Car companies are at a junction, with an urgent need to address the pollution their vehicles cause, especially in cities. Some of the huge manufacturers are responding much more effectively than others

The big car companies are in an enviable position. They offer an aspirational product that almost everyone wants. Modern society is, after all, built on the car. The industry’s success is shown by steadily rising global sales. Figures from the International Organisation of Motor Vehicle Manufacturers show that new passenger car registrations worldwide rose from about 45m in 2005 to 65m in 2014, with only a relatively small downward blip in the economic crisis years of 2008 and 2009.

In the main producing countries, car companies are leviathans with massive power on which whole ecosystems of suppliers and workers depend. Germany, for example, in the second quarter of 2015, produced almost 3m passenger cars. During the same period, 1.6m new cars were registered in Germany, giving a net export figure of 1.4 million – more than the total production of any other country apart from China, Japan, the United States, South Korea and India. The big car brands “are of national importance for economies and governments,” says Tom de Vleeschauwer, director of long term planning and sustainability at analysts IHS.

But power can of course corrupt. It can also engender complacency and resistance to change. For example, manufacturers have pushed back against tighter environmental standards. Peter Wells, a professor of business and sustainability at Cardiff University, says the car industry “remains highly conservative” and is “an incredibly powerful lobby”.
However, resisting the forces of change does not make them go away. Car manufacturers face an increasingly urgent sustainability challenge. How each company responds will define its prospects in the years ahead.

Mobility without pollution

The main issue for the industry is that although consumers want the mobility that cars offer, cars remain highly polluting, resource-intensive and damaging to quality of life. The greater the success of the industry in selling new cars, the more pressing these problems become in terms of the overall impact from emissions, congestion, harm to ecosystems and noise.

The industry’s sustainability challenge is made more difficult because the growing world population is increasingly living in cities. The World Health Organisation said in January that research showed that the “public health emergency” caused by air pollution in cities had become “dramatic”, with 3.3m premature deaths per year worldwide. Congestion and pollutants from vehicle exhausts are a major cause. “We’re getting close in some of the major cities to it becoming unsustainable,” de Vleeschauwer says.

The cheating by Germany’s Volkswagen on pollutant tests in the US has thrown the issue into sharp relief. VW was caught using a secret “defeat device” in the form of software installed in some diesel models, which detected when cars were being put through tests to establish their emissions of nitrogen oxides (NOx). In test conditions, the software was able to artificially reduce NOx output, which in normal driving exceeds legal limits.

Air pollution in cities causes millions of premature deaths

VW has admitted that the defeat device – which is illegal under European Union and US law – is installed in about 11m cars globally. The VW Group encompasses many brands, and according to the US Environmental Protection Agency, vehicles containing the defeat device include various Audi models and the Porsche Cayenne, in addition to the VW Beetle, Golf, Jetta and Passat.

Porsche was also tainted by the VW scandal

The use by VW of clandestine technology to keep on the road cars that are much more polluting than they should be – with the knock-on effect of increased air pollution and more premature deaths – has without doubt sent the German company to the bottom of the automotive corporate ethics pile. Stefan Bratzel, director of the Automotive Management Centre at Germany’s University of Applied Sciences, says the scandal has “triggered a massive shockwave and has shaken the credibility of the whole car industry”.

Bratzel says the wrongdoing at VW puts the onus on carmakers, especially the powerful German brands, to be less obstructive when it comes to lobbying against environmental regulation. “The most important issue is to win back lost confidence,” he says. In 2016, “an urgent priority for German carmakers is to limit reputational damage,” and one way they can demonstrate good faith is to “make less use of blocking tactics” to prevent tighter emissions standards.

A lesson learned?

The VW scandal is also a textbook case of how cheating on sustainability can ultimately weigh heavily on a company’s financial performance. In the wake of the revelations about VW in the US, its global sales fell 2% and its shares shed about a third of their value. The impact will continue to be felt, with heavy penalties, court actions by disgruntled VW owners and shareholders, and requirements to compensate consumers all in the pipeline. The company has set aside $7bn to cover the costs of its emissions cheating, but is likely to have to pay much more.

