The automotive industry is a major driver of growth in several countries. The automotive industry has been evolving quickly in multiple dimensions, including technological innovation, the adoption of stricter regulations by the government, and structural changes due to changing consumer preferences. In recent years, as climate change and health issues have become more prevalent, the automotive industry has seen huge investments to address the twin challenges of fuel efficiency and emissions. In developing countries, the problem is made worse by the inefficient public transport system, the lax emission standards, and the slow adoption of clean automotive technology. The article highlights the challenges that the global automotive industry faces and how technological innovation can help the industry adapt to these changes. This article also sheds light on recent technologies that have been implemented to meet environmental regulations.
The following is a brief introduction to the topic:
The automobile industry is a major contributor to economic growth in several developed countries and has a significant impact on GDP. In the past decade, the ICT sector has seen a huge leap. The technological innovations of mobile phones and tablets have completely transformed the landscapes of communication and computing. The automobile industry is undergoing massive investment, and the focus has shifted to high-fuel efficiency, low-emission automobiles.
In almost all countries with a large manufacturing base, the automobile industry has a high capital-labor rate compared to other sectors. It is capital-intensive, but it also exports much of its production abroad. This makes it dependent on the external market. Production is shifting more and more to emerging markets like China, India, and Brazil. Financial crises could accelerate and reinforce this shift towards emerging economies. The five members (Brazil, Russia, India, China, and South Africa) of the BRICS Group (Brazil, Russia, India, China, and South Africa) are largely responsible (although modestly) for the growth of world GDP following the global financial crisis of 2008-09.
According to the World Economic Outlook Database 2013, compiled by IMF, the five emerging economies represented a little more than 27 % (at PPP) of the share of global GDP in 2012. This is a jump of 6 percentage points since 2006. In addition, the BRICS accounted for approximately 55 % of global growth since 2009. The developed economies (comprising 23 high-income nations) only contributed 20 % of that growth. Cars are the new symbol of prosperity in China, India, and Brazil as the middle class expands. In 2009, China overtook the US as the largest auto producer in the world. This remarkable growth comes with a number of challenges, ranging from traffic congestion and health hazards to global warming and fuel price fluctuations.
The performance of medium and heavy commercial vehicles (MHCVs) is used as a crude measure of economic growth. In developing countries, the railways are often unable to keep up with the increasing demand for goods and passengers. Fuel prices and interest rates are two financial factors that often drive sales of passenger cars. In threshold economies, the passenger vehicle segment is a huge market due to factors on demand, such as a high demand for luxury cars despite high import costs. Other demand factors include an improving infrastructure, a growing middle class, and rising income levels. The supply side factors include low costs of hiring labor, setting up plants, and running assembly lines that are low-cost. These can be used for both the domestic market as well as exports to developed markets.
According to IMF data analyzed by the Economist Intelligence Unit, Shanghai, Sao Paolo, and New Delhi are more expensive than London, Berlin, Tokyo, and New York in terms of average costs for owning a car. The Economist Intelligence Unit analyzed IMF data to determine that Shanghai, Sao Paolo, and New Delhi are the most expensive cities to own a car. Recently, it was reported that Daimler, the German automaker, plans to build a new plant in Brazil in order to produce its new C Class starting in 2015. The Footnote2 BMW and Audi also have plans to expand or set up plants in Brazil in the next year in an effort to gain market shares in Brazil, which is dominated primarily by Fiat, Volkswagen, GM, and Ford. In India, Daimler has invested more in its existing Pune plant and, to attract lower import duties, began assembling the new E Class at this plant starting in 2013. For decades, the United States has been a technology leader in automotive engineering and sales. Between 2000 and 2007, the US and Japan’s share in global production dropped from 40% to 30%, while that of non-OECD countries grew from one car to five cars.
A growing demand across different geographic regions has led most auto manufacturers to increase their minimum effective scale of production. The industry has seen an increase in mergers and purchases, as well as collaborations, to benefit from economies of scale and scope. The financial crisis of the past decade has put immense strain on the global transportation industry due to the decline in car sales, the tightening of credit, and the higher input costs across countries. According to the European Automobile Manufacturers’ Association, the decline in new car demand in 2012 was the lowest since 1990. All major European markets except the UK posted negative growth numbers, with sales in particular weak in the economies most affected by the financial crisis of Spain, France, and Italy. General Motors had filed for bankruptcy four years before, one of the biggest in corporate America’s history. A series of corporate restructurings and stimulus packages further stressed the global economy.
The current global auto manufacturers are, therefore, relying on the continued sales boom in Asian economies as well as the recovery of the American automotive market. To maintain its competitive edge in engine technology with low emissions, Europe has signaled to car manufacturers that they must adhere to fuel economy and emission targets before 2025. The European Parliament Environment Committee has confirmed the proposed limit for 2020 of 95 g carbon dioxide/km, which means that the average vehicle should need approximately 4 l for a 100-kilometer driving range. The European Parliament’s Environment Committee also decided to reduce emissions by 2025 to between 68 and 78 g/km for a 100-km driving range in 3 l.
The remainder of the article follows the same structure. The next section describes the challenges–environmental and health-related–that the industry currently faces. The latest developments in developing nations such as China or India are also discussed. The third section focuses on environmental regulations relevant to the automotive industry. Finally, the fourth section explores selected technological innovations in automotive technologies that reduce emissions and save fuel.
Environmental and Health Challenges
Five months after the Rio Summit 2012 on sustainable development and green economy, an agreement was reached for the extension of the Kyoto Protocol. This Protocol, which was signed in 1997 with the intention of imposing binding restrictions on industrialized countries in order to reduce their emissions, was set to expire by 2012. The landmark agreement is subject to two deadlines: (a) 2015 for the development and implementation of an expanded Kyoto Protocol and (b) 2020 for its execution. Unfortunately, global emission levels could not be reduced in the lead-up to 2012. After a first decline in 2008-2009, emissions have increased again. In 2012, greenhouse gas emissions were 20 % higher than in 2000, which in absolute terms amounts to 50 gigatonnes more carbon equivalent [4]. Transport already consumes over 50% of global oil supplies, with road transport taking up 75% of that share. The fact is that fuel used for transportation (at least in the majority of industrialized economies) is taxed higher than fuels used for heating or electricity.
Global challenges include reducing energy demand and reducing emissions from vehicles. To meet these challenges, it is crucial to improve fuel efficiency and reduce emissions. The increase in vehicle emissions is evident, especially in big cities, where cars are the primary contributors to air pollution. In developing countries, the problem is worsened by an inefficient public transport system, lax emissions norms, and a slow adoption of clean automotive technology. Beijing’s air pollution has been rated as one of the world’s worst megacities. Global Burden of Disease Study (2010) states that outdoor air pollution caused 1.2 million premature deaths worldwide in 2010. This is about 40% of all premature deaths. The study found that ambient particulate (PM) from vehicle emissions was the fourth most important risk factor in China. According to the same research, air pollution was ranked seventh on the list of global risks. This alarm sounded, and efforts were renewed to implement stricter environmental standards, focus on cleaner transportation technologies, and revitalize efforts in China to jump-start the electric vehicle industry. India is another example of a developing country that suffered from similar levels of air pollution in 2010. This led to 620,000 premature deaths. The preference of Chinese consumers has shifted from fuel-efficient midsize, compact cars, sedans, and hatchbacks to large sport utility vehicles and hatchbacks. The result is that China’s import costs are increasing, and air pollution is worsening. This also forces regulators to tighten up regulations. Automobile companies have responded by opening new assembly plants and engine factories in order to satisfy the growing demand for automobiles in such a large market.
