Sustainability in the Automotive Industry

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This report aims to give the reader an insight into certain theories and drivers relating to sustainable development. The information used within this report has been sourced from lecture and tutorial notes and through personal research. This information has then been used to assess the automotive industry as a whole. Conclusions have been drawn were possible and are supported by researched information

Modern day influences and pressures from Government, society, environment and green pressure groups are continually reminding us that the environment that we live in is not sustainable. It is up to us to act now to ensure that we do all we can to safeguard the well being of the environment for the future. As it becomes visible that if businesses take an interest in their environment and what they can do to help to reduce emissions, pollution, wastage disposal etc and how much of an impact this can have on creating ‘sustainable development’, this in turn creates more pressures for businesses to conform. This can have many positive and negative effects such as increased costs (negative) or increased competitiveness (positive). All these possible pressure are influences will be discussed within in this report.

This report aims to cover key issues that are affecting industries in today’s environment, with emphasis on the automotive industry as our chosen topic. It is our objective to source Government statistics and industry benchmarks, and then to comment on how our chosen industry is trading in comparison to these. The main areas discussed will include ecological and ethical drivers for change within the automotive industry, a PESTEL analysis of this industry will also be undertaken to help give more insight into the matter.

A conclusion will be drawn with regards to what we feel are the most significant drivers for change within the automotive industry. Theoretical and informative research will be carried out were possible with regards to industry and Government bench marks to enable us to make appropriate comparisons and conclusions. After this brief introduction, the main areas of the report will be discussed, followed by a conclusion as mentioned earlier.

There are many environmental factors that influence the decisions made within a business, these could be which products to source, where to source them from, what supplies to use, which direction to take the business, how to dispose of waste, even such things as how to advertise. If consideration is not taken to ensure that the decision is not only the most profitable for the business but also profitable for the environment then this could cause significant damage to the ecological infrastructure of the environment.

Examples include:Such pressures can force industries to change the industry norms simply for competitive advantage, Joseph Fiksel (2001) said “it is quite plausible that those companies who fail to understand the sustainability drivers may find themselves displaced by the entry of new, more agile competitors” he then went on to say that “the real threat may come not from regulatory agencies, but from competitive challenges in the marketplace, and those who delay may not have time to recover”. This influence along with cost saving are reasons why a company would want to become more sustainable, obviously both factors contribute to competitive advantage, therefore cost saving. The other pressures on industries for changes include government influences, as mentioned above. These influences come from legislation and environmental taxation.

Legislation

“Businesses are regulated to protect our natural resources from irreversible damage. Those with effective resources, who adopt sustainable practices, reduce waste and pollution” (The Environment Agency). Companies are regulated through a number of methods, firstly by direct regulation which in the past has achieved good results, this type of regulation is enables the control of emissions and the identification of process that have the potential to cause pollution. Direct regulation is usually used as a way of implementing EU level directives. There are also other methods of regulation, referred to as “modern regulation”, this is an approach which keeps pace with the economy and society as well as protecting the environment, this may be done through improved education, environment management systems, trading schemes or negotiated or voluntary agreements.

Environmental Taxes

Environmental taxes include such things as land fill tax, climate change levy and the aggregates levy. The way in which these taxes drive change is by taxing companies on ‘environmental bads’, for example, CO2 emissions, amount of wastage or the exploration of natural materials. Therefore through reducing such bads the company saves money by paying fewer taxes. This method has been an effective driver for change for a number of years; in 2004 alone environmental taxes as a percentage of total taxes fell to 8.3%, down from 8.6% in 2003 (www.statistics.gov.uk). These taxes act as a catalyst for produces and consumers to make appropriate management and purchasing conditions.

Revenue from environmental taxation (www.statistics.gov.uk) Lastly, stakeholder influences drive change through the need to satisfy stakeholders. There will be different reason for the various stakeholders to apply pressure for change, for example, if a company supplies a supermarket and they want a certain environmentally friendly product, the suppliers has to conform because of the scale of investment involved.

Other influences such as this include customers and investors, companies will comply with what these stakeholders want because this is where their cash flow is generated. Other stakeholder pressures include those from community, pressure groups and the media; these stakeholders drive change because if a company does not comply, it will damage a companies reputation which may affect the competitiveness of a company, it also could result in a loss in sales.

“This sector is huge, producing 52 million cars and light vans a year. Dubbed the ‘industry of industries’ by Peter Drucker, the automotive sector is arguably the most competitive industry on earth and is considered as the benchmark for most other industries.” (PA Consulting Group) In 2003, over 1.65 million cars and 189,000 commercial vehicles were produced in the UK alone; this industry is governed by legislation with regards to safety standards, registration information, design requirements, technical information and environmental regulations, known as the NetRegs of an industry. There are also many pressures that directly affect the automotive industry that drive change.

Firstly, the climate change levy has had a massive impact to the industry, as the transport sector accounted for 24% of UK greenhouse gas emissions in 2002 (www.defra.gov.uk). The climate change levy was introduced in April 2001 as a taxation of the business use of energy as part of the UK’s Climate Change Programmes, the automotive industry is said to fully recognise the importance of improving climate change and is committed to the continual enhancement of its products to help move towards this factor (www.SMMT.co.uk). This levy is having a substantial effect upon the car industry during “a particularly challenging time of intense cost pressures and unfavourable exchange rates” (www.SMMT.co.uk), for some companies within the SMMT, this levy could increase manufacturing costs by 3%, because of this there is huge pressure for the development of new technology.

Although it is clear to see that this industry is taking the impact of emissions very seriously and the Government welcomes this action, they also stress that much more has to be done in the move towards a low carbon economy. “In 1998, European, Japanese and Korean vehicle manufactures entered into a unique and groundbreaking voluntary agreement with the European Commission to reduce CO2 emissions from new passenger cars by 25% from 1995 levels by 2008. This agreement is expected to contribute to 15% of the total reduction in CO2 emissions agreed by the EU under the Kyoto Agreement” (www.SMMT.co.uk).

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