RESPONSIBLE BUSINESS

Automotive Industry 2023

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INTRODUCTION
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The automotive industry is one of the biggest and most influential sectors in the world
economy, in which Volkswagen (VW) is holding a substantial market share (Britannica, 2023).
The concern of greenhouse gas emissions (GHG) is one of the main issues facing the
automobile industry. The industry is a major contributor to global emissions due to its nature of
manufacturing and producing a wide range of vehicles. As a result, increasing pressure has
been placed on the sector to minimize its environmental impact, which has been considered in
a variety of regulatory and policy initiatives including emissions standards and carbon taxes.
However, it was detected that VW had been cheating on emissions testing leading to its
emissions scandal in recent years (Gwyn et al., 2015).

The purpose of this analysis is to examine the automotive sector regarding its global industry
structure and concentration with a discussion of greenhouse gas emissions, the technological
environment, the regulatory and policy environment, emissions reporting, and carbon
disclosure of the industry. Furthermore, implications on society will be included to clarify the
consequences of ethical and non-ethical business decisions, the influences of the
Environment, Social, and Governance (ESG) actions of the sector on society, and its
conclusions about responsible business conduct. Lastly, the analysis will recommend
responsible business choices in the automotive industry to address both global and local
challenges and discover opportunities in the future.

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Table of Contents
INTRODUCTION......................................................................................................................................................1

BACKGROUND........................................................................................................................................................3

ANALYSIS.................................................................................................................................................................4

IMPLICATIONS ON SOCIETY...............................................................................................................................7

RESPONSIBLE BUSINESS CHOICES/RECOMMENDATIONS.....................................................................9

REFERENCES.......................................................................................................................................................11

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BACKGROUND
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The car industry has been a crucial part of the world economy for over a century. Binder et al.
(2023) argue that the automobile industry evolved in the late 1800s and early 1900s with the
launch of the first mass-produced cars by pioneers. Afterward, the market had aggressive
growth along with brands like Toyota General Motors, and Volkswagen becoming well-known
to the world. This source also includes that there are other major companies in the sector
operating globally involving North America, Europe, Asia, and other areas. Especially,
automobile sales in China have recently succeeded those in the US, making it a critical market
for vehicles (Binder et at., 2023). Meanwhile, the UK’s automotive industry has a long history
that dates back to the late 19 th century, which has made a significant contribution of over £14
billion to the country's GDP (SMMT, 2020). In addition, the West Midlands, the North West,
East Midlands, and South East are well-represented in this sector (SMMT, 2020).

However, the automobile industry has considerable environmental problems including air
pollution and greenhouse gas emissions. In other to address these risks, governments all over
the world put in place regulations to lower greenhouse gas emissions and enhance air quality,
which creates a big impact on the industry. As reported by the Department for Transport
(2020), the UK government has established several programs and legislation targeted at
lessening the environmental influence of the automobile sector. Besides, a promotion of the
use of electric and other low-emission cars such as subsidies for the purchase of electric
vehicles and tax breaks for companies that make low-emission vehicle investments has been
implemented by the government (Department of Transport, 2020).

In general, the automobile sector functions within a complex environmental context that is
affected by legal, social, and technical variables. Firms in the industry must cover these
considerations to ensure ethical business decisions and guarantee their long-term
sustainability.

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BRIEF DESCRIPTION OF THE AUTOMOTIVE INDUSTRY

According to Binder et al. (2023), the automotive sector comprises the manufacture of various
types of vehicles including automobiles, buses, trucks, and motorbikes. Additionally, it involves
the manufacturing of numerous car parts, such as transmissions, engines, and electronics.
Millions of people are being able to employ by the industry globally, and it significantly
strengthens the economies of many different countries. Although, the requirement to invest
heavily in research and development to keep up with technology breakthroughs, along with the
increasing demand for more environmentally friendly vehicles, have caused essential
challenges to the industry in recent years (Binder et al., 2023).

CHARACTERISTICS OF GLOBAL INDUSTRY STRUCTURE AND CONCENTRATION

Global industry structure and concentration refer to the type, distribution, and level of market
dominance of a few large corporations held within a sector on a worldwide scale (David, 2008).
Furthermore, James (2002) explains that there are a number of variables including economies
of scale, governmental laws, trade policies, and technological advancements have an effect on
the structure and concentration of the automobile industry. In research, Martin (2022) adds that
the sector is dominated by a small number of powerful multinational businesses, such as
Toyota, Volkswagen, Ford, and General Motors, who control a substantial portion of the
industry’s overall market share. This source also states that over 80% of the world's
automobile output was accounted for by the top 10 producers in 2021. Moreover, the research
shows the tendency toward industry consolidation, as big companies combine with or buy out
smaller ones to gain market power and increase profitability. However, the structure and
concentration of the automobile sector have been influenced by international trade policies like
free trade agreements, which have promoted an increase in competition among businesses,
especially in emerging regions (David, 2008). For instance, David (2008) includes, the growth
of China’s automotive sector has disrupted the global market dominance of traditional
automotive powerhouses.

