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Ford is embracing the evolution of the transportation sector, with car sharing ventures and ever more efficient designs. But in the global battle to sell cars in vast new markets, sustainability appears still to be a back-seat passenger
When the first Ford automobile rolled of the production line, the world was a simpler place. Customers famously had just one choice to make: did they want their Model T in black or … black?
Today, life is bewildering by comparison. First, drivers have a dizzying array of vehicle types to choose from, and, within that, a host of brands. In that respect, Ford has proved a veritable war horse, clinging on to its position as one of the Detroit “Big Three” (along with Chrysler and GM).
It’s not been an easy ride, though. Inventory problems saw its share of the US market – historically, by far its most important – slip by 1 percentage point last year to 14.4%. Longer term, all the big players are under threat. The Big Three saw their US market share drop by 17 points to 53% in the decade up to 2008.
This is nothing compared with the effects of the financial crisis that same year, which eventually sent GM and Chrysler toppling into bankruptcy and requiring a rescue package from the US government. Ford may have been spared that particular indignity, but the long-term trend is unavoidable. Twenty years ago, its US market share was almost twice what it is today.
Add to that the regulatory environment in which the auto industry is now operating. Scientists have long been pointing the finger at the combustion engine as a major cause of global warming. Around 16% of all the greenhouse gas emissions belching into the atmosphere can be traced to the tailpipes of our cars, according to the International Organisation of Motor Vehicle Manufacturers.
Now policy-makers appear to agree. While no global treaty on fuel efficiency yet exists, national legislators are pressing for ever-cleaner engine technology. Governments worldwide – including the European Union, the US and Japan, plus emerging market giants such as India, China and Brazil – have all adopted or proposed tough fuel economy standards for passenger vehicles and light trucks. Collectively, these cover more than four-fifths of all vehicle sales globally.
Finally, consumers in general are no longer as gung-ho about car ownership. Back in the 1990s, UK prime minister Margaret Thatcher reputedly claimed that any man over the age of 26 who found himself on a bus could count himself a failure. The quote is disputed, but the sentiment holds true. For decades, car ownership has been a symbol of success.
Today, that’s far less certain. Millennials are not, in general, boy-racers. Clean and green, not fast and furious, is where it’s at nowadays. If someone in Generation Y finds themselves needing a car, they’ll rent one. Or, increasingly likely, they’ll open a smartphone app and share one.
Paving over the potholes
For a behemoth such as Ford, none of this is welcome news. Not that you’d guess from speaking to the company’s global director of sustainability, John Viera.
Part of Viera’s optimism is wrapped up in potentially rich pickings in emerging markets. Sales of new cars may be flat-lining in Europe and North America, but appetite to get behind the wheel has never been bigger in the boom economies of the developing world. In China, automobile ownership jumped 20-fold in the first decade of the century. Between 2010 and 2030, it’s projected to double again, to a total of 600m vehicles. The UK is a minnow by comparison, with only around 36m cars on its roads.
The second reason for Viera’s positivity focuses the word “mobility”. Very much the buzzword floating around Ford’s Michigan headquarters, mobility is bigger than simply “bending metal and producing vehicles”, he says. It’s about how to “effectively and affordably” shift people and goods from A to B. To date, that’s meant individuals using a personally owned car or truck. Now Ford is beginning to accept that car- and lift-sharing, vehicle rental and other new-look business models have a role to play too.
Rather than dragging its feet, Ford is gung-ho about what these potentially tectonic shifts could mean for itself and the auto industry as a whole. “Let’s get into that space that is going to take up the void left by traditional vehicle ownership … whatever that might look like,” Viera says.
With so much bad news coming from the auto sector over recent years, Ford’s upbeat assessment about the future makes a welcome change. Yet even the most bullish observers will admit that the future is far from certain for the world’s big automakers. Ensuring profitability is hard enough. Add Ford’s ambitious sustainability commitments into the mix and the challenge only grows. Without doubt, Ford has a complex balancing act to perform.
As with all the major automakers, Ford is piling resources into Asia’s tiger economies. It has two new car plants in India, and four more planned for the Asia-Pacific region. Latin America is on its radar, too. In Brazil, Ford has committed to invest $2.4bn between 2011 and 2015.
