How U.S. Automakers Missed the Green Wave
Nobody could doubt that 2008 was Armageddon for the auto industry. The U.S. market was down 18% from 2007, with worse drops in sales late in the year (Chrysler lost over half its business in December 2008 vs. the previous year). Detroit is on life support for good reason.
But these horrendous numbers hide some important, and educational, differences between automakers on two levels: (1) Japanese and U.S. companies, (2) before the credit meltdown and after. Take a look at the brutal facts on U.S. sales:
On the first point, Japanese producers have clearly done much better. Many commentators single out Detroit's higher labor, health care, and pension costs as the culprit. But a higher cost structure, while affecting sales, really speaks to profitability. The real story here is that Detroit did not make the smaller, more energy-efficient cars that consumers began to want badly in 2008.
The second column proves the point. Until the real economic meltdown, when the seismic shift in the auto market was driven by higher gas prices and growing environmental concern, the smaller fleets of the Japanese sold just fine. Green poster child Toyota was down as well, but not because of flagging sales of the hybrids (the Prius was still flying off lots last spring). Toyota's problem was that it pursued a larger-vehicle strategy more aggressively than the other Japanese auto makers so it got caught in the same whirlpool as Detroit. But sales at Nissan, Honda, and Subaru rose for the first eight months of 2008, and Subaru managed to end the entire year up - a major victory when the whole market is down 18%.
My point is this: U.S. car companies missed the Green Wave in a profound way. It's an American business tragedy, but denying the core reasons for the failure won't help anyone. Other industries should learn from this example and avoid the same fate. When we come out of this economic mess, and energy prices skyrocket once again, the leanest will survive and thrive. The inefficient companies that are fossil-fuel dependent - in their own operations or even elsewhere in their value chain - will struggle.
So, enough hindsight. Let's look to 2009 and beyond and see what's happening in the auto industry. All of the major players are reinventing themselves for a greener future. Perhaps because this is the worst of times, auto companies are getting as creative as they've been in many decades.
It's important to note one major hurdle. The industry's innovation alone will not do the trick if policy doesn't help. The battles lately about fuel efficiency standards are vital, but both sides of the debate are really talking in half-truths. Without higher gas prices - through a gas tax if necessary - and tax breaks for consumers buying the more expensive technology, the sales of these new vehicles may remain small. But while that important policy sideshow rages on, the big players are surprisingly focused on innovation.
New ideas are cropping up in this old, staid industry affecting everything from how we drive (car sharing, for example) down to how parts are made - a new technology from a company called Trexel makes plastic parts lighter, reducing the carbon load over the lifecycle of the car by over 10%. The big players are trying out new things including electric cars, lean manufacturing, and even new business models. Here's a quick look at some of their strategies.
~Andrew Winston, Founder, Winston Eco-Strategies, Co-author, Green to Gold (Read his "Eco-Advantage" blog here.)
Betting the Brand on Green Technology: GM's Volt
If you believe GM's ads, or its pronouncements at auto shows, the Chevy Volt is the lynchpin of the company's future. The (primarily) electric Volt will get 40 miles on a charge, but GM seems to be hoping that the car will take them much further than that. The Atlantic ran a great story on the Volt, describing how much depends on its success and how many roadblocks remain. GM has been setting aside design resources and building partnerships to ensure the technology will be ready (partnerships seem to be par for the course in the electric realm with Nissan, Volkswagen, and Toyota all picking battery dance partners in the last year or two). GM recently selected LG as its battery producer and focused attention on the planned 2010 launch. GM may not have the time or resources to get there, but if it does, perhaps the Volt will reinvigorate the company's image as an innovator.
Betting the Company on a Green Portfolio: Ford
Bill Ford, Jr. has been trying to get his company to see the light on green for years. Had the Board listened more fully, perhaps the company would be in better shape. In fact, the innovative moves it did make, like launching the popular Ford Escape hybrid, have worked well and helped Ford stay more solvent than its Detroit peers. But Bill Ford isn't satisfied and wants to move the whole company to an electric future. Ford's plans include an electric commercial van, small car, and plug-in hybrids over the next few years, but also new combustion engine technology to increase efficiency. The company has said all this before, but you get the sense that Bill's view is winning out around the boardroom. He's making the case that it's far more risky to stay the current course than to go green. As he told the New York Times at the latest auto show, "Frankly, I think it's a gamble not to do it. It's clear that society is headed down this road."
Evolutionary Strategy: Toyota
Of the companies that you might imagine focusing on electric cars, Toyota has been somewhat quiet. The company has sounded more evolutionary, rather than revolutionary about anything beyond hybrids. Toyota announced that its 2010 Prius will increase fuel efficiency moderately from 46 mpg to 50 mpg. The company also announced plans to bring the plug-in Prius to the U.S. in the next couple of years. Toyota faces criticism that it is standing in the way of a broader move to pure electrics. I can't exactly blame them since the Prius accounts for more than 50% of all U.S. hybrid sales. It would not be the first time that a market leader tried to keep its dominance. The risk to Toyota is that it gets passed in the fast lane.
Leapfrogging the Competition: BYD and Electrics from China
Unfortunately for Detroit and Japan, they're not alone in the race toward electrics. Batteries have been the major stumbling block for years, so maybe it's no surprise that a little-known battery maker in China, BYD, seems to have beaten everyone to the punch. BYD is rolling out a car that seems very much like the Chevy Volt. Warren Buffett is impressed enough with the company to invest $230 million. If the car lives up to its promise, a new entrant may have trumped the big guys - not unusual in most industries, but not the norm for autos. The kind of competitor that seems to come from nowhere remains a risk in any industry. A green lens may help some players find uses for their technology in new markets (I've written about this before with videoconference/telepresence as an attack on the airline industry).
Getting Very Lean: Subaru
Subaru gets no respect. It rarely gets attention even as it has quietly compiled the best year-over-year performance in the U.S. among the eight biggest firms. Subaru's slight growth in 2008 is astonishing. The Forester SUV was named MotorTrend's SUV of the year, boasting the highest observed fuel efficiency in its class. But at the same time, Subaru has been building green into its processes for years. May 4, 2004, was a special day at the company's Lafayette, IN plant. It was the last day the company took any waste to the dump. The "zero landfill" plant is a marvel that keeps manufacturing costs low and builds a culture of lean and green.
Redefining the Business Model: Shai Agassi
Former software exec Shai Agassi may shake up the auto industry more than anyone. His company, Project Better Place, is pitching entire countries on a new electric model. Israel signed up first, with Denmark and a few other, smaller countries close behind. Better Place will build charging stations all over the country and effectively sell miles as a service. You pull up and replace your battery for another charged one. Who knows if this game-changing idea will work, but he's got a lot of people thinking about what a car really is - for many people, it's about mobility, not the possession. Agassi is controversial, but innovative - see the comments about his video presentation of his ideas on YouTube - and has believers, including Nissan, which is putting $1 billion into the company. Many entrepreneurs, and "intrapreneurs" in big companies, can follow Agassi's lead and try to reinvent markets. Win or lose, Better Place represents a great example of innovation around delivery of a service or product. The auto industry may never be the same again.
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