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INDEXES, MEASURES, AND OTHER ASPECTS RELATED TO GREENHOUSE GAS

EMISSIONS OF THE AUTOMOTIVE INDUSTRY

A report by IEA (2022) examines that transportation is accounting for approximately 37% of all
energy-related CO2 emissions globally, which makes the automotive industry a significant
contributor to the world's greenhouse gas emissions. To respond to this issue, several indexes
and measures have been developed consisting of the Corporate Average Fuel Economy
(CAFÉ) requirement in the US and the emission standards in the European Union (NHTSA,
2022). These regulations have been created as solutions to the increasing greenhouse gas
emissions problem. On top of that, the industry has undertaken a transition toward electric and
hybrid cars, which is shown in IEA’s report that there is an increase in sales of electric vehicles
up to 26 million in 2021. As a result, a lower emission is produced compared with traditional
gasoline or diesel-powered vehicles.

GENERAL CONDITIONS AND TRENDS OF THE TECHNOLOGICAL ENVIRONMENT OF

THE INDUSTRY

A variety of developments are driving significant changes in the technology environment of the
automobile sector. According to Felix et al. (2018), a number of key factors shape the general
conditions and trends in this industry. These involve improvements in connectivity and
digitalization, the enhancement of electric and autonomous vehicles, the growth of mobility
services and shared mobility, the rising attention paid to sustainability and environmental
concerns, and the integration of artificial intelligence and data analytics (Felix, 2018). He also
adds, these developments encouraged innovators in fields like autonomous driving
capabilities, electric powertrains, connected car technologies, and mobility solutions, which are
revolutionizing how cars are built, made, and utilized. Additionally, the automobile industry is
modifying this development to satisfy changing consumer needs, enhance convenience and
safety, and overcome sustainability challenges.

MAIN REGULATIONS AND POLICIES RELATED TO THE REGULATORY AND POLICY

ENVIRONMENT OF THE INDUSTRY

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To reduce greenhouse gas emissions from the automobile sector, governments around the
world have put in place various regulations and laws. In the EU, for example, the Emissions
Trading System cut emissions by around 35% between 2005 and 2021, with a further
expectation of reduction reaching 55% by 2030 (European Commission, 2021). In addition, a
ban on the sale of new gasoline and diesel vehicles by 2030 has also been proclaimed by the
UK government (Department of Transport, 2020). On a global scale, nations including China
have announced the National VI B strict emission standards and implemented policies to
encourage the use and development of electric cars (Reuters, 2023). Moreover, the U.S.
Department of Energy (2023) establishes fuel economy requirements and tax incentives for
buying hybrid or electric cars. On top of that, the Paris Agreement is formed, which is a joint
international agreement and initiative by several nations, to collectively counter climate change
and cut emissions (European Commission, 2021). The specific laws and guidelines shape
depending on the objectives and circumstances of each country, however, the overall goal is to
build a more environmentally sustainable automotive industry.

DATA ABOUT EMISSIONS REPORTING AND CARBON DISCLOSURE OF FIRMS

Multiple automotive companies have started disclosing their carbon emissions and establishing
targets for lowering them. As an example, Volkswagen (2021) has affirmed to become carbon
neutral by 2050 and reduce its production-related CO2 emissions by 50.4% by 2030 compared
with 2018. Additionally, from 2010 to 2020, Ford Motor Company (2023) recorded a 30%
decrease in CO2 emissions from its global operations, the company has also made an
obligation to become carbon neutral by the year 2050. Meanwhile, the Guardian (2021) argues
that General Motors’ goal is to have a zero-emissions lineup by 2035. In 2020, Toyota Motor
Corporation (2022) disclosed that its global CO2 emissions from the production process were
approximately 4.5 million metric tons, presenting an aim of a 30% decrease in 2025 compared
to 2010 levels. This reporting and disclosure prove that major automotive companies are
making commitments and efforts to lessen their environmental effect and are willing to invest in
the enhancement of cleaner technology.

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IMPLICATIONS ON SOCIETY
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CONSEQUENCES OF ETHICAL AND NON-ETHICAL BUSINESS (INDUSTRY) DECISIONS

According to Crane and Matten (2019), ethical business decisions including promoting
employee welfare, prioritizing safety, and advancing sustainable technologies lead to positive
social, environmental, and economic outcomes. In contrast, the source also states, non-ethical
decisions lead to negative consequences consisting of damage to the environment, weakening
public health, and lessening consumer trust. The Volkswagen emissions scandal in 2015 is an
example of unethical practices, which caused severe impacts on public health, broke
customers' trust in the industry, and damaged the environment. Moreover, other major
automotive firms have the same dilemmas, including Ford’s failure to recall its defective
ignition switches vehicles causing accidents and fatalities (Nichole and Asra, 1996).
Conversely, Tesla focused on prioritizing ethical practices by enhancing sustainable
transportation using their electric cars, which lower greenhouse gas emissions.