Emerging markets are intrinsically volatile, however. And Ford hasn’t escaped getting its fingers burned. Last year, for example, it was forced to take an $800m one-time charge to its fourth-quarter earnings because of currency fluctuations in Venezuela. Yet Ford’s production approach, which sees it use the same basic platform for all its best-selling models, gives it an edge over its rivals by allowing for major economies of scale. (Essentially, a Fiesta is a Fiesta wherever you buy it in the world; only the gizmos inside change).
If Ford can crack markets such as China, the business opportunities are indisputable. Where the problem lies is on the sustainability side. Shifting millions of internal combustion engine vehicles to the developing world’s newly flush middle classes has urban planners and environmentalists breaking out in a sweat. For a start, the developing world’s already congested mega-cities will very probably descend into gridlock. Second, urban air pollution will sky-rocket. And, most concerning of all, additional gigatonnes of greenhouse gases will be pumped into the atmosphere.
At the starting gate
Viera doesn’t negate any of these possibilities. However, by taking action now, he believes a car-fuelled apocalypse can be avoided. Starting with climate change, Ford promises a new fleet of more fuel-efficient vehicles. “We want to be putting in the most cost effective technology that also delivers on our CO2 reduction commitments,” he says. To achieve that, the company is open to all ideas, he adds.
Just as well. Ford doesn’t have the answers when it comes to breakthrough eco-innovations, Viera accepts. “We’re going to have to rely on our supply base”, he says, holding out the carrot of lucrative procurement deals for green tech manufacturers. He cites the new F-150, the first full-sized pick-up truck to make extensive use of aluminium, as evidence of what to expect in the future (See case box).
F-150 light truck
The all-new F-150 light truck uses a range of advanced materials that improve stiffness and durability, while also reducing weight to improve towing, payload and – most crucially – fuel consumption. Starting with the signature fully boxed frame, Ford engineers increased the use of high-strength 70,000-psi steel – from 23% to 77% of the frame. The new frame is up to 60 pounds lighter than the previous model. High-strength, military-grade, aluminium alloys – already used in aerospace, commercial transportation, energy and many other rugged industries – are used throughout the F-150 body for the first time, improving dent resistance, and also saving weight. Overall, up to 700 pounds of weight have been saved, helping the F-150 haul more, accelerate quicker and stop shorter, all while contributing to efficiency. The lighter weight enabled Ford to provide the option of a 3.5L V6 engine with twin independent variable camshaft timing, rather than the larger 3.7L engine as before. Along with other eco-features, the truck is also equipped with Auto Start-Stop technology, which shuts off the engine to save fuel when the vehicle is stopped, except when towing or in four-wheel drive.
The other main strands to Ford’s fuel efficiency plans concentrate on telematics and alternative fuels. Both are developing as lucrative, high-potential sectors in their own right. Lane keeping assist, assisted breaking, adaptive cruise control and automatic parking are just some of the telematics features already finding their way into Ford’s cars. These tend to be higher spec vehicles, however, not your typical developing world model.
The big win for telematics is vehicle-to-infrastructure communications (so-called V2X). Imagine car park sensors sending your GPS-enabled phone real-time information on where a free parking space is, for example. The implications for relieving the worst of congestion are huge, says Viera. For all the talk of the “internet of things”, however, the application of telematics and its sister, big data, is at a very early stage. That’s true for the developed world, let alone developing states. Nor is it clear how such data services might be monetised.
Alternative fuels elicit a similar verdict: huge potential, but much remaining to be done. Ford has its hands in multiple pies, from pilots with hydrogen-powered vehicles through to electric hybrid and full battery-powered models. Behind the hype, however, sales remain small. Ford’s all-electric Focus model sold only 1,964 models in the US last year (although its two leading hybrids sold a healthier 20,000 units).
As with big data, infrastructure limitations are a major obstacle. Car owners can jump in their petrol or diesel cars now and be confident they will find a gas station when they need one. The electric vehicle owner cannot. And until they can, a transition across to alternative fuels is improbable.
This puts a car manufacturer such as Ford in a bind. Funding the infrastructure itself would be a huge economic undertaking, with additional management and maintenance issues that presently fall way outside its expertise. Persuading others to finance the task, whether governments or private investors, is more realistic. Yet without new-generation cars on the road, it’s a tough sell.
