What Companies Can Learn From the Auto Industry

Attention: open in a new window. PDFPrintE-mail

IMG_9345Changing one’s ways or implementing new initiatives is difficult. It’s inconvenient. This seems especially true in the U.S. in recent years. Thus, the reluctance to implement smarter, cleaner strategies. Businesses in other nations have demonstrated that clean approaches – in operations and also in business strategies – have been successful in meeting the challenges of the global recession. Now there is a U.S. industry that can be a model for companies across the business spectrum to add value while addressing sustainability concerns, and that is the automobile industry.

For decades “Big Auto” did things the same old way, ignoring the fact that technology and consumer preferences were changing and that more people no longer wanted to drive gas guzzlers, whether because of rising gasoline prices or concern with the environment. Perhaps they thought they can affect consumer attitudes with advertising.

The results for U.S. auto makers were disastrous. By failing to be more sustainable, U.S. automakers weakened their bottom line and lost their lead position in global sales. GM was rescued from potentially going totally out of business by a federal bailout with oversight that insisted the company make the type of cars that people had requested for years. Chrysler, besides getting bailout money, was taken over by a European buyer, infusing their sustainability experience. While Ford was not bailed out, they were on the verge of bankruptcy and also began to build more fuel-efficient cars that they had been fighting for decades. Although some Americans are unsure about climate change, Big Auto finally learned that addressing sustainability helps consumers get more value from their car, which everyone supports. All 3 firms have improved sales and the bottom line. Even SUV sales have improved recently, but for models with better gas mileage.

Which other U.S. industries have not addressed changing technologies and consumer preferences and can use the U.S. auto industry as a model? One that comes to mind is the power industry, as major electricity producers have fought new regulatory initiatives and renewable energy. Power companies have the opportunity to gradually replace their oldest, dirtiest power plants with cleaner energy, but many appear reluctant to do so.

An example is the new draft mercury rules for power plants. The US EPA, after listening to industry and environmental sectors, crafted new rules with an economic analysis that estimates both avoided deaths and emergency room visits that could be caused by this rule, based on current scientific knowledge, and the overall national economic gain. Instead, power companies are lobbying against this bill and even pushing Congress to pass a bill preventing the US EPA from passing new rules. Some have intimated that plants may shut down and perhaps potentially deprive areas of electricity.

It may seem counterintuitive, but smart federal rules that represent compromises between industry and environmental groups and based on current health-based, scientific knowledge and economic analysis, may be the best thing for the power and all industries. Such efforts result in a “level playing field” for all companies and a more satisfied public, both in terms of health cost savings, energy independence, energy source choices and risk, and environmental concerns. With all the debate in the last few years about federal health care legislation and record health insurance costs, it is certainly non-partisan and in everybody’s interest to enact laws that can reduce factors that lead to fatalities and the need for health care, based on current knowledge.

There is also the case of “unwanted consequences” by squelching smart legislation. An example for all industries is federal climate change or “carbon” legislation, which did not pass Congress. Failure to enact uniform legislation does not mean that greenhouse gas (GHG) emissions are not regulated. Instead they are regulated in a “quilt” of rules in different states, regions, and even cities. The Northeast U.S. has the “RGGI” rule for GHG emissions from power plants there, while California’s new AB-32 has demanding rules for many industries. And then there are rules that only indirectly affect carbon emissions, such as “green building” rules and renewable energy standards. Even federal GHG rules are not gone. First, the GHG Mandatory Reporting Rule (40 CFR Part 98) requires a variety of industries to report (not reduce) their direct emissions. Finally, the US EPA will be required to pass legislation to reduce GHG emissions through the Clean Air Act (CAA). Required? Yes. Several courts have ruled that GHGs are a “pollutant”, and the CAA requires the US EPA to regulate all pollutants. But, the CAA is not the ideal way to legislate reductions of compounds with no direct, health-based effects. Rules based on the CAA may impact some industries harder than others compared to specific GHG-based rules (theory of “square peg in a round hole”).

The writing is on the wall for many U.S. industries, including the power industry. Change positively with the times, seek consumer preferences, and work with new technologies and together with the government and there is a chance to benefit from the available transition to clean energy and benefit the bottom line. A New Year’s Wish for 2012.