Automotive Manufacturers Social Responsibility

To what extent are car manufacturing firms operating in a more socially responsible manner when designing environmentally friendly cars?

Abstract

Social responsibility is one of the key differentiators between modern corporations, and is seen by many analysts as an antidote to the past few years’ trend towards the demonisation of corporate institutions. The recent economic crisis, in particular, has led many observers to argue that corporations that fail to address issues of social responsibility will struggle to survive. However, other observers question whether this phenomenon is anything more than a superficial consumer trend, and whether the world economy in general can seriously contemplate a corporate system in which the profit motive is subservient to the need for corporate social responsibility. This dissertation examines social responsibility in terms of the car manufacturing industry, and looks in particular at the question of whether or not the move towards environmentally friendly cars is anything more than a passing phase in an industry that is extremely sensitive to public opinion. Ultimately, the aim of the dissertation is to determine whether or not corporate social responsibility within the car manufacturing industry is a genuine change, or whether it is simply a superficial response to a passing public trend.

Introduction

The concept of corporate social responsibility has been one of the dominant themes of the past decade, with consumer recognition of a corporation’s social responsibility being increasingly seen as a lucrative phenomenon. In the west, in particular, increasing levels of affluence have led to a trend that has seen more customers show willingness to pay more for products that are designed according to theories of social responsibility., and this shift has been nowhere more apparent than in the automobile manufacturing industry. This trend has inter-cut with a recognition (in some quarters) of the need to ensure a more environmentally-friendly approach to industrial production and consumption, and a number of corporations have secured dramatically enhanced public images through a focus on affordable but socially responsible products. However, critics argue that since the primary aim of these corporations is to increase their profits, the appearance of social responsibility has been more of a cosmetic change than a substantial alteration of core business practices; many critics believe that corporations have, in most cases, merely become better at packaging their products as a more socially responsible, environmentally friendly alternative. Despite the recent financial crisis, the automobile manufacturing industry remains a bellwether for the global economy, and any genuine global industrial changes regarding social responsibility will likely be evident in the automobile industry at an early stage.

This dissertation will examine the behaviour of car manufacturing firms and will ask whether they have genuinely become more socially responsible when designing environmentally friendly cars, or whether this is merely a superficial smokescreen designed to generate improved public exposure without leading to genuine changes in design and production philosophies. In particular, the difference between the industry’s approach before and after the onset of the recent economic crisis will be examined, and these differences will be used to determine whether or not the move towards social responsibility represented a genuine change to production systems or was merely an attempt to capture the early twenty-first century zeitgeist. Furthermore, the dissertation will examine the extent to which social responsibility and environmental awareness have affected not only above-the-line (i.e. visible to the public) areas of the industry, but also below-the-line (i.e. internal corporate) systems; the dissertation will argue that firms can only be said to have adopted a greater level of social responsibility if their attempts to tackle this issue extend to below-the-line activities. The dissertation will use a series of core examples in order to determine both the hyperbole (i.e. the claims made to the public) and the core below-the-line changes that may, or in some cases may not, reflect the car manufacturing industry’s more socially responsible, environmentally friendly approach to business and production.

Literature Review

Corporate Social Responsibility

Social responsibility has been one of the key growth areas in recent years. Crane et al. (2007) define social responsibility, in the corporate context, as “a company’s ability to put aside the profit motive in order to perform tasks that have a beneficial effect not on the company itself – in terms of capital – but in terms of an entirely separate social group” (Crane et al., 2007, p. 6). In this context, social responsibility can be seen as something that companies are expected to do unbidden, in much the same way as many people choose to donate their time and volunteer to help charities. In some ways, therefore, social responsibility can be seen as an attempt to anthropomorphise corporations by rendering them indebted to a cultural belief that they should act in a more ethical and moral manner. This is in some ways a cultural corrective to the idea of corporations as solely capitalistic, profit-orientated organisations.

May et al. (2007) suggest that corporate social responsibility is a popular construct that seeks to imbue corporations with humanistic traits “regardless of whether those traits are present or not” (May et al., 2007, p. 118). In order for public recognition of these traits to be tangible, there must be a relative relationship between different corporations, so some must be seen to be exercising a great deal of social responsibility, while other must be seen to be doing very little. This is, in effect, the classic polar relationship between ‘good’ and ‘bad’, and it allows consumers to associate themselves with positive, socially responsible companies purely by making certain purchasing decisions. Both sides therefore have a vested interest in social responsibility: consumers feel good if they reward socially responsible companies with their custom, and can use such purchases as a form of status symbol; corporations, meanwhile, can try to generate a larger, more loyal customer base.

While some critics argue that social responsibility is “a trend that will wax and wane according to various social and economic factors” (May et al., 2007, p. 119), others believe that the emergence of social responsibility as a major business factor in the past decade is in fact a permanent change. Crane et al. note that “growing awareness of environmental issues has led many people to recognise the importance of social responsibility” (Crane et al., 2007, p. 10), and although the recent economic crisis may have led many to hold back on the spending that they would otherwise have directed towards socially responsible corporations, there still appears to be a broad consensus that social responsibility is one of the most important factors in modern business. Consequently, many companies have sought to strengthen their social policy credentials.

Environmental Policy

One of the key elements of social responsibility is the environment. For more than twenty years, there have been warnings about the effects of global warming. Many corporations choose to exhibit their social responsibility through one of a number of environmentally friendly policies:

• Reducing the environmental cost of production & distribution.
• Reducing the environmental cost of consumption.
• Reducing the environmental cost of disposal.
• Using more environmentally-friendly materials.
• Reducing packaging and other superfluous elements of a product.
• Instigating specific environmentally-friendly technological elements.
• Funding research and education programs.
• Carbon and pollution off-setting.

All of these options – and more – are regularly employed by companies that want to emphasise their environmental credentials. Large companies tend to focus on methods that require little more effort than throwing money at the problem, e.g. by funding research or off-setting their carbon emissions. However, some other companies are far more inventive, and genuinely try to reduce their environmental impact.

Social Responsibility

Aside from the environmental factors noted above, companies have found a number of ways of demonstrating their corporate social responsibility:

• Funding education programs.
• Providing services, e.g. transportation for school and disabled groups.
• Promoting volunteerism among their own workers.
• Donating money to charities.
• Working to eliminate abuse in the chain of production.

The globalised corporate environment makes it more difficult than ever for companies to hide practices that might be unpopular in their domestic markets. For example, if a company seeks to use cheap labour in third world countries, it can make a short-term impact but will usually be exposed eventually. In other words, companies find it increasingly difficult to hide any non-socially responsible behaviour.

The Car Manufacturing Industry

The vast majority of manufacturers are global in terms of production facilities. The leading US and Japanese manufacturers, for example, tend to have dozens of factories, with at the top five companies all having at least one factory in each of North America, South America, Europe, Africa, Asia and Australasia. As such, the industry can be said to be truly global in terms of both customer reach and production. Furthermore, companies often experience great success in non-domestic markets, e.g. Japan’s Toyota also sells many cars in the US, and Germany’s BMW is extremely popular in the UK; the only major exceptions to this rule are two of the three big US companies, General Motors (GM) and Chrysler, both of which have been criticised for their focus on the US market.

The Impact of the Economic Crisis on the Car Manufacturing Industry

All the world’s car manufacturers have in recent years suffered from the global economic downturn. In the US, the ‘big three’ manufacturers – Ford, Chrysler and General Motors (GM) – have all come close to bankruptcy, and GM has been forced to file for chapter 11 bankruptcy protection. Around the world, companies have suffered similar problems, although in most cases not to the extent of the major US companies. In Japan, both Honda and Toyota have suffered heavy losses and have been forced to reconsolidate their core business areas. As a result, the automobile industry has been undergoing a period of immense uncertainty, and this has led many consumers to believe that they can no longer rely on the continued presence of the big names.

Apart from the well-publicised problems for the ‘big three’ US companies GM, Ford and Chrysler, almost every other major car manufacturer around the world has suffered a slump in profits in the past two years, and many have incurred legacy debts during this period that will impact upon their performance for decades to come. Toyota reported a massive $1.7bn loss (Fackler, 2008) and, like most other manufacturers, was forced to re-focus activities on core revenue streams. As one of the key figures in the ‘green’ car revolution, Toyota had been investing heavily in environmentally-friendly cars, and had been happy to make such investments since it believe there would be massive financial benefits in the long run. However, the financial crisis crippled Toyota’s ability to consider the long term implications of its current activities, and forced the company to focus on its core business. As Satoshi Hino notes, “Toyota has long been one of the more adventurous companies when it comes to placing substantial industrial bets on future changes in the automobile market, but these have always been backed by strong performances in the company’s core activities” (Hino, 2005, p. 41).

The company’s move into electric and hybrid cars – seen by many as a key element in the push towards greener automobiles – has largely been financed by success in core diesel machines, with the pay-off for this front-end investment expected to arrive between 2010 and 2015. However, with the core business model threatened by double-digit year-on-year sales drops, Toyota was forced in 2009 to consolidate its activities and re-focus on the most profitable elements of its production line. This decision by the company served as dramatic proof that while there was clearly a high degree of confidence in terms of the potential for socially responsible cars to provide a significant pay-off in the medium to long term, this confidence was not strong enough to allow the company to rely on such vehicles during a time of economic crisis. Clearly, therefore, market forces are not yet dictating the need for social responsibility in sufficient numbers, or with sufficient support via purchasing decisions.

Research Methodology

Research Approach

The research will take two key approaches: a questionnaire will be used to conduct primary research into consumer awareness of the question of social responsibility in the car manufacturing industry, and two case studies will be used to determine how two of the world’s biggest manufacturers – GM and Toyota – deal with this issue. In order to assess the impact of the social responsibility policies of both GM and Toyota, the questionnaires will be designed to measure the impact of such policies (or the lack of them) and the degree to which they change public opinion and have the effect for which they were designed. These questionnaires will be vital in terms of bridging the gap between the theory and reality, and will expose the limitations inherent in this approach. In order to increase the likely response rate, and to comply with ethical considerations regarding privacy, the questionnaires were left anonymous and respondents were told that they could ignore any individual questions that they would prefer not to answer.

The secondary research will focus on two case studies, one looking at the leading US car manufacturer (General Motors) and the other looking at the world’s leading car manufacturer, by sales (Toyota). These companies have been chosen for specific reasons. General Motors (GM) has had a difficult economic history over the past two decades, almost filing for bankruptcy in the 1990’s before going on to enjoy considerable success with a series of non-environmentally friendly cars (SUV’s) while professing to hold social responsibility as a key philosophical point, and then suffering a massive collapse that resulted in the company filing for the fourth largest bankruptcy in US history (see chapter 4). Toyota, meanwhile, has made a name for itself with a series of advanced hybrid cars, but has also suffered during the recent financial crisis (see chapter 5). In other words, GM is seen by many as one of the world’s least socially responsible manufacturers, and Toyota is seen by many as one of the world’s most socially responsible manufacturers. By comparing and contrasting their approaches and fortunes, it should be possible to develop a clear understanding of the extent to which major car manufacturers have been socially responsible in pursuing an environmentally friendly agenda.

Research Questions

The research is based on the following key questions:

How has the recent economic crisis affected manufacturers’ interest in social responsibility?

• To what extent do car manufacturing companies act with a high degree of social responsibility when designing environmentally friendly cars?
• How important is consumer behaviour to car manufacturers’ interest in social responsibility? Do consumers drive companies’ behaviour, or vice versa?
• What different approaches to the subject of environmentally friendly, socially responsible cars have been taken by different companies?
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• Is social responsibility progressing according to narrative trends? Is this a major change to business, or merely a passing trend?

Research Limitations

Any research project contains inherent limitations. If these limitations are ignored, they do not go away; rather, they linger and negatively impact the reliability of the overall project. Consequently, the best approach is to recognise these limitations from the start and to work to ensure that they are factored out of the equation as much as possible. As Saunders et al. note, “it’s only by recognising the limitations of any research program that… the problems that always affect any research project can be brought into the open, addressed and contextualised and, in some cases, turned into positives” (Saunders et al., 2009, p. 51). The research limits of this project are as follows:

• Social responsibility is an inherently subjective matter. Something that is socially responsible in the view of one person may be socially irresponsible in the view of another.
• Many of the relevant subjects, such as global warming, are not universally recognised. It’s therefore important to reflect the fact that there is ongoing debate.
• There is insufficient time and space to analyse the entire market. Therefore, key examples must be selected for the case studies. As noted in 3.1, the subjects for these case studies were chosen for very specific reasons.
• Questionnaires must be brief and simple to understand, yet they must also focus on the key points. Persuading respondents to fill in questionnaires can be difficult.

All these limitations can be overcome, to various extents. The subjectivity inherent in the research subject is in fact relevant to the continuing social, cultural and political debates regarding the extent to which car companies should, and can, adopt socially responsible roles; some critics argue that this can only be achieved if consumers adopt socially responsible approaches to their purchasing patterns, which will inevitably force corporations to adapt to face this trend. Similarly, the continuing debate over global warming – although settled in many peoples’ view – continues to cause debate in many parts of the world. Finally, the limitations of time and space mean that the case study subjects must be analysed extremely closely, and the choices of company must be made carefully.

Results & Analysis

Response

200 questionnaires were sent out. The expected response rate was 40-50%, as per the suggestion by Saunders et al. that “any questionnaire-based research project that prompts between a third and a half of targets to respond can be said to have performed averagely” (Saunders et al., 2009, p. 102). In the event, 81 questionnaires were returned, representing 40.5%, which is just within the expected range. This gives a statistically relevant sample group.

Demographic Information

Demographic details are important in research concerning attitudes to consumer activity and the environment, since both of these factors can impact upon an individual’s view of these issues. Question 1 concerned the age of the respondents:

How old are you?

The majority of respondents were in their teens and twenties, with a total of three quarters being under 40. This makes the questionnaire more relevant in terms of analysing the attitudes of younger people.

The second question concerned the occupation of the respondents. It was decided to provide broad categories rather than to request specific details. For one thing, this emphasised the confidentiality and privacy of the research, and for another it allowed for easy and effective categorisation of answers:

What is your occupation?

Around two thirds of the respondents were employed, self-employed or in part-time work, with the rest being students, retired or unemployed.

Awareness of Social Responsibility among Car Manufacturers

The next question asked respondents if they believed the car manufacturing industry, as a whole, to be socially responsible. A brief explanation was appended to this question, defining social responsibility as “an awareness of their impact on society, including the environment, and their efforts to ensure that this impact has a positive rather than a negative effect”:

How responsible do you think car manufacturers are?

An overwhelming majority (67.9%) considered car manufacturers to be either ‘not very’ or ‘not at all’ responsible. Breaking these results down according to age and occupation gave the following results:

Appreciation of manufacturers’ social awareness, broken down by age range

Clearly, levels of appreciation appear to be at least partly linked to age, with these levels peaking for individuals in their fifties. There are numerous possible reasons for this, including:

• Media exposure: different age groups are exposed to very different media forms and sources, each of which will likely carry very different stories concerning manufacturers’ levels of social awareness.
• Learned behaviour: older respondents will have spent longer living in a time when many of the relevant issues, particularly environmental impact, were not considered.
• Environmental awareness: some of the answers may be influenced by a lack of belief in the various arguments concerning the environment and, in particular, the car industry’s contribution to global warming.

Clearly, therefore, awareness of social responsibility is a dynamic factor that reflects a number of different viewpoints, and this factors is by no means viewed the same by different age groups. The clear correlation between age and awareness indicates that manufacturers must ensure that they operate multiple simultaneous social responsibility programs if they are to reach all these groups. However, the next question sought to determine whether or not it was strictly necessary for the manufacturers to try to appeal to everyone, and asked how important social responsibility is to purchasing decisions. First, in terms of the overall response, the result was as follows:

How important is a manufacturer’s social responsibility for you when choosing what car to buy?

Almost half (48.1%) claimed that social responsibility was either ‘very’ or ‘quite’ important, with just over half (51.9%) claiming that it was ‘not very’ or ‘not at all’ important. Given the relatively small sample group for this research project, the difference is small enough to be statistically irrelevant, and broadly indicates a 50-50 split in terms of opinion on this subject. However, looking at the results in terms of an age-related breakdown results in a very different set of results:

Importance of social responsibility of manufacturers, by age

The data shows a clear depreciation of the importance of social responsibility for older consumers, although there is evidence of an increase for consumers in their 50’s and above. In order to determine a link between awareness of social responsibility in the industry and the importance of social responsibility in purchasing decisions, the results from figures 4 and 6 were then combined:

Importance, and awareness, of social responsibility in the car manufacturing industry

There is clearly an inverse relationship between awareness of social responsibility as a factor in the industry, and belief in the importance of social responsibility. For example, younger people are most likely to believe that social responsibility is an important factor when making purchasing decisions, but are the least appreciative of any efforts that have so far been made. To an extent, this can be seen to be a matter of perception, but there’s also clearly a problem for the industry in terms of persuading parts of the consumer base that its intentions are genuine. In order to measure the degree to which various manufacturers have succeeded in their aim of seeming more socially responsible, respondents were next asked whether they thought the industry had become more socially responsible over the past decade:

Do you think the car industry has become more socially responsible over the past decade, less socially responsible, or it has stayed mostly the same?

The vast majority of respondents believe there has been no real change, strongly suggesting that either the message from the manufacturers’ has not got through to the public, or that there is a deep level of cynicism in terms of whether the public believe that the rhetoric has translated into genuine action.

Finally, respondents were given a range of options and were asked to indicate which they believed were most important in terms of social responsibility. They were asked to tick ‘two or three’ options, with the aim being to allow them to indicate the elements of corporate social responsibility that were deemed most important:

Most important elements of social responsibility

Clearly, the vast majority of consumers overwhelmingly equate social responsibility with environmental issues. The only other factor to come close to this in terms of relevance was making donations to charitable causes, which to an extent also involves the environment. Social responsibility is not purely about the environment, and encompasses a range of other activities that can improve society. However, for the consumers canvassed for this research project, environmental issues were by far the most important, and it’s therefore possible to argue that the environment has overtaken all other elements of social responsibility and has become the single most important issue. Although manufacturers could fight against this perception and attempt to focus attention on other factors, the best approach might be to accept that when it comes to social responsibility, most consumers overwhelmingly focus on the environment.