Redefining the Considerations of an Automaker – Volkswagen

As climate change is finally beginning to receive the attention it warrants, countries and companies that have a large carbon footprint are being forced to redesign everything from their products and operations to their CSR and marketing. Deemed as one of the biggest contributors to increased greenhouse gases, the auto industry has garnered much negative attention in regards to climate change, and Volkswagen (VW) is a prime example of an automaker rushing to reinvent themselves and stay ahead of regulations, while keeping their brand image intact.

 

Design of the Car

Emissions regulations are becoming stricter by the year, especially with hard to ignore global manifestations of climate change. In addition to restrictions on fuel emissions from active machines, there are now additional restrictions on such emissions when machines are off and resting. Consequently, car manufacturers have had to redesign their cars to produce better fuel efficiency as well as improved fuel storage tanks. In their 2014 Sustainability Report, Volkswagen reported that 57 cars in their portfolio already met the 2020 EU new-fleet car emissions target of 95g CO­­2 /km. Furthermore, each new car VW designs promises to be 10-15% more fuel efficient than its predecessor.

Lastly, VW cars are now designed so that 85-95% of the car is recyclable; however, how the company retrieves old cars for recyclable material and how much they have used recycled material in their new cars has not been disclosed by the company.

 

Design of the Plant and Production Process

Volkswagen reports that over the years their manufacturing process has become much more efficient and consequently, has decreased emissions from production every year. In 2014, Volkswagen reported their worldwide manufacturing processes saw an average of 23.2% reduction in CO2 emissions, 18.5% reduction in energy consumption, and a 21.7% reduction in waste for disposal. These results were achieved mainly by switching to renewable energy to power the plants, innovating processes such as painting cars to rely less on water, and recycling water and waste products in the production process. In addition, VW has attained ISO 14001 and ISO 50001 certification at many of their sites and is continuing to improve uncertified sites with the goal of achieving these certifications.

 

Cannibalization of their main product?

While the fossil fuel driven car is VW’s main product, increased consumer awareness of climate change coupled with stricter regulations are forcing the company to invent eco-friendly products that may one day entirely replace what has been the bread and butter of VW:

  1. VW is producing hybrid cars that can use both oil and electricity as fuel, and have CO2 emissions as low as 35 g/km, approximately one third of that of traditional vehicles.
  2. Some Volkswagen brands such as Audi are moving towards alternative energy as fuel. The company has developed a method of producing “e-gas” which offers the same power as fossil fuels, but is generated using wind power, CO2, and water. Volkswagen admits that there is still lack of infrastructure around e-gas – only available at some gas stations – which has hindered customer adoption of this technology.
  3. VW has been investing in car-sharing and building buses. In a time when there is increased incentivization for people to reduce emissions by using common transport, VW runs the risk of decreasing their car sales.

 

Other Considerations

When judging the success of any sustainability endeavor, it is important to ask what is the net effect of the company’s operations on the environment and which metrics are being used measure it. For example, VW could simply use aluminum to make their cars lighter, which would in turn produce increased mileage. However, the extraction of aluminum is itself a highly energy intensive process, and so could outweigh the environmental benefits of reducing fuel consumption in cars. Additionally, although the company seemed to be performing well with regards to sustainability when measured against CO2 emissions regulations, they were 40 times over the limit for NOx emissions, and were found to be falsifying NOx emissions data, leading to the “emissiongate” scandal of 2015. This illustrates that although companies are being forced to comply to stricter environmental regulations, they are likely to feel pressured to scam their way out of such regulations or to find ways to address parts of the problem while exacerbating others.

 

Finally, improving sustainability is not a simple, one-way equation. Just as companies, governments, and consumers are responsible for driving climate change to its current state, all parties must similarly be involved in undoing centuries of negligence. Companies like Volkswagen, who arguably have a more direct impact on climate change, must lead the way in creating innovative methods to reduce and even sequester CO2, because it is only a matter of time before both government regulations and consumer demands force change upon them.

