What responsibility do automakers have?




Recently, the New York Times’ Auto Section reported that the Chinese auto market is beginning to prefer larger cars. There is a certain logic behind this. An increasing number of Chinese are able to afford cars and it goes to follow that an increasing number can also afford more spacious and luxurious cars. But a cultural shift is also occurring as SUVs are no longer seen as a reminder of the rural setting that many chose to escape by moving to cities.

Auto manufacturers are quick to take advantage of this cultural shift as GM, Ford and Chrysler have all indicated that they will begin promoting and manufacturing S.U.V. models in China. Inevitably, these larger vehicles will consume more fuel, and create more emissions. But what responsibility do auto manufacturers really have toward a society faced with growing environmental woes? Should auto companies voluntarily adhere to more stringent fuel consumption and emissions standards than are currently legislated as a form of social responsibility?

In 1970, the economist Milton Friedman famously wrote an article in the New York Times Magazine in which he stated:

There is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

Whether or not you believe that a business or an industry has a social responsibility, companies do engage in actions that benefit the community or the larger society in which they operate/sell. Some companies, Whole Foods’ Market for example, make these actions a part of their mission statement. Other companies proactively exceed environmental and safety targets set by legislation. Their reasons for doing so may be to head off future costly legislation by showing that even in the absence of more stringent regulation, improvements are occurring. In the example of safety standards, vehicle manufacturers often exceed government crash safety regulations because consumers put safety as a priority when buying a car. Therefore, exceeding the mandated standards is not only socially responsible but a good business decision.

On January 12th of this year, the U.S. Embassy’s air quality measuring station in Beijing reported that the air quality index reached a staggering 755 (using the same standard, New York City’s air quality index was 19 on the same day). Pictures of the city on that day showed a postapocalyptic scene with buildings hidden behind the smog.

Beijing in Smog Jan 13 vs. Jan 12

Beijing, January 13, 2013 Beijing, January 12, 2013

Environmental concerns are growing amongst Chinese citizens and the government is beginning to take notice but a lot must be changed to limit the damage. According to a Deutsche Bank report released earlier this year, given the current reliance on coal energy and present automotive emissions, China’s air pollution is expected to worsen by 70% by 2025. The report also called for China to lower emissions per car by over 80% over the next 18 years.

If indeed Chinese officials decide to take an aggressive stance on emissions, the auto industry must be prepared. Perhaps the more compelling argument for auto companies to reconsider their decision to promote and manufacture large luxury cars and S.U.V.s is not out of concern for the environment or due to a feeling of social responsibility toward its Chinese market customers, rather that the current market trend in China toward large vehicles may be short-lived. On the surface, it looks similar to the trend in North America beginning in the 1990s...and that did not end well for the big U.S. auto companies who failed to look beyond what was currently working for them.

The auto industry needs to be prepared for the eventuality that China will address its environmental problems with more stringent emissions and fuel regulations and possible improvements to their railway transportation system. No matter how tempting the short-term profits of larger cars for the Chinese market may look today, the industry must decide to be on the cutting edge of fuel efficiency and clean running technologies to ensure its relevance as a mode of transportation tomorrow.

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