Turning to non-traditional business models, Ford is similarly dipping its toes in the water. In 2011, for example, it agreed a series of pilots with car-sharing network Zipcar in a variety of US university cities. Viera say Ford is also exploring the potential of “village cars” for those in rural and peri-urban areas, particularly in the developing world. The idea would be to develop something between a people carrier and a truck that villagers could use to transport themselves and goods into the city.
As yet, however, Ford hasn’t followed some of its rivals in acquiring “mobility” firms (such as Daimler, with its 2014 purchase of US smartphone app RideScout) or setting up enterprises of its own (such as BMW, which in 2011 formed the car-sharing service DriveNow with rental firm Sixt).
Hopeful, but hesitant
Across Ford’s sustainable business strategy, a similar pattern emerges: an acknowledgement of the long-term trends and challenges; the setting out of medium-term ambitions and objectives (such as reducing global facility carbon emissions per vehicle by 30% by 2025 compared with a 2010 baseline); yet a surprising hesitancy about taking bold steps in the immediate term.
A degree of caution makes business sense. First, the old model of selling internal combustion engine vehicles for personal ownership may be under threat, but it’s still far from dead. Nor is Ford about to let it go. That’s clear from Viera’s view on millennials, which can be summed up as, “wait till they grow up”. They may not feel the need to own a car now, but that will change when they have two kids and live in the burbs.
The same is true for alternative fuels, smart data-driven technologies and other potential green driving options. Until these sectors grow up and mature, it’s difficult to see where the returns on investment might lie and what they might be. Hence Ford’s preference to spread its bets. On alternative fuels, for example, Viera admits that Ford is “reluctant to pick a winner” at this stage. “We have a glide path of the [emission] reductions that we need to see year over year,” he states. As to how precisely to get there, the company is “agnostic”.
Three other reasons explain Ford’s hesitancy. Two relate to external pressures: from consumers and regulators. Bar a small coterie of eco-minded drivers (who worry about emissions) and large fleet operators (who worry about fuel costs), consumers aren’t knocking on Ford’s door demanding clean, green vehicles.
Regulators are, on the other hand – though not that loudly. While fuel-efficiency requirements are certainly getting tougher, some remain tougher than others (such as the European and Californian regimes) while others (especially in developing world markets) are not rigorously enforced. Hence Viera can talk of a gradual “glide path” towards low-carbon vehicles, not an urgent scramble.
Reason three is the most important. It relates to capacity. The truth is that the sustainability challenges and opportunities for the automotive industry lie outside the scope of any single player, even a huge and long-standing automaker such as Ford. To build a low-carbon automotive ecosystem requires both pan-industry cooperation and government support. By participating in a range of cross-sector initiatives, as Ford does, Viera hopes the company can become an “enabler” of such collaboration. Such enablement isn’t just about the power to convene, however; it needs to be about leading the pack too.
And leadership takes vision, which is where the key capacity question comes in. Is Ford capable of really envisioning itself as a genuine “mobility provider”? At present, it still feels at heart an old-style Detroit automobile manufacturer with additional (albeit it creditable) eco-features tagged on. The implications of the mobility proposition are vast. Should Ford move into the two-wheeler market, for example? Or, more radical still, should it ditch the car and think about bringing its acumen and energies to providing public transport services?
In Ford’s defence, it’s not alone. No other automaker has yet devised how to get goods and passengers from A to B in a way that is truly sustainable and profitable. It’s a hugely complex conundrum, but complexity is no excuse. To evoke the spirit of Ford’s eponymous founder once more: “Don’t find fault; find a remedy.”
Company stats: Ford (2014)
- Founded: 1903
- Headquarters: Dearborn, Michigan, US
- Pre-tax profit: $6.3bn
- Total revenues: $135.8bn
- Fuel Economy (US average): 29.5 miles per gallon
- Energy consumption (global): 15 billion kilowatt-hours
- Water Use: 24.9 million cubic metres
May 2015, London, United Kingdom
Europe’s leading meeting place for corporate leaders delivering sustainable business. 12+ C-Suite and over 300 attendees will address some of the key issues and opportunities, including: sustainable innovation, collaboration, and resource efficiency and brand strategies