What are the environmental issues facing the future of the European car industry?
This paper looks at the issues facing the European car industry with regard to environmental issues. This is done by looking at past and present published material that revolves around the subject matter under specified themes. Theoretical perspectives within the European business environment such as pestle, models of market structure, profit maximisation, sources of finance, market segmentation, branding strategy, European business and its effects on the environment are all explained in relation to their relevance of environmental issues. These theoretical themes are used because they all act as a catalyst to the subject matter of the problems caused by cars which are not fuel efficient or less pollutant within Europe.
In addition, a recently published paper on the directive for labelling on cars with regard to CO2 emissions, awareness of consumers, and fuel efficiency types in the European Union is used as empirical evidence to support ones findings as there was a shortage of time to carry out one. Finally a critical review of matches and miss-matches is used to compare and contrast similarities between the theoretical perspectives identified to prove the latter mentioned and the empirical evidence gathered for this paper, so as to forge a way forward for the European Car Industry.
Chapter 1: A Brief History of The Car Industry
The European Car Industry is one that has come of age. From its early beginnings over 100 years ago, it is beginning to show signs of struggling in today’s modern society. This has come about due to the new challenges that the industry is facing in the new millennium. Issues such as air pollution, congestion, traffic jams etc., are all factors that have made the car industry rethink its goals, objectives, its marketing, and the consequences that are not foreseen. As a whole the car industry makes nearly 60 million cars and trucks every year, and employs millions of people around the world. Average profit margins have declined from 20 present or more in its hey days of the1920’s to around 10 present in the 1960’s and less than 5 present in this present day, infect some volume car makers such as Fiat, Ford, and Vauxhall, have actually been losing money.
It can be stated that over century ago the car industry feasibly invented modern industrial capitalism. In the Economist (2004) the car started life in Germany and early development of the industry began in France (hence the word automobile, a French word) in the 1900’s, but it was in America that the car industry came of age with the Henry Ford T-Model of mass production which started in Chicago round about the same period(1900’s).
In the 1920’s Alfred Sloan’s ideas of running General Motors provided the model for the great corporations that grew up to dominate the second half of the 20th century. General Motors soon swept past Ford as Alfred Sloan revolutionized the young car industry, and Ford never regained the dominance it enjoyed in its infancy days of mass production. The car industry can be said to be ahead of its time in many respects. For example, in ‘planned obsolescence, which is the frequent changes in design and style that tempted customers to switch to a newer model every year or so. In the 1970’s when the oil price quadrupled, the industry found itself under attack from environmentalists outraged by its products gas consuming and exhuming nature, (air pollution, etc.).
It was also the first industry to come under government scrutiny, from safety concerns to environmental issues to antitrust worries in the days when General Motors had 60 present of its domestic market and could shut out competitors with a few well-chosen price cuts. However, when small economical and reliable Japanese Cars started to eat into Detroit’s market share, the American government imposed restraints on those imports. Soon afterwards, theca industry in Europe came under the same similar pressures and followed suit.
Due to the sporadic recognition and existence as a pillar of industrial capitalism, the car industry also found itself at the mercy of trade unions in the 1920’s and 1930’s. Its workers increasingly pushed for trade unionisation in which a times the car factories in the Detroit area, the British Midlands, in Frankfurt, Germany, and the huge plants around Paris were the main battleground of the Class war. Although today trade union membership is still as high as ever, the power they wielded in the 1920’s to 1970’s has diminished immensely. Today, the motor car is the epitome of mass production, mass marketing and mass consumption, with some of the strongest brands in the world.
For most households in rich countries, it is the second-biggest purchase after a house or flat, which makes the industry a pillar of modern industrial capitalism as earlier mentioned. Few other consumer goods industries depend so heavily on second hand market for their products. Now, understanding how the European Car Industry operates and the many pressures that it faces is essential to an understanding of the predicament the UK car buyers currently faces. Around 70 present of new cars sold in the UK are imported, with the great majority of these imports coming from the rest of Europe. The UK market is intrinsically tied into the pattern of car making and distribution across Europe.
