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green@work : Magazine : Back Issues : Winter 2006 : Driving Toward Green

Cover Story

Driving Toward Green
The Race To Develop Superior Cars

Companies like Toyota and Honda are leading the pack in greening the automotive industry.

by Bruce Piasecki and Peter Asmus

The combustion engine automobile is the ultimate example of a 20th century product. Ever since Henry Ford introduced the Model T, Americans have been infatuated with the grace, force, speed, agility and splendor of these products. More than simply providing transportation, our cars and trucks offer freedom, mobility, convenience, power, status and comfort.

Since the days of Henry Ford, the automobile industry has evolved into the world’s largest manufacturing enterprise. Each year it produces more than 44 million cars and trucks, a figure larger than the population of most countries. While part of this is due to the freedom and satisfaction of owning a personal vehicle, a much larger part is due to the built-in need for cars that has been developed since World War II by the leaders of every nation in cooperation with the petrochemical, development and tourism industries. In industrialized nations, the automobile plays a central role in most of our lives.

Yet automobiles are also a primary contributor to environmental deterioration. Every day, they add to losses in the quality of our air and water. Consider that there are 700 million vehicles in operation worldwide, with 150,000 more added every day. In America alone, cars and trucks produce roughly one-third of the nation’s smog, and Californians alone are estimated to lose more than 400,000 hours each workday due to traffic congestion. The problems that our existing stocks of automobiles pose go beyond environmental deterioration. Cars also affect our collective and individual quality of life, helping to determine the amount of time that we all can work, relax or play.

Our cars are changing in the 21st century, thanks to multinational corporations practicing a new form of what we like to call “social capitalism.” Trying to save the planet? These days, it’s best to look to car companies such as Toyota to develop better products, like the hybrid gasoline/electric car to solve our air-pollution woes and reduce our consumption of increasingly expensive fossil fuels.

Like Toyota, Honda, another Japanese company, is also making superior cars featuring hybrid gasoline/electric drive trains—cars that in subtle and quiet ways go beyond the requirements of law in terms of gas mileage per gallon, impacts during assembly, and then disposal after the car ends its useful life. Competitors such as General Motors, Ford and others are now poised to match these great steps forward.

Cynics point to Enron, Tyco, WorldCom and others as reasons that corporations cannot be trusted with guarding our future. Consider these companies as examples of an aging, outdated and even primitive form of capitalism. Some might even call it “senile.” Social capitalists such as Toyota, on the other hand, embed new products with social values. They compete on price, technical quality and social needs.

As government budgets retreat, the advent of social-response product development offers a promising alternative path to inching our way closer to sustainability. Take again the case of Toyota’s Prius, a pioneering product that is transforming the auto industry. By tilting the playing field toward cleaner cars that can be on the road today instead of betting the future on uncertain hydrogen roadmaps for tomorrow, Toyota is not waiting for the necessary infrastructure or public policy support to emerge. The company is shaping today as well as tomorrow, as their well-advertised mantra promises.

Due in large part to the Prius, Toyota boasts a record $10.5 billion profit in 2005. In contrast, General Motors, behind much of the recent hype over hydrogen, struggled with a $1.6 billion third-quarter loss. Ford is not doing much better, and is now jumping into the gas/electric hybrid market, too. But Ford is discovering that even as it tries to cash in on the hybrid craze, the company is buying many parts from supply-chain firms partially owned by Toyota, contributing further to Toyota’s financial success.

In short, Toyota is showing the world how to exploit green technologies, first to gain market share and then leapfrog above its competitors to the top. The sustainability of our modern world may depend upon social capitalists such as Toyota, which can link their own profits to society’s progress at large. Toyota’s success with the hybrid is prompting an intense race among all car companies to develop better products for a better world. With this strategic approach, Toyota has set the bar higher for all car companies, as well as the corporate world in general. In the process, Toyota is also helping to deliver greater environmental and social benefits to populations that span the globe.

Six years ago, Toyota decided on a long-term strategy to build robust markets for the hybrid drive train technology. Sistering the innovation of hybrids with its fellow Japanese car company Honda—a business strategy that in essence hedges one’s bets—Toyota has most clearly illustrated the logic behind concepts of social-response product development. Focusing first on early adopters, Toyota set a goal of capturing 3 percent of the car market with hybrids by 2005. It has achieved that target and now is poised for higher goals. But the story of Toyota is no longer just about the Prius. The company is now introducing the hybrid drive train first into its Highlander SUV, then into its mid-economy Camry, and then into its luxury lines of cars, such as Lexus. All told, 10 different Toyota automobile products will sport the hybrid technology within the coming years, a radical transformation of its product line.

This philosophy of social-response product development is driving Toyota toward the top of an industry that could very well be the key to our collective long-term survival. Hiroshi Okuda, former president and now head of the Toyota Motor Corporation, summed up Toyota’s perspectives in this way:

“ I do not believe environmental protection and economic growth are mutually exclusive. Economic growth that ignores environmental consequences is in my view reckless, but on the other hand, attempting to resolve global environmental issues without recognizing the need for economic growth is unrealistic. I believe our objective should be sustainable growth.”

Contemporary corporations either meet current market expectations or shape those expectations with new products that go beyond the minimum regulatory requirements on public health and safety. Since its first failure in entering the American market back in 1957, Toyota has focused on shaping—not following—the American car market as defined by “The Big Three.” Even today, Toyota keeps its manufacturing and product standards high, exceeding many environmental standards both in its manufacturing facilities and its new product lines.

Toyota is engaged in this new form of social capitalism not because it is trying to be “nice.” The core of its product strategy lies in its reading of the public’s needs, in advance, to build long-term markets for its products. Toyota wants to make a profit; it does not see its anticipation of public needs as a philanthropic distraction from making the profit, but the key to its ultimate financial success.

When it comes to social-response product development, the car industry is just the beginning of a race among social capitalists to play a larger role in solving society’s many challenges. These noteworthy efforts will be the topics of future columns. (Next column: GM and its bet on hydrogen.)

Bruce Piasecki is founder and president of the AHC Group of Saratoga Springs, N.Y., a change-agent consulting firm that serves Fortune 500 and other companies. His books include In Search of Environmental Excellence (Simon & Schuster, 1990), co-authored with Peter Asmus, a corporate social responsibility specialist.

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