Smart Car - an Automobile Revolution - Assignment Example

Smart car: An automobile revolution “The Auto Industry has an obligation to be part of the solution, not the problem when it comes to global warming and climate,” said Toyota Motors North America President Jim Press recently. Changes in the global macro environment Climate change due to global warming is the most serious threat that the planet faces today. The main cause of global warming is uncontrolled and unregulated human activities which have resulted in accumulation of greenhouse gases in the atmosphere. During the 150 years of the industrial age, the atmospheric concentration of carbon dioxide has increased by 31 percent. It is believed that the automobile sector is responsible in a great way for increasing the carbon burden in the atmosphere. The carbon burden is how much carbon dioxide (CO2) gets put into the atmosphere each year after a car company sells a new group of vehicles. According to John DeCicco, co-author of the report Automakers' Corporate Carbon Burdens: Reframing Public Policy on Automobiles, Oil and Climate, global warming pollution from cars is directly related to the amount of fuel they burn. The amount of CO2 emissions through transportation accounts for the largest part [one-third] of all CO2 emissions, more than from factories, homes and everything else. United States ranks first as the world’s largest greenhouse gas polluter [contributing a quarter of the world's CO2 emissions]. DeCico’s report talks about how the "big six" automakers for the U.S. market contribute in a big way to global warming and challenges the industry to do what's right for the planet by designing vehicles that improve fuel economy and lower carbon dioxide emissions. He says that “if a company's carbon burden grows because they are growing their market share, that means the company is not paying enough attention to its responsibility for the environment; in short it's profiting at the expense of the environment. And so the right strategy for a company is to produce competitive products that help them gain or maintain their market share while cutting their carbon burden, and to do that they need to design vehicles with lower carbon CO2 emissions and higher fuel economy.” Global warming is not the only critical challenge that the global automotive industry faces today. All is not well with the automobile industry the world over currently with the slowdown that has gripped most of the major economies of the world. The gap between the manufacturing capacity volume and the assembly volume is growing by the day and has the worried the manufacturers. This state of affairs has triggered a lot of cut-throat competition and consolidation in the industry. Cost reduction initiatives have come to be the in thing in the global industry today. The global automobile sector faces the multi-pronged challenge of designing vehicles that will improve fuel economy, lower carbon dioxide emissions and at the same time are cost effective and innovative. One of their greatest challenges is to create innovative products which would be environment friendly and reduce the impact of transportation on the environment. Automakers are now adopting a twin strategy – to produce vehicles that would support the usage of the lower carbon alternative fuels and Increase vehicle fuel economy for a given fuel type (Venkatakrishnan). Trends in the Automobile Industry The crucial key factors that have emerged in the last decade for any automobile sector to survive in such a competitive environment are innovation and compliance with emission standards. Only those companies which are able to innovate and create unique customer and environment friendly products will be able to survive. This has posed an urgent need for every company to clearly define its strategy and brand that would distinguish it from the others. No doubt the expectations from automakers have skyrocketed, there has never been a more opportune time for them to take their products to different countries. Liberalization such as relaxation of foreign exchange and equity regulations, reduction of tariffs on imports, and refining the banking policies in developing countries like India and China have provided a global field for auto companies to sell their products. It is also to be noted that the demand for luxurious models, SUVs, and mini-cars for family owners, have shot up, largely due to increase in the consumer's buying capacity. Institutionalization of automobile finance has further paved the way to sustain a long-term high growth for the industry. Therefore, the competition is a global one with international players fighting to acquire top position in the market. There is a also growing shift in the customer mentality as they now seek new designs and innovative features in their cars. With this growing consumer demand and the urgent need to be innovative, the entire automotive market these days is undergoing a renaissance in both exterior and interior design that is lending car makers a greater opportunity than at any time since the fifties to brand their vehicles by appearance The market has witnessed a proliferation of new vehicle types such as hybrid-power train Vehicles, two-seaters which hardly existed a decade ago, but now their numbers are all growing faster than those of the traditional cars. Key factors The key factors that have emerged in the Global Automotive Industry are innovation and social conscience. