[Green Growth:Korea`s New Strategy (40)] Carmakers should shoulder social responsibility

The following is the 40th in a series of articles focusing on the Korean government`s "green growth" strategy. The series will also introduce the increasing efforts of major advanced countries of the world to promote a green economy. - Ed.



Green management in the automotive industry is imperative for survival. The key challenge in the automotive industry is how to provide sustainable mobility. Sustainable mobility is transport that overcomes the constraints that restrict the growth of the automotive industry: the environment, energy, resources and safety regulations. Moreover it provides transport in the most convenient and economical way.

Green management is primarily related to environmental contamination, energy and resource problems. Since 2000, the acceleration of global warming and the shortage of resources have raised the questions over the growth of automotive industry.

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As developed countries encourage the reinforcement of environmental regulations, environmental technologies have become a necessary condition to entering those markets. The best example is the change of EU regulations on carbon dioxide emissions, restricting it to 130g/km from 2012. That is equivalent to a fuel efficiency of 18km per liter in a gasoline vehicle, which is difficult to achieve except in small vehicles.

Beyond that, environment-friendly products will play a vital role in creating demand. Automakers no longer consider environmental issues as constraints to growth, but are taking part in implementing the eco-friendly paradigm into their management.

Automakers` environmental strategies in the past concentrated on responding to emission regulations on a short-term basis. In contrast, green management involves a comprehensive, long-term strategy.

However, the core of green management in the automotive industry is in the product itself. Pollution and resource-saving issues are closely related to the product itself, rather than the manufacturing process. This is in contrast to the steel industry, where the core objective of green management is to reduce pollutants in the manufacturing process. Development of environmentally friendly vehicles and their market expansion are the most important strategic challenges for automakers in this regard.

The examples of eco-friendly cars include fuel efficient vehicles with improved engines, as well as hybrid, electric and fuel-cell vehicles. Global automakers are fiercely competing for technology to move into the environmentally friendly car market, with extensive support from their governments.

Hybrid and fuel cell vehicles are the typical examples of eco-friendly cars. In practice, it is more effective to increase the fuel efficiency of existing engines. One research suggested that by modifying engines, transmissions and tires as well as using new materials like carbon fiber, the efficiency of internal combustion engines can be improved by more than 50 percent.

The most practical alternative vehicles at the moment are hybrid and electric vehicles. However, the process of commercializing such vehicles is still problematic. Firstly, the high price of hybrid and electric vehicles weakens their economic feasibility. The economics of those vehicles depend on both external factors like oil prices and internal factors like the prices of the battery and the motor. If oil prices surge again as they did last year and market expands early to secure economies of scale, the hybrid and electric vehicles would be more economically efficient, as the high fuel prices will create more room for cost reduction.

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On the other hand, plug-in hybrid vehicles, which use electricity as the main power source, and electric vehicles have infrastructural problems other than economic issues. In Korea, where most people live in apartments, there are limitations in linking private cars to the mains. In the United States, where a large proportion of households have their own garages, vehicles can be charged overnight using the cheaper night-time electricity. Apartment parking lots do not normally have the same access to the mains.

Moreover, the life of the battery should be improved. It takes more than six hours to charge up a typical electric car battery, but the battery lasts for less than 100 km. The development of lightweight batteries that last longer and can be recharged more quickly, will be the key to becoming the leader in the electric car market.

Korean automakers have already developed green technologies and implemented green management practices ahead of the government`s "Green Growth" policy. By declaring "Global ECO GT5 2010" in 2003, Hyundai Motor Company has declared a philosophy and action plan for global environmental management. Hyundai has implemented a "Sustainable Management" scheme which consists of five core strategies; active response to climate change, reduction of harmful substances, development of an environmental management system, reduction of air pollutants, and resource recycling.

As part of these strategies, Hyundai established an "Environmental Technology Research Center" in September 2005, to research environment-friendly vehicles and design. In the same year, "Vehicle Recycling Center" was launched to advance environment-friendliness of motor vehicles throughout their entire life cycle. Kia Motors Corp.`s European model `cee`d` is a good example of the pro-environmental efforts of the company. Cee`d won both the DFE (Design For Environment) and the LCA (Life Cycle Assessment) environmental certifications. DFE evaluates the environment-friendly processes in new car design and development, and LCA evaluates the environmental effects on global warming from the acquisition of materials to the vehicle`s scrapping.

Korean makers are competitive in small gasoline engine technology. Hyundai Motor and Kia Motors are planning to launch LPI hybrid vehicles to the public in the second half of this year. Gasoline hybrid vehicles are planned for 2010 and plug-in hybrids in 2013. Hyundai Motor has also successfully developed Hydrogen Fuel Cell vehicles, which are currently on a test run, and are expected to reach the market in 2012.

Automakers have also been participating in the global environmental projects. For example, Hyundai Motor has jointly initiated "Hyundai Green Zone" project with an environmental NGO, which is to prevent "Neimenku" from desertification.

Global automakers have been heavily hit by global economic crisis and are going through major restructuring involving production cuts and employee layoffs. However, they have no intention of reducing their R&D investment into fuel efficient and environment-friendly vehicles. Because the price of oil might surge when the economy recovers and environmental regulation are further toughened. The crisis will also serve as a momentum for consumers to put more weight on the economic and environmental attributes when they purchase cars.

Meanwhile, many governments are providing extensive support to the development of green technology, which they believe will revive their automotive industries. Governmental support to encourage domestic demand is therefore concentrated on the development of fuel efficient and environment-friendly vehicles.

The best example is the scrapping incentive policy. Some European countries, including Germany and France, offer 1,000~2,500 euros to customers purchasing new fuel efficient vehicles after scrapping cars that are at least nine years old. This kind of scheme can stimulate domestic demand and also solve environmental issues at the same time.

Many governments are providing extensive supports to the development of alternative vehicles like hybrid and electric vehicles. The Obama administration in the United States believes that the revival of the U.S auto industry is dependent on the development and spread of eco-friendly cars. They have included early establishment of environmental manufacturing systems in their bailout conditions. By executing this policy, the U.S. government plans to produce more than 1 million plug-in hybrid vehicles by 2015.

The Japanese government also introduced "Low Carbon Green Growth" as its new vision last year and has driven policies that are related to the development and commercialization of environmental vehicles. Their most notable policy is the investment in building transport infrastructure using information technology, in addition to R&D support. This type of investment will smooth the traffic flow and could more than double the speed of city traffic, which will lead to the reduction in air-pollution and energy consumption.

The success of green management depends on a close partnership with the government due to high uncertainty in investment and sales of environment-friendly technologies and product developments. The market failures driven by this uncertainty often occur. The government should maintain a balance between fuel efficiency and economic efficiency. Otherwise, green technology development and investment will not be revitalized. A slight fall in oil price might de-motivate automakers to develop environmental cars and put consumers off them. Therefore, the role of government is vital. In difficult circumstances like we see now, it is important to provide incentives to automakers to invest continuously.

However, to harmonize Green Management at corporate level and green growth at national level into a successful operation, fixing market failure is not sufficient. The government and automakers should share relevant information and knowledge with each other and solve the problems together. This is especially the case in the automotive industry which has a big influence over the national economy and plays vital role in green growth.

Automakers should devote their best efforts to technology development with some degree of social responsibility and the willingness to take a challenge. In doing so, automakers should build cooperative relationships between suppliers, academies, research institutes and companies in other industries to increase the efficiency of the investment. At the same time, economic efficiency of eco-friendly cars should be achieved by introducing new business models to expand the market.

By Park Hong-jae