Thus the behaviour of the UK motor industry towards both its retailing and service partners and towards consumers is part of the wider behaviour of the European Car Industry. The industry can be said to be mature one. In virtually every country of North West Europe, the density of car ownership has almost reached its practical maximum. There are some opportunities for growth left in Southern and Central Europe, but they will be largely used up in the next few years.
Following on, the consequences of mass production, and a slow introduction of cars that run on synthetic or alternative fuels has led to a rapid increase in environmental pollution, CO2 emissions, traffic jams, congestion, and human related diseases such as lung cancer, all of which are serious environmental issues, which the European Car Industry have found itself slow to adapt, change, amend and implement to the betterment of the wider society. This has led to directives and committees from the European Union to be setup to tackle the issued mentioned above and the latter.
With this in mind a review of existing material that has been published in the press and journals will now be critically analysed.
Chapter 2: Existing Literature Reviewed
The need to galvanise and understand the unforeseen circumstances of mass car production and environmental issues in the European Union has been stressed by researchers for more than three decades. According to the Europa (2005), the EU is the largest automotive production region (34%) in the world and the industry comprises 7.5% of the manufacturing sector in the union. Direct employment by the automotive industry stands at about two million employees, while the total employment effect (direct and indirect) is estimated to be about ten million. It also adds that since the year 2001, the motor vehicle production has decreased in the European Union, from 17.2 million units in 2001 to 16.9 million units in 2002. The decline continued into2003, with 70,000 motor vehicles less being produced, compared to2002.
This decline is due to the worsening of the macro-economic situation where consumer demand has been decreasing. Lagunas (2005)correlates with this by stating that motor vehicles have become the prime means of personal and commercial mobility in today’s world. Growing prosperity has led to a spectacular rise in car use, phenomenon being repeated in the new member states which joined the Union in 2004. In China and other booming countries with looser anti-pollution rules than the EU, trends show major increases in private transportation.
This success has generated serious concerns about the environmental effects of vehicle use, in particular traffic congestion, air pollution, traffic-related diseases, and noise. In addition Lagunas (2005) states that these concerns have led the EU to formulate the objective of decoupling economic growth from transport growth. The EU has come up with legislation and initiatives to drive the change towards cleaner cars while promoting sustainable transport modes and model shift. It goes on to state that the interest in cleaner, less polluting vehicles and fuel has grown rapidly in recent years.
Emissions from petrol and diesel engines have been significantly reduced in the last decade, driven mainly by European legislation and will continue to be reduced. In elaboration Lagunas(2005) states that in the EU, almost 40 present of the transport sector’s CO2 emissions are produced by the use of private cars in cities, CO2 emissions are damaging the environment and contributing to climate change; both petrol and diesel engines have their good and bedsides as regards emissions; engines working with diesel fuel emit lessCO2 than the ones working with petrol; on the other hand diesel engines are releasing more cancer causing particles in the air.
Air pollution caused by car emissions has health impacts; problems include aggravation of respiratory and cardio-vascular diseases, asthma, and decreased lung functions. Gartner (2005) also argues that the effectiveness of the directive made by the EU relating to the availability of consumer information on fuel economy and CO2 emissions has been successful and gained momentum in some European countries but not all. Reasons being consumers lack awareness of fuel economy and environmental impacts of fuels as well as available information tools, in which one of the possibly ways to tackle this as stated by Gartner(2005) was to increase consumers awareness by standard equipment of new cars with fuel consumption indicators or cruise control.
In addition Gartner (2005) argues that fuel economy and environmental impact are in general no major factor in vehicle purchase decisions and fuel consumption is mostly only important because of the cost, but not to environmental issues. ACNielsen (2005) agrees with this by saying when it comes to what influences consumer’s choice of car brand, manufacturers of luxury vehicles may be surprised to learn that image and prestige do not appear to be a top priority, in which engine size and environmentally friendly cars are regarded as the least important features to the Europeans when it comes to buying a car. Interest; however is growing slowing with a greater awareness of climate change and CO2 emission issues. Gartner (2005) also states that general awareness of label, poster/display and guide on CO2 emissions and fuel efficiency on cars is quite small and most of the information tools are not regarded as very informative or effective, although it can be said that this varies from one EU country to another.