It’s not yet clear, however, that VW and the broader industry have learned the lesson. By denying collective responsibility and placing the blame on “engineers”, VW “still doesn’t seem to get it” and is displaying “really poor management of the relationship between the business and wider society”, Wells says.

Matthias Wissmann, president of the powerful German Association of the Automotive Industry, and a former German federal minister of research and technology, says VW’s problems are “no reason to put the whole sector under general suspicion”. VW has “promised to counter this confidence crisis with a maximum degree of transparency and with a swift and immediate clarification of the whole issue”.

The fact remains, however, that VW is not the only car company with vehicles that spew out more pollution than they should. “Most [European] car manufacturers exceed the air pollutant limits by a big margin,” says Julia Poliscanova, clean vehicles and air quality officer with green campaigners Transport & Environment. This has largely been put down to their ability to manipulate – within the law – EU laboratory tests, rather than deployment of defeat devices. “We don’t have proof to claim something like that [for manufacturers other than VW]”, Poliscanova says.

But suspicions linger over the whole industry. In January Renault recalled 15,000 diesel cars for a fix after a French government investigation exposed what the company called a “calibration error” in the vehicles’ pollution control systems. The error meant some Renault SUVs were producing more NOx than they should have been, though the company blamed mistake rather than conspiracy.

Renault's “calibration error” was exposed in France

Carmakers also face increased risk that their vehicles will be independently tested by campaign groups and media organisations keen to follow up the VW scandal. Tests carried out for German broadcaster ARD, for example, have raised questions about the emissions and fuel efficiency claims of the General Motors Opel Zafira.

In the US, meanwhile, General Motors and Ford are prominent in a “very troubling” pushback against fuel consumption standards proposed by the Environmental Protection Agency and the National Highway Traffic Safety Administration, says Carol Lee Rawn, transportation programme director at sustainable investment advocates Ceres. “A lot of the companies are saying the right thing but then you look at their actions and it’s not consistent.”

Moving forward

Overall, the industry is at the stage where it knows that a big jump towards greater sustainability is needed, but many companies are not ready to make the leap.

Wissmann of the German Association of the Automotive Industry says it is his “firm conviction” that “in the medium and long-term perspective, alternative driving technologies will prevail,” primarily electrification of vehicles. Germany is home to powerful car companies that are associated with lobbying to limit the impact of environmental regulations, but it is also a country with an aim to become “a leading market for e-mobility”, he points out.

The sustainability of the car sector is to a great extent about technological choices. To a certain degree this has a geographical aspect, with regulations in certain jurisdictions encouraging companies to go in particular directions. For example, in the US, car fuel efficiency standards (and therefore limits on CO2 emissions) are being progressively tightened, while pollutants such as NOx are more tightly controlled than in Europe. This has led the main US manufacturers – Chrysler, Ford and General Motors – to seek ever greater fuel efficiency through a range of technologies, including engine improvements, use of lighter materials in building cars and new fuels, including biofuels.

US companies are also producing electric models, such as the Chevrolet Volt and Bolt, which should be available in late 2016 and have a 200-mile range per charge. US company Tesla has a reputation for pioneering premium electric vehicles, with its Model S saloon having a 330-mile range and capable of being charged to the equivalent of 170 miles within half an hour. The Model S does come with a price tag of £50,000 upwards, however, and sales volumes are tiny compared with the mainstream cars.

Germany aims to lead the e-mobility market

Japanese companies, meanwhile, including Toyota and Nissan (in alliance with Renault) are associated with development of petrol hybrid cars and experimentation with electric vehicles such as the Nissan Leaf. “Toyota’s green image is well established on a global basis,” IHS’s Tom de Vleeschauwer says. The Japanese company is “one of the trendsetters with their hybrid technology”.

