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green@work : Magazine : Back Issues : May/June 2006 : Driving Toward Green

The Battle for the Moral Advantage
Corporate strategies placing a higher value on attributes such as cleaner air and reductions in fuel use are being taken very seriously by companies like Honda and Ford.

by Bruce Piasecki and Peter Asmus


Intense competition among the major car companies—the largest multi-national corporations of the world—is nothing new. What is truly remarkable today is that this fierce tug-of-war over global market share increasingly focuses on the competing “green” attributes of new motor vehicle launches. In essence, the winning car companies are betting on the “moral advantage” of their greener cars, a new twist to the standard lexicon of business-speak that typically involves terms such as “terrain” or “technological” advantage.

We are clearly entering a brave new world in which purchase decisions increasingly go beyond price and quality, as well as beyond blame. The car companies that have some valid claim to serving a higher purpose than pure economics now hold the competitive advantage.

In our prior column, we outlined the challenges—as well as opportunities—facing General Motors (GM) as it trims its workforce and implements a radical restructuring. Ford Motor Company faces many of the same challenges, as its unionized workforce struggles to adjust to today’s brutal global marketplace. Like GM, sustained high fossil fuel prices have rendered Ford’s once lucrative profit margins on SUV sales as obsolete. Ford and GM’s historic technological advantages on key customer preferences have eroded as pressing moral concerns such as climate change factor into purchase decisions. While Ford has not made the same bold promises on hydrogen as has GM, it has jumped on the hybrid bandwagon in a big way.

Ford was the first U.S. auto manufacturer to bring a hybrid vehicle to the U.S. consumer market: the Ford Escape. This “greener” SUV featured a 75-percent improvement in fuel economy over its predecessor. Instead of emitting 105 pounds of pollutants for every 15,000 miles driven, the hybrid Escape emits a single pound. Ford did not set any numerical marketing sales targets for the Escape (as did Toyota in all of its hybrid product launches), but insiders acknowledge Ford’s dream scenario is to reach the same annual sales penetration as Toyota’s Prius: 25,000 units moved in 2005.

Ford then introduced the 2006 Mercury Mariner Hybrid, a compact SUV. This shapely hybrid is relying upon a highly unusual online marketing program targeting the Web-savvy generation. The Sierra Club, one of the nation’s oldest environmental nonprofits, is helping out on this experimental online marketing campaign that also includes one-of-a-kind “personal sales” consultants. “We hope that helping to make the Mercury Mariner Hybrid a success will encourage Ford to invest in better technology to increase the fuel economy of its entire fleet,” said Dan Becker, director of the Sierra Club’s Global Warming Program, underscoring how times of changed. Who would have thought that environmentalists would go to bat for Ford?

Honda, in contrast, was first to market with hybrids, beating even Toyota to the task. The two-seated Insight remains the most fuel-efficient car on the road today. This focus on efficiency is nothing new, as Honda boasts the best overall fleet fuel efficiency of any major automaker. And the firm is hardly standing still. In fact, at the recently concluded 2006 North American International Auto Show, Honda was showing off its own hydrogen fuel cell car, the FCX concept vehicle. This sleek sedan won’t be sold here in the United States for four or five years. Nonetheless, this FCX vehicle does address the prime obstacle to widespread adoption of hydrogen fuel cell technology by incorporating a “Home Energy Station” that turns natural gas into hydrogen, providing the equivalent of 5 kilowatts of power to a home, or enough fuel for the FCX to travel 350 miles.

In essence, this car begins to fulfill Amory Lovins’ vision of the “Hyper-Car”: motor vehicles that can serve as micro-electricity generators to (eventually) power our homes. At the same 2006 show, Honda also won the prestigious “Car and Truck of The Year awards” for its Civic and Ridgeline Brands, proving that its products are living up to some of our highest social and moral expectations.

The contrasting profiles of Ford and Honda underscore a broader development of great consequence. Asian car manufacturers such as Honda and Toyota currently produce 43 percent of the world’s motor vehicles, but the investment community values these firms’ market capitalization at 72 percent of the total value of auto manufacturing. Clearly, companies such as Honda have won the value game this decade. Consumers want cars that address today’s social concerns of high fossil fuel prices and global climate change. The lingering repercussions of this value shift from the United States to Asia remains to be seen.

The greening of Ford
Corporate Watch, a Web-based group dedicated to corporate accountability, once awarded the Ford Motor Company its grand prize “Greenwash Award” because of the gap between the eco-image it was projecting and the environmental performance of its past SUVs. Long considered by consumer groups to be among the most secretive, obstructionist and compliance-driven car companies, Ford has changed its tune in the 21st century, thanks to its chairman of the board, William Clay Ford, Jr. Once he became chairman, the company abandoned the Global Climate Coalition, a cross-sector corporate entity that discredits the global climate change threat. Ford even made the startling admission that its sales of gas-guzzling SUVs were contributing to global climate change and were a safety concern to smaller vehicles on the road.

One of Ford Jr.’s top priorities is transforming The Rouge Plant, a primary source of pollution in Michigan’s Rouge River, into a model of sustainable design, a factory that cranks out cars that can be completely taken apart and recycled. “His great-grandfather gave us the assembly line,” said world-renowned green architect William McDonough, “and Bill Ford is going to give us the disassembly line.” In general, Ford’s vision of the future of auto making moves from the selling of products, to the providing of a transportation service. “We’re not in the car business or the truck business. We’re committed to the personal-mobility business,” Ford said.