CONCLUSIONS CONDUCTED ON SOCIETY, ENVIRONMENT, AND ECONOMY

The conduct of the automobile sector has a significant influence on society, the environment,
and the economy. Dolores et al. (2019) agree that socially responsible behaviors, including
supporting local communities, investing in simulating employment, and strengthening diversity
and inclusion, may have positive effects on society by generating employment opportunities,
promoting economic growth, and developing social cohesion. Besides, the sector’s initiatives
comprising of reducing carbon emissions, creating cleaner technology, and encouraging
sustained practices, can relieve the problem of climate change, better air quality, and protect
natural resources.

IMPACTS OF THE ENVIRONMENT, SOCIAL, AND THE GOVERNANCE ACTIONS OF THE

INDUSTRY ON SOCIETY

The environmental influence of the automotive sector is essential. Carolin (2021) explains that
BMW’s devotion to lessening carbon emissions by using innovative materials is one of the

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actions that demonstrate positive environmental management. In addition, according to Deng

et al. (2022), the automotive industry’s governance implements and commits to transparency,
accountability, and ethical decision, this holds a critical role in shaping societal perceptions.
Moreover, by setting high priorities of sustainability, safety, and social responsibility, the sector
can create a crucial positive impact on society, enhancing eco-friendly development, and
providing a better future (Rondinelli and Berry, 2000).

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RESPONSIBLE BUSINESS CHOICES/RECOMMENDATIONS

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Based on the analysis of the industry, there are two important recommendations that the
automobile sector needs to consider to address these challenges and explore opportunities.

Firstly, encouraging the use of electric cars (EVs) is a responsible business choice that has
essential environmental advantages. This is due to the fact that EVs have the potential to
lessen climate change by lowering greenhouse gas emissions. According to IEA (2021), 10
million electric vehicles are used globally at the end of 2020, showing a rising market for
environmental transportation. In addition, the potential for success in this sector is presented
by businesses like Tesla, which have proven themselves as market leaders in the EVs field.
Thus, automotive companies that fund the research and development of EV technology can
reduce the influence of transportation on the environment.

Secondly, implementing sustainable manufacturing techniques is another recommendation for

making ethical business choices in the automobile industry. According to Deng et al. (2022),
sustainable manufacturing requires waste reduction, the use of renewable energy, and
reduced resource consumption. In this field, BMW has shown its commitment to sustainability
by using carbon-neutral manufacturing techniques (Carolin, 2021). Furthermore, by using
these techniques, firms can improve operational performance and cost-effectiveness while
strengthening environmental sustainability (Marc and Hossam, 2012). Hence, companies could
achieve long-term economic advantages along with lowering their environmental effect at the
same time.

These proposals have the same goal as the growing societal and legal requirements for
sustainability in the industry. Governments worldwide are establishing regulations into place to
support electric mobility and assist renewable energy industries. The European Union's strict
emission standard of requiring manufacturers to meet targets for lowering carbon dioxide
emissions is one of the examples. Another example is the UK government's ban on the sale of
new petrol and diesel vehicles by 2030, highlighting the importance of electric and zero-
emission vehicles (Department for Transport, 2020). Moreover, at present, customers also

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have a higher priority on sustainability and with the tax incentives for EVs adoption by the
governments, the market for electric cars is predicted to grow. This means automotive firms
could resolve environmental issues and exploit new market possibilities by following these
regulations and ethical business decisions.

In conclusion, the automotive industry encounters both challenges and opportunities in the
changing context of climate and society. In order to address these issues and seize
opportunities, responsible business choices including adopting electric cars and implementing
sustainable manufacturing techniques are vital for the industry. Automotive firms can support
environmental sustainability, meet legal regulations, and take advantage of the expanding
demand for sustainable mobility by investing in EV technology and adopting sustained
manufacturing processes.

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REFERENCES
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Camilla, P. (2023) Volkswagen sustainability report. Available from:

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Carolin, S. (2021) Revolution, not evolution: BMW Group to reduce carbon footprint
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Crane, A. and Matten, D. (2019) Business Ethics: Managing Corporate Citizenship and
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Department for Transport (2020) Government takes a historic step towards net zero with the
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Ford Motor Company (2023) Integrated Sustainability and Financial Report. Available from:
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Gwyn, T., Sean, C., Cath, L., Paul, S. and Matt, F. (2015) The Volkswagen emissions scandal
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Nichole, M. C. and Asra, Q. N. (1996) Ford recalls 8.7 million cars to fix faulty ignition switch,
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