Toyota has been a trendsetter

Innovation in e-mobility is also coming from China, which is “really focused” on plug-in electric vehicles, says Chris Robinson, a research associate with technology analysts Lux Research. Chinese manufacturer BYD has been “very successful in the last couple of years”, and according to provisional figures was the world’s largest seller of plug-in cars in 2015, Robinson says.

In Europe, however, the regulatory focus in terms of vehicle sustainability has been on cutting CO2 emissions. The European Union adopted in 2009 a law putting a limit on the amount of carbon dioxide per kilometre passenger cars could emit.

This led manufacturers, not least those in Germany that make luxury cars and struggle to keep their emissions down, to prioritise diesel vehicles, which produce less CO2 than petrol cars. However, diesels generate higher levels of pollutants such as NOx. The difficulty of balancing lower CO2 emissions with the need to limit other exhaust pollutants appears to have been behind the VW scandal.

Many European car companies invested heavily in diesel vehicles, and now risk being left behind as the rest of the world moves towards a more sustainable model based on electrification. Stefan Bratzel says the failings of VW have “dealt a heavy blow to German diesel technology in the US. I don't think there is any chance that this technology will recover from that debacle.” In the US, “they are over and done with it”. However, Bratzel adds that in Europe, “without diesel, we will not meet the 2020 targets to reduce CO2 emissions”.

Silver lining?

The VW scandal and concerns about air pollution could prove to be a cloud with a silver lining. Robinson says that many companies, including those in Europe, are working on electric vehicles. They are likely to now bring electric models out more quickly. Plug-in hybrids with both an electric motor and a petrol engine will be “one key area of growth”, he says. It is expected that all of Volvo’s vehicles, for example, will be plug-ins by 2020.

Electric cars are becoming more affordable

In Germany, one company stands out as pushing for sustainability ahead of its rivals. BMW is “continuously seen as being at the top”, de Vleeschauwer says. The Munich-based company has “a very well-defined plan for the long term” and has “arguably done the best job in terms of communication” about its sustainability intentions.

BMW has been one of the fastest movers on electrification with its BMW i sub-brand, and the BMW i3 plug-in. With the i brand, the company has “invested a lot of resources” and is “one of the early visionaries”, de Vleeschauwer says. The BMW i3 is also being promoted through the DriveNow car-sharing service, an initiative of BMW and car hire company Sixt. The service has nearly 600,000 registered users sharing 4,000 vehicles, predominantly in Germany. It operated profitably in 2015, according to an annual review published by DriveNow in January.

BMW ranked top

Led by companies including BMW, Toyota, Nissan, Chevrolet and BYD, electric vehicles could be approaching a “tipping point”, Robinson says. Electric cars are becoming more affordable, and fast-recharging technologies assuage the fears of drivers that electric vehicles have only limited range. The start of a mass movement towards electric vehicles would signal a sustainability step-change for the industry, and would go a long way to address concerns about the negative side of society’s love affair with the car.

The car industry: sustainability snapshot

The latest corporate sustainability assessment from analysts RobecoSAM reinforces the message that the best performing car companies in sustainability terms are those that have made the greatest strides towards electrification.

Top performer in the sector in 2015, according to RobecoSAM’s Sustainability Yearbook 2016, was BMW, followed by Fiat Chrysler, Nissan and France’s Peugeot. Japan’s Honda and Toyota also attract high ratings. All of these companies offer electric and/or hybrid vehicles and perform well on environmental criteria, according to the RobecoSAM methodology. The automobile sector’s “social” score is a little lower, but the sector overall outperforms most others on both environmental and social ratings.

RobecoSAM does not identify worst-performing companies, but VW was excluded from its ratings in the wake of the emissions cheating scandal. The company is not included in the Sustainability Yearbook 2016 because of the “severe reputational and financial consequences of this issue”, RobecoSAM says. However, the deception practised by VW undoubtedly makes it the current worst performer on responsibility and sustainability in the sector. The company has much work to do to regain its former reputation as a sustainability leader.

The Sustainability Yearbook 2016

automotive industry  pollution  ecosystem  environmental  WHO  sustainability  emissions  corporate ethics  shareholders 

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