Like GM, Ford, too, has recently announced a major restructuring of the company that will idle 14 existing manufacturing facilities and lay off as many as 30,000 employees, a large blow to organized labor and a clear sign that job stability and the social safety net that the auto industry had so long been associated with is now merely nostalgia. This is a particularly bitter pill to swallow for CEO Ford, Jr., as it was this company that broke ground in improving labor relations way back in 1914, when Ford introduced a minimum wage of $5 per day—pay that was roughly twice that of any other U.S. competitor.

Despite its loss of jobs, market share and profit, Ford somehow continues to rack up some impressive accomplishments in the environmental arena. For example, Ford is the first corporation to win the “Recycling Leadership Award” from the National Recycling Coalition. Many of us forget that Ford was the first firm to issue global recycling guidelines to its engineers and suppliers 20 years ago.

Perhaps the firm’s ability to deliver innovative green products has been underestimated. At this year’s North American International Auto Show, Ford was showing off its Reflex, a sporty concept vehicle that is not only a hybrid, but features a solar photovoltaic panel and purportedly gets 65 miles per gallon. Of course, these cars will not be on our freeways anytime soon.

Honda’s path forward
It does pay to measure one’s prospects, and adjust corporate strategy, to respond to evolving “near future” market patterns. For this, Honda wins some points.

Honda takes the business of sustainable transit very seriously, and has been a pioneer in integrating personal and mass transit modalities through pilot projects with universities and local transit authorities that encourage participants to use hybrid vehicles together with bicycles, buses and trains. Other European-based auto makers are doing the same.

Honda sees itself as No. 1 when it comes to the environment. The company backs up this claim by ticking off a list of how Honda was the first in delivering ultra-low-emission vehicles, the nickel-metal hydride battery and the Insight gas/electric hybrid to the U.S. market. “Our decision to be environmental leaders was not customer-driven back then, and still is not customer-driven today,” said Art Garner, public relations manager for Honda. Despite its efforts in hydrogen and hybrids, Honda has also defended the internal combustion engine. Just a few years ago, Garner proclaimed, “There will be no radical design changes in the next 10 years. The cars of the future will be cleaner, but they will still run on gas-fired internal combustion engines.”

Perhaps these statements underscore how Honda is willing to compete in many emerging markets simultaneously. For example, the Honda Jazz—a car sold outside of North America until just recently—is an inexpensive, top-selling four-door subcompact whose gas mileage and emissions profile matches the Toyota Prius. And like the Prius, it seats five adults, and thanks to clever design, offers plenty of cargo room. The price tag for this car (under $15,000) with a traditional internal combustion engine is far below that of the trendy and ever-popular Prius (more than $20,000).

At the recent 2006 North American International Auto Show, Honda Motor Co. President and CEO Takeo Fukui emphasized several new corporate social responsibility initiatives. On the safety front, Honda will build upon its industry-leading “Safety For Everyone” initiative by equipping its 2006 Acura RL with the world’s most advanced system for accident avoidance, which relies on wave radar to detect a collision before it happens and alerts the driver with audible and visual signals. The system applies braking force to reduce the severity of the crash if an accident appears unavoidable.

On the environmental front, Honda will continue to advance fuel efficiency and new hybrid technologies by incorporating them into more models. For example, the firm’s Variable Cylinder Management (VCM) system, first introduced into the United States in 2004, will be integrated into the 2006 Honda Pilot SUV. Here’s how VCM works: Three of the engine’s six cylinders are deactivated during cruising, deceleration and other low-load engine conditions. The 2006 Civic will feature the most advanced reiteration of Honda’s i-VTEC engine technology, the industry leader on efficiency. The Civic Hybrid will feature a new and improved hybrid drive train. And the natural-gas-powered Civic GX—powered by the cleanest internal combustion engine in the world—will also be available to consumers looking to purchase a “green” car.

A glimpse of the near future
It is clear from the actions of both Honda and Ford that embedding solutions to social problems in new products pays. Corporate strategies placing a higher value on attributes such as cleaner air, reductions in fuel use and passenger safety are being taken very seriously by today’s auto giants. And this “moral advantage” corporate strategy is now cascading throughout business lines and consumer markets.

Ford is making a painful and laborious transition, but showing some signs of promise. Sales in March have given Ford a ray of hope. Sales for its F-Series truck—the best-selling vehicle in the United States—rose for the third straight month. Despite a drop in sales of 2 percent for the first quarter of the year, Ford officials claimed their goal of slowing its U.S. market share decline seemed within reach.

In many ways, Honda seems to be the best technologist, introducing an array of options to collectively meet our new social expectations. While Toyota’s march toward becoming the world’s largest automaker was reinforced with March 2006 being its best sales month ever, Honda remains a worthy competitor, perhaps keeping Toyota honest, ensuring the image and reality of “green” cars merge into something that truly betters the world.

Bruce Piasecki is the author of six books on corporate strategy, including the forthcoming Better Products, Better World: How Large Firms Shape Your Future. Visit www.ahcgroup.com for more details on this book and the AHC Group, Inc. In Search of Environmental Excellence co-author Peter Asmus is a corporate social responsibility specialist.


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