.7 940 870 6.7

Italy 1 422 284 910 860 −36.0 659 221 −27.6

Japan 8 359 434 9 944 637 19.0 9 916 149 −0.3

Malaysia 280 283 347 971 24.1 419 963 20.7

Mexico 1 279 089 1 209 097 −5.5 1 241 288 2.7

Netherlands 215 085 61 912 −71.2 59 223 −4.3

Poland 481 689 695 000 44.3 840 000 20.9

Portugal 178 509 134 047 −24.9 132 242 −1.3

Romania 64 181 234 103 264.8 231 056 −1.3

Russia 969 235 1 288 652 33.0 1 469 429 14.0

Serbia 11 091 8 236 −25.7 9 818 19.2

Slovakia 181 333 571 071 214.9 575 776 0.8

Slovenia 122 949 174 209 41.7 180 233 3.5

South Africa 230 577 276 018 19.7 321 124 16.3

South Korea 2 602 008 3 723 482 43.1 3 450 478 −7.3

Spain 2 366 359 2 195 780 −7.2 1 943 049 −11.5

Sweden 259 959 316 850 21.9 252 287 −20.4

Taiwan 263 013 212 685 −19.1 138 709 −34.8

Thailand 97 129 315 444 224.8 401 309 27.2

Turkey 297 476 634 883 113.4 621 567 97.9

UK 1 641 452 1 534 567 −6.5 1 446 619 −5.7

Ukraine 18 124 380 061 1997.0 400 799 5.5

USA 5 542 217 3 924 268 −29.2 3 776 358 −3.8

Uzbekistan 32 273 170 000 426.8 195 038 14.7

Others 127 445 429 430 237.0 332 917 −22.5

Total 41 215 653 53 049 391 28.7 52 637 206 −0.8

Note: USA excludes light trucks.

Source: Derived from OICA.