The Blue Oval Goes Green: How Ford Motor Company Must Meet Environmentally Conscious Standards
With aggressive emissions and fuel economy standards set for the coming years, automakers feel increased pressure to implement new technologies to produce clean vehicles while struggling to remain competitively priced and accessible to mass market purchases.
Ford Motor Company’s operating model and product lines will be dramatically affected by the regulations around global warming. Transportation sector is responsible for 26% of the greenhouse gas emissions in the United States [1]. Beyond competitive pressure between automakers, CAFE standards (Corporate Average Fuel Economy) forces auto makers to meet an average fuel economy across the fleet of vehicles they produce, based on their product mix. CAFE standards are set and enforced by United States Department of Transportation and intended to encourage technological innovation, and the reduction of greenhouse gasses through the penalty of heavy fines for every vehicle sold if the standards are not met. In 2011, standards were announced with a target of 54.5 miles per gallon by 2025 [2]. Ford Motor Company, as well as all other automakers, must now rapidly innovate to efficiently power their vehicles in order to meet standards, maintain safety, and remain competitive and profitable. In addition to fuel economy requirements, the EPA sets strict emissions requirements for passenger vehicles.
There are a number of options Ford can pursue in order to meet the ambitious standards and most are based on the introduction of new technologies in these passenger vehicles. Many of these technologies exist but are expensive and have relatively low take rates. Ford must now implement these innovations on a wider basis to significantly move the needle on the fleet average fuel economy.
- Electric: Tesla has proven there is a significant market for eco-friendly consumers who want a quality electric vehicle, Ford needs to offer competitive models to maintain its significant market share and establishes an image as an innovator within the industry. This route requires significant investment in new battery technologies and research, electric motor production, as well as investment in the electric vehicle charging infrastructure. Many consumers worry about charging times as compared to a traditional gasoline vehicle, which can be refuel and back on the road within minutes.
- Hybrid: Hybrid vehicles, which supplement a gasoline engine with an electric motor to power the vehicle, are currently available but with relatively low take rates in the market and are thought of as a relatively niche vehicle. Hybrids tend to be significantly more expensive due to the additional powertrain components but that cost must come down relative to the non-hybrid counterparts in order to increase the purchase rate of these vehicles. Spreading cost across the entire vehicle line could close this price gap and increase the likelihood of consumers to purchase hybrid vehicle because they offer significant fuel economy benefits.
- Aerodynamics: Aerodynamics can reduce vehicle drag and improve efficiency, but are constrained to safety requirements and significantly impact customer purchasing decisions.
- Weight Reduction: As vehicles become lighter, they can be powered more efficiently, resulting in reduced emissions and less wasted energy due to friction. Lighter/smaller vehicles in the fleet have the potential to significantly impact CAFE compliance and greenhouse emissions over the vehicle lifetime. Light weighting can be accomplished through material improvements including the aluminum body panels, structural improvements allowing the reduction of material, introduction of small trucks to segment the truck market and provide fuel efficient options to those who want the utility of a truck bed but do not require the towing capacity of a large truck. Ford will be challenged to maintain crash safety when reducing weight and structure but material and engineering improvements can allow both of these goals to be met.
- Turbocharging: Already very common in many vehicles across the line of vehicles, Ford must continue to implement turbocharged vehicles and reduce cost relative to the non-turbocharged vehicles. Turbochargers produce more power out of smaller engines which makes vehicles lighter and reduce engine friction.
- Aftertreatment Systems: Catalyst improvements can significantly reduce harmful emissions but are costly to implement due to the high number of rare earth metals necessary. Particulate filters on engine exhaust also decrease emissions but are also costly and can have negative impacts on engine efficiency so that trade-off will need to be optimized as emissions restrictions change.
A mix of these options will allow Ford to be compliant with the aggressive standards set forth. While these standards force significant costs in research and development on the automakers and the costs are passed down to the customers, the costs of reducing greenhouse gasses is passed those actually producing them through their consumption habits. Ford will also have to make many changes as economic and social pressure mounts to become a more ecofriendly company. These changes could potentially include leaner manufacturing options, recycling material and components, the use of biomaterials or soy based plastics/foams in place of petroleum based materials. These changes will be beneficial to the brand in terms of brand image, long term costs, and ecological impact of the company but more much more loosely regulated than fuel economy and emissions. (799 words)
[1] Sources of Greenhouse Gas Emissions, From US Environmental Protection Agency Website, https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions, Accessed 11/3/16
[2] Corporate Average Fuel Economy, From Wikipedia, https://en.wikipedia.org/wiki/Corporate_Average_Fuel_Economy, Accessed 11/3/16
These are all great ideas, but focusing on sustainability in the automotive industry (particularly in the U.S.) seems like a bit of a prisoners dilemma. The industry is already highly competitive, with much of the competition coming from international automakers with lower cost bases. There are already some viable options in the U.S. market (electric, hybrid), but the mass of consumers who are price sensitive won’t even consider those options. It’s a difficult position for U.S. automakers who have to invest the money to innovate and add features to their products that will necessarily raise the price of their products and make them less competitive at least in the short term. As we have seen with VW, these tensions have already led to automakers trying to skirt the issue rather than address it head on.
In order for Ford to truly put its weight behind green innovation without falling behind their competitors they need to level the playing field. This would be a radical move, but Ford could consider creating a Kyoto-like consortium with other automakers who all agree to binding measures to reduce their environmental impact. They could then lobby the government to impose taxes and fees on foreign manufacturers who don’t abide to the same standards. In this way, they could work to reduce some of the disincentives to innovate in this area and the auto industry could truly be a leader in solving the GHG problem that in many ways they were the greatest contributor to.
As a car enthusiast, I found this article extremely interesting and thought provoking, especially your suggestion around aerodynamics as a lever that can be pulled to increase fuel economy. I read this article from The Star that further supports your argument to consider aerodynamics as a factor that improves fuel economy. However, your point about aerodynamics being constrained to safety requirements does not seem accurate because the article highlights three areas of progress in aerodynamics, which are airflow through the engine compartment, airflow around and within the front wheel wells, and airflow beneath the vehicle. You do highlight that these innovations will come with a heavy price tag, but Ford should not allow the price tag to deter them from investing in R&D for aerodynamics; in fact, as a market leader, Ford should make the effort to bring the importance of aerodynamics to the forefront. Again, this was a great summary of the many ways that Ford can move closer towards the 2025 target and create a greener planet.
The article link did not work in my original post, but you can find the article here: https://www.thestar.com/autos/2015/04/17/aerodynamics-and-the-science-of-fuel-efficiency.html.