For example, in Austria, the label is regarded as the most informative and efficient element, compared to teak where the label was not assessed as effective in detail. In an article by the BBC (2002) it was argued that there are five major groups of car manufacturers in the world, they are General Motors, Ford, DaimlerChrysler Benz, Toyota, and Volkswagen. Of these only Toyota relies on one global brand name. All the others have a web of subsidiaries spanning the world. We must understand that the real reason why the car manufacturing firms are in business is to make money and maintain their prestige as a world class car manufacturer.
To do this means they (car manufacturers) will have to constantly roll-out new models, with better gadgets, with performance and style. That is why, as Madsen (2002) argues, Volkswagen launched its luxury car, ‘the Phaeton’ to compete against the Audi, Bentley, Bugatti, and Lamborghini brands. This initiative was and is deemed as a risky push by the Group. However, the Chairman of the group Rd. Bernd Pischetsrieder argues that success would not be measured by sales volumes that the key was to enhance the Volkswagen brand. It was also argued by critics from within and outside the firm that the launch of the Phaeton, delayed the launch of the Audi, which is a car from within the group.
However, he was quick to mute the negative by stating that possibly, the dealers learn to be a bit quicker and not to find the competitor in-house but out-house, and this will help the business; adding it is the engineers and marketers of the Audi brand that have the serious challenge of making sure that the brand does well. With this type of attitude within car firms it shows that environmental issues are the least likely concern within the European Car Industry. In the UK, white paper by DETR (2002) stated that many towns and cities suffer from traffic jams and polluted streets and as a result, are less attractive places in which to live and do business. Reducing the negative impacts of traffic on the quality of people’s lives is a key element of improving the urban environment, as set out in the government’s recent urban white paper. Adding that emissions of air pollutants arising from road traffic are set to decline over the period to 2010 as a result of improvements in vehicle technology and fuel quality, but are forecast to begin rising again beyond 2010 due to increased traffic growth. Indirectly, an increase in car sales that are not fuel efficient means more air pollution, increased traffic jams, and lung cancer. However, in Europe the car market has become largely a market for replacement vehicles within a largely static market rather than one driven by a growing buyer base, Consumer association (2000).
In addition, the market is crowded with over 40 marques and 250 models on offer and major product innovation is rare and rapidly imitated. Notwithstanding, product branding activity is intense and advertising spends are large and directed at creating a sense of differentiation. In another article by the BBC (2002) it was argued that in the UK, car prices were still too high and one of the major reasons for this was the ‘block exemption’, which allows network of national or regional dealers selected by car manufacturers, to flourish. However, this (block exempt) has now been abolished byte European parliament. In another article by the BBC (2002), it was argued that the number of car manufacturing companies had shut down due to the fall in export demand owing to the euros weakness against the pound; this is in relation to the fact that 70% of cars driven on Roads are European Imports. In the Economist (2004), it was argued that out of the world’s top 17 car companies, only half were earning more than the cost of their capital.
The value creators in Europe were Porsche, the Mercedes bit of DaimlerChrysler, BMW, and Peugeot. In Asia, Toyota, Nissan, Honda, Hyundai, and Kia made the cut. But America’s big three GM, Ford, and Chrysler, were all in the value destruction group, along with Renault, Fiat, Mazda, Mitsubishi, and. In the same article GM’s boss argues that the Japanese government is providing indirect aid to the country’s car companies by holding down the yen, thereby lowering their costs of producing export models and parts for the American assembly plants and also in Europe. American and European manufacturers maintain that the Japanese do this solely to boost their exports; but it can be stated that the real reason for the Japanese government of implementing such a policy may have been to head off deflation and revive the domestic Japanese economy.
