Which ‘Big Three’ Car Maker Wins on Low-Carbon Growth?
Last year marked the second year of steady expansion for the top three U.S. car firms – General Motors (GM), Ford and Chrysler – after a severe downturn during the global crisis in 2008. The U.S. car industry seems to be on a steady path to recovery, helped by President Obama’s financial stimulus.1 GM is in pole position on sales, reporting 234,351 vehicles sold last month, 12% more than Ford and 70% more than Chrysler.2
The bailout had green strings attached – manufacturers had to make more effort to sell fuel efficient vehicles to cut carbon dioxide emissions and oil dependence. Market forces and regulatory drivers are building momentum to do this. Improving the energy and carbon efficiency of vehicles in use will be a priority this year, as manufacturers struggle to meet demand for fuel efficient cars and a new US fuel economy standard to cut greenhouse gas (GHG) emissions and improve energy efficiency comes into force.
Competing on the carbon efficiency of production is also important to cut exposure to rising input costs and develop more sustainable value chains. So which US carmaker has the most carbon-efficient production?
Based on the companies’ latest carbon disclosures and Trucost calculations of their supply chain GHG emissions, Chrysler is the top polluter, with 351 tonnes of GHG emissions, measured in carbon dioxide equivalents (CO2e), per US$ mn revenue. GM is next, with 345 tonnes per US$ mn, leaving Ford as the most carbon efficient of the three, with less than 310 tonnes of CO2e/US$ mn.3
Chart 1: Carbon efficiency of automakers production and supply chains
Ford’s takes the chequered flag on carbon performance. Its more carbon-efficient production also lessens its financial risk. Trucost estimates that if the company had to internalize its environmental costs, they would amount to 2.3% of its revenue – 8% less than for GM or Chrysler.
We calculate that Ford’s supply chain contributes 87% of its total emissions. The carmaker has engaged with 30% of its direct (tier 1) suppliers on carbon impacts, and found variability in supplier readiness to measure and report GHG emissions. Engagement also delivered valuable insight into risk management opportunities for the broader automotive supply base. Ford is expanding engagement to wider production, information technology and logistics suppliers. With a US$65 billion value chain, encouraging better measurement and management of materials and carbon could have a significant impact on the company’s raw material and environmental footprint. Ford could be better equipped to manage growth sustainably than the two competitors analyzed.
Stronger management of sustainability in value chains could help make supply chains more resilient. Potential risks were highlighted last year, when environment-related events disrupted the supply chains of several manufacturers. For instance, the earthquake and tsunami in Japan and floods in Thailand affected Toyota’s operations and parts suppliers, causing a fall in production and loss of earnings.
Could 2012 be the year that potential game changers in the auto sector re-map upstream environmental risks and switch to low-carbon growth?
Nadia Montoto is head of US supply chain research for Trucost.
1 http://topics.nytimes.com/top/reference/timestopics/people/o/barack_obama/presidency/index.html and http://www.economist.com/node/16846494
2 http://www.marketwatch.com/investing/stock/GM?link=MW_story_quote ; http://www.marketwatch.com/investing/stock/F?link=MW_story_quote and http://www.marketwatch.com/story/chrysler-sales-soar-market-share-rises-2012-01-04
3 Environmental data was normalized to 2010 revenues for methodological reasons, as latest environmental data available covers the financial year 2010: http://www.gmsustainability.com/ ; http://corporate.ford.com/doc/sr10.pdf and http://www.chryslergroupllc.com/en-us/sustainability/Documents/ChryslerGroup2010SR.pdf
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