 

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Sources

 

  1. “Volkswagen Group Sustainability Report 2014 – PDF File.” Web. 4 Nov. 2016. [Url: http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/04/group-sustainability-report-2014.bin.html/binarystorageitem/file/Volkswagen_Sustainability_Report_2014.pdf ]

 

  1. “Volkswagen Emissions Scandal.” Wikipedia. Web. 4 Nov. 2016. [Url: https://en.wikipedia.org/wiki/Volkswagen_emissions_scandal#EPA_Notice_of_Violation ]

 

  1. “Volkswagen Reminds Us Who’s in Control of Climate Change.” Huffington Post. Web. 4 Nov 2016. [Url: http://www.huffingtonpost.com/kelsey-clark/volkswagen-reminds-us-who_b_8207958.html ]

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4 thoughts on “Redefining the Considerations of an Automaker – Volkswagen

  1. DF, thanks for the informative article. When I think of auto manufacturers and sustainability, I typically only think of how the engine and car size can influence the amount of emissions released into the atmosphere, so I liked that you highlighted how manufacturing decisions for an auto company can have a large impact on sustainability. I am super impressed that VW was able to reduce CO2 emissions, waste, and energy consumption related to manufacturing processes by ~20% each in 2014, and prior to your aluminum example I had not considered that choices that make a vehicle more efficient could actually be a net negative for the environment due to changes in manufacturing.

    I also liked your mention of “emissiongate” and how tough regulations can incentivize companies to find loopholes. If the companies are caught, it is incredible how costly those loopholes can be – Volkswagen is set to settle with consumers for $14.7 billion, for instance. [1] Sadly, the scandals may not be over for Volkswagen. In the last 24 hours, it came to light that software installed on some Audi vehicles allow cars to cheat emissions testing. [2] We can only hope that other auto manufacturers have not attempted to cheat standards the way Volkswagen has over the past several years.

    [1] Sara Randazzo, “Volkswagen’s $14.7 Billion Buyback Deal on Emissions Scandal Approved,” WSJ on 10/25/2016, http://www.wsj.com/articles/volkswagen-s-14-7-billion-buyback-deal-on-emissions-scandal-approved-1477409939
    [2] William Boston, “New Discovery Broadens VW Emissions-Cheating Crisis,” WSJ on 11/6/2016, http://www.wsj.com/articles/volkswagen-probe-in-germany-extended-to-chairman-1478429066

  2. Great article Deeni. Even though Volkswagen has been troubled by their recent scandals on emissions, they seem to have taken some efforts to mitigate their carbon footprint along the value chain ! Most of their initiatives – the design of the car, the design of the production process – all result in very short term improvements in production metrics such as – efficiency, yield, energy consumption, economical design etc. How would you be able to draw a line between Volkswagen’s intention to do short term improvements which help with the financial performance of the company v/s the company’s intent to make long term investments which give more impactful returns (only in the long term). Does Volkswagen truly believe in climate change as a present problem, or does it care only about efficiency improvements disguised under the umbrella of climate change?

  3. Thank you for this post DF. It is fascinating to see the initiatives that Volkswagen is taking in order to address its environmental footprint. I particularly appreciated the reference you made to the trade-offs around using aluminium, for instance, in car manufacturing. It is critical that manufacturers, and firms more broadly consider all of the potential effects of their ‘sustainability’ initiatives, rather than just presenting initiatives that may sound good to the consumer in a headline but might with full information have neutral or damaging environment consequences.

    In the context of Volkswagen and the LEAD cases that we have been addressing recently around leader as architect of an organisation, I believe that there may be one aspect of a successful sustainability strategy that many of us are not addressing. Volkswagen has revealed through the emissions scandal that the architecture and culture of an organisation is critical to whether or not a sustainability strategy will be embraced with integrity as a priority, or whether as in Volkswagen’s case, it will be followed for the purposes of public perception, not necessarily leading to good decisions. Volkswagen has identified that causes of the emissions negligence include insufficient governance of their modular toolkit strategy team in addition to a “mindset within the company that tolerated rule breaking”. As we see in many instances, family owned businesses such as LEGO and IKEA are leading the charge towards sustainability and doing so as they have cultures that are able to think in the long-term. However, a lesson for us as leaders from this case is that in driving any organisation towards sustainability, we must also be thoughtful about designing the firm, its culture and governance to embrace these initiatives, and ensure that we do so with integrity.

  4. I love the idea of using aluminum in the body of VW cars. Many manufacturers have started to move that direction, like Toyota. It is true that making aluminum is a very energy intensive production process. However, aluminum can be recycled! This is where all of your old soda cans can be put to use. About 75% of all the aluminum ever produced is still being used today. Also, the process of recycling aluminum requires 5% of energy required to mine and make new aluminum [1]. I think that including recycled aluminum in concert with freshly minted aluminum could serve VW well as they look to create a more fuel efficient vehicle. Also, I think using another source of recycled metals could help boost their reputation after the “emissongate” scandal.

    [1] http://recycling.world-aluminium.org/en/review/sustainability.html

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