In another article by Europa (2005) Verheugen, the vice-president of the European Commission responsible for Enterprise and Industry argues that a legal framework will need to be created via CARS 21 High level group, in which the overall objective is to make recommendations for the short, medium and long-term public policy and regulatory framework for the car industry that enhances its global competitiveness as well as employment, while sustaining further progress in safety and environmental performance at a price affordable to the customer. Corby (2005) also argues that the environmental performance of cars has been improved dramatically over the past decade.
New cars have become more fuel efficient and they emit less toxic emissions than cars in the 1970’s, adding that environmental innovation is essential for the sustainability and competitiveness of the European car industry. The previous mentioned shows that great changes are being made in the European Car Industry with regard to environmental issues. In a press release by the Auto Industry (2003), it was argued that new car average CO2 emissions fell to 174.2 g/CO2per km in 2002, 8.2 present down on the 1997 baseline and 1.9 present below the 2001 average. The rise of the superman in the UK over recent years has helped to lower average CO2 emissions through the wider appeal of smaller cars. In the same article, it was stated that Diesel fuelled cars have been a significant influence on the reduction in average CO2 emissions. Diesel models took a record 23.5 present share of the UK market in 2002, with demand up 38 present.
In another published article by Lagunas (2005), it was suggested that the average new car in the EU – 15 was releasing almost 12% less CO2 in 2003 than it did in 1995, however pressure was growing, especially from Berlin, to push automakers to make further cuts. In the same article, the German Advisory Council on the Environment (SRU), a government body, blamed the European commission for allowing car makers to exceed limit values for particulate matter (pm) and CO2.
It criticizes the industry’s voluntary target to reduce emissions to 120 g/km by 2012 as being too modest, saying a target of 100g/km is achievable by that date. It therefore, proposes an ‘innovation forcing strategy’ to push carmakers embarking on the global competitive race for improved environmental performance of vehicles. Balzac (1998) adds to the furore that because the Yen is one of the leading international currencies, solving the problem (devaluation of Yen) requires international answers.
In the same article, as the Car industry is considered one of the key industries in Japan and Europe, a devaluation of the Yen directly affects the European Car Industry. As mentioned in the latter sections a devaluation of the Yen enables Japanese car manufacturers to sell their cars at much lower affordable prices to potential customers in Europe, and North America, in which the European Car Industry would suffer the most due to a high value of the currencies within the European Union member states.
With all this in mind, the remainder of this paper proceeds as follows:
Chapter 3: Theoretical Perspectives on the European Business Environment and Marketing
Chapter 4: Empirical Evidence.
Chapter 5: Critical analysis of Theoretical perspectives and empirical evidence
Chapter 6: Summary and Conclusion.
Chapter 3: Theoretical Perspectives On The European Business Environment and Marketing
In order to have a clear understanding of the concept of the business environment within Europe and the marketing of the car industry, we will first need to identify the meaning of the terminologies. European business is a generic term which describes Avery wide variety of agricultural, industrial and service activities undertaken by a large number of different organisations across the continent of Europe. Examples of European business might include: Privatised telecommunications companies such as Deutsche Telekom; a French recording company based in a converted barn in Normandy, France; a farm in Eastern England, highly mechanised and engaged in agribusiness; a transnational organisation such as the German car producer Volkswagen, with factories in Germany (VW and Audi), Spain (Seat), the Czech Republic (Skoda) and the UK (Bentley) etc. European business may be run by one person or it may be a small private company.
Alternatively it may be a large organisation employing thousands of people, with assets worth hundreds of millions of euros and based in many different European countries. The European business environment refers to the conditions within which European businesses operate. Typically it involves a number of different interacting forces which shape the environment, and thus how a business formulates its long-term strategy, its tactics and its daily operations within this environment. These factors may include political, economic, social, cultural, religious and linguistic forces.
