Navigant Research report and supply chain sustainability standards point to an evolving auto industry

supply chain sustainabilityThe roles played by global automakers are continuing to shift in two core areas: what products and services will be delivered and how vehicles will be manufactured. A new study by Navigant Research and revised supply chain sustainability standards agreed upon by leading automakers illustrate the evolving automotive marketplace and the role clean transportation standards will play. As previously mentioned, the identity of automakers is changing from vehicle builders to transportation service providers.

Navigant Research’s new report, “Alternative Revenue Streams for Automakers,” analyzes the push toward a more sustainable transportation system that’s coming through plug-in electric vehicles (PEVs), vehicle-to-grid, vehicle-to-building, home energy management, solar energy, charging, carsharing, and smart parking services. Now that PEVs have been adopted by thousands of consumers, automakers are seeing more opportunities to play a role in home electricity networks, workplaces, and commercial locations that need integration of charging services. Automakers in North America, Europe, and Japan face stringent fuel economy and emissions reduction targets – and mature markets where new vehicle sales are starting to flatten out. Playing an expanded role in sustainability transportation meets their need for additional revenue streams and complying with government mandates.

Another factor behind these trends are growing concerns about increasing urbanization that will lead to increased traffic congestion and air pollution. Greater restrictions on vehicle use are being seen in London, New York, Beijing, Tokyo, and other major cities. Automakers such as BMW are creatively testing out new programs to address urbanization that include carsharing, smart parking, and charging locations connected to mobile devices. The main challenge automakers face is lacking the expertise and experience to move forward in new areas such as home energy management or vehicle-to-grid – so partnerships with suppliers with expertise in these new systems are being tested out.

These alternatives will not replace the manufacturing and marketing of new vehicles, but are expected to generate more than $1 billion in revenue for the auto industry by 2018, according to the report. Carsharing services will play a large part in this revenue, followed by vehicle-to-grid.

Fourteen major automakers have just agreed to the “Automotive Industry Guiding Principles to Enhance Sustainability Performance in the Supply Chain.”  Two leading corporate responsibility business associations, AIAG and CSR Europe, have expanded automaker membership for suggested principles for supplier relationships based on sustainability standards that were first adopted in 2009. Now, participants include BMW, Chrysler, Daimler, Fiat, Ford, General Motors, Honda, Jaguar/Land Rover, PSA Peugeot Citroen, Scania, Toyota, Volkswagen, Volvo Cars, and Volvo Group.

This set of broad principles for suppliers addresses environmental issues, working conditions, human rights, and business ethics. The guidelines apply to first-tier suppliers as well as their subcontractors and suppliers. Affected business practices in the new standards include: reducing greenhouse gas emissions, energy, and water consumption; increasing use of renewable energies; improving waste management; and training of employees.

The list of global automaker that have signed on to these standards is missing some of the major companies such as Nissan Renault, Hyundai Kia, Subaru, and Chinese automakers. Yet, it is a significant announcement illustrating, along with the Navigant Research report, how different the auto industry is becoming compared to 10 years ago.

DOE funding more Advanced Technology Vehicle Manufacturing loans

DOE Loan Programs OfficeFinding funding sources for manufacturing advanced, clean vehicle technologies had another boost last week. U.S. Department of Energy (DOE) Secretary Ernest Moniz announced that DOE has revised and updated its Advanced Technology Vehicles Manufacturing (ATVM) program, which offers low-interest loans to carmakers and their suppliers. Loans will likely go to auto parts suppliers and not automakers, according to Peter Davidson, executive director of the DOE’s Loan Programs Office.

The program is focused on loans for more fuel-efficient gasoline and diesel engines, along with plug-in electric vehicles and natural gas vehicles. That would include components needed for advanced engines and powertrains, light-weighting materials, advanced electronics, and fuel-efficient tires. The DOE is also open to offering loans to suppliers based outside the US that may be interested in moving production to the US.

The $25 billion lending program was approved by Congress in 2007 and has about $16 billion remaining. In 2009, the ATVM program issued nearly $9 billion in loans to original equipment manufacturers (OEMs) of vehicles and components.

Loans went out to Ford, Nissan, Tesla, and Fisker in 2009 – and it became a target of heated debate in Washington especially during the 2012 presidential election campaign. Losing $139 million to Fisker after its bankruptcy made it worse, along with the $400 million loan to solar power supplier Solyndra that meant another big financial loss for DOE. Ford is paying off its $5.9 billion loan, and Nissan is coming through on its payments for its $1.6 billion loan; Tesla paid off its $465 million loan last year long before the final payment was due.

The DOE is expected to be more cautious this time about the loans given, and has committed to exercising transparency practices for tracking return on investment. Automotive suppliers tend to fly under the radar compared to automakers, which means there will likely be less scrutiny and criticism for the DOE this time around.

The decision was good news for the Natural Resources Defense Council (NRDC). “This is good news for drivers who want cleaner cars, faster and cheaper. A successful restart of the retooling loan program can help clear bottlenecks in the supply chain and ensure that clean energy jobs that might otherwise go overseas, are instead ‘onshored,’” wrote Roland Hwang, Director, Transportation Program, Energy & Transportation Program.