Now, marketing is the social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others Kilter et al. (2005). For example, important terms such as needs, wants, and demands; products and services; value, satisfaction and quality; exchange, transactions and relationship; and markets are all core marketing concepts which are linked, with each concept building on the one before it. Each part of the marketing definition defines what marketing is and how it is practised.
With this in mind we can now move on to discuss about the theoretical concepts used in the understanding of the business environment and marketing of the European car industry.
There are several important conceptual frameworks that are used for understanding the environmental impacts of the European car industry.
The ones used in this paper are:
• Models of Market Structure
• Profit Maximisation
• Sources of Finance
• Market segmentation
• Branding strategy
• The European Business and the environment
This means, Political factors influencing a business environment; Economic factors; Sociological influences; Technological influences; Legal factors; and Environmental/ethical issues. This framework issued to analyse the European business environment.
The political beliefs of governments and the policies they implement to pursue them have a major impact on the European business environment. This is both in their own right and also through other policies, such as economic ones; hence the re-emergence of political economy in recent years. Additionally, other political philosophies may also have an impact on EU society and hence on the business environment. In the extreme case the economic policies pursued by the former Soviet bloc, with its emphasis on central planning, clearly had massive impact on the ownership, organisational structure, operations and lack of profitability of government-owned European businesses operating in this area. Similarly, the UK Thatcher governments of the1980s created a business environment of entrepreneurship which was largely shaped by the political beliefs of Margaret Thatcher and her close advisors, which subsequently influenced other countries in Europe
The economic policies pursued by EU governments clearly have significant influence on the environment within which European businesses operate. Since the signing of the Treaty of Maastricht was completed in 1993 EU currency (SEC), formerly called the European currency unit (ecru) but now known as the euro, as part of the moves to Economic and Monetary Union (EMU). The commitment by EU governments to meet the Maastricht convergence criteria, as a precondition for acceptance to the first wave of membership of the single European currency, has obliged them to demonstrate fiscal restraint to meet the criteria relating to budget deficit (not to exceed 3 present of the country’s gross domestic product or GDP) and national debt (not to exceed 60 present of GDP).
The purpose of the convergence criteria, as their name suggest, is to converge potential members’ economies to broadly similar levels in terms of the rate of inflation, the level of long-run interest rates, and the stability of their exchange rates and, as noted, government debt. In addition the ability of countries to converge to a common position in their business cycles, in practice to converge their business cycles with that of Germany’s as the leading Economy. In practice the problems of non-convergence were demonstrated in the early 1990s when Germany raised its interest rates to counter inflationary pressures. These had resulted from borrowing to fund major expenditure in Eastern Germany to redevelop the infrastructure and productive capacity after the collapse of the communist regime of the former East Germany.
This is examined in three broad areas: culture, language and religion.
Culture: The fact that the British have a totally private sense of distance. This is most visibly seen in the shared pretence that Britain is a lonely island in the middle of an empty green sea. Culture has been described as ‘the way we do things round here’. In this sense it may be viewed as the inherent values, attitudes, social conventions and mores of a nation. In most cases these are transmitted from one generation to another, usually through the family. Increasingly, however, culture is modified by education, the media and peer influences as the pace of change accelerates in modern society. Cultural differences contribute to the diversity of the people who live in Europe and hence are an enriching experience.
Cultural differences can also create barriers, however, which in turn have significant implications for European Businesses since, if they are to succeed another than their domestic market, these differences must be taken into account. Examples of cultural differences are: the business organisation, in Germany businesses are rigid in their approach and expect everything to be done through proper bureaucratic channels with full technical detail provided.
In contrast, British firms involved in collaborative ventures, or who have opened subsidiary companies in Germany, are more casual and relaxed enabling them to be more flexible when sudden response is needed to market change. This difference in operational philosophy can cause problems. Class is also a major factor in determining social attitudes in the business environment, particularly in the UK but also in other parts of Europe.
In contrast, in less class-divisive societies such as Denmark, Sweden, and Norway attitudes may be quite different, people such as senior managers secretaries are regarded as important people in the organisation, whereas in the previously mentioned countries this would not be so tithe same extent. Business attitudes to delivery dates are also important.
European businesses operating in Germany soon find that when they promise a delivery date for a new product consumers expect it in the shops on that day, not several weeks later Firms who slack on this simple rule find themselves bombarded with telephone calls-mails, and letters. In contrast, in Spain and Greece attitudes are much more causal in this respect; the personal appearance and behaviour, the French place much emphasis on establishing personal contact in business dealings and expect the people they deal with to have style.
The Spanish believe in the importance of being smartly but conservatively dressed and demonstrating worldly knowledge, for example of good cuisine and wine; these are important issues when dining out, attending trade delegation receptions and so on, where business contacts are made. Scandinavians in contrast are much more casual in their dress; Cultural training programmes, these differences have implications for the training policies adopted by companies; some European businesses are now adopting recruitment policies where new employees are expected not only to have fluency in more than one language, but also to demonstrate some cross-cultural knowledge.
Language: In the EU there are currently 13 EU official languages and another 35 territorial minority languages, which include Basque, Breton, Catalan, Cornish, Frisian, Galician, Letzeburgesh, Irish Gaelic, Occitan, Slovene, and Welsh. Language above all else defines group of people as distinct from all others in Europe, since it also implies culture, inherited knowledge and beliefs and terms of reference and thought specific to that group alone. In that sense there is therefore an overlap with the above. Different languages and dialects as a whole all create market differences.
Religion: In the traditional Catholic countries of Europe, particularly Eire, Italy, Poland and Spain, the impact of formal organised religion on society and hence business is very important. Past controls on the sale of contraceptives in Eire are one such example. In Poland the Catholic Church has a vital role to play in the political scene with all parties having a commitment to Christian values in their policies. As a whole, businesses in Europe must bearing that increasingly the EU is becoming a society of many faiths. Certainly the large number of Jews resident in Europe has always been obvious. Now however many Muslims have entered EU countries and their religious and moral susceptibilities must also be heeded as much as another religion.
Clearly technology has had a major impact on the European business environment, particularly information technology. The impact of its use will be so pervasive as to be hard to imagine life without it. This ranges from autopilots on aeroplanes to computer-controlled traffic management systems in our cities; from computer-controlled robots on factory assembly lines to screen trading in stock and foreign exchange markets; from the growth of consumer purchases via the internet to the use of e-mail rather than conventional letters or faxes.
In this sense Bill Gates of Microsoft has argued that the internet will in effect act as a market-maker, bringing together buyers and sellers with minimum friction, and not just for goods and services but also in the Labour market. In 1994 the EU setup a first policy framework for the EU information society. These proposed initiatives to regulate the information society: it sought to bring together all those involved in creating networks, applying information technology and establishing the basic services; and it sought to raise public awareness about information technology. Most of these have now been implemented or are in the process of being implemented. This has had significant implications for European businesses by shaping the environment within which they operate.
Inevitably legal systems can differ significantly from European country to country both in terms of their content and how they are interpreted. At the one extreme in Russia, transformation has required work, in the 1990s, to develop a legal system to come to terms with the concepts of private property (particularly ownership of land) and the legal existence of private and public limited companies with the ability to hire and dismiss labour, enter into contracts, buy, own and sell assets and so forth. At the other extreme, in the EU, Union legislation applies to all member countries and is establishing elements of a common legal framework for all, even though individual countries still, of course, have their own laws. This is based on key treaties, such as, the Treaty of Rom 1957, the Single European Act1987, the Maastricht Treaty 1993, and so forth.
All these treaties will directly affect European Businesses. The main influences of country’s legal system on a business are through their impact on the business’s marketing mix and the laws affecting competition. For the most legal systems are based on civil law that is detailed rules and regulations which are strictly interpreted. In the UK, in contrast, the legal system is based on common law which is determined by past precedent and is more flexible in its interpretation. In terms of marketing a product EU countries tend to be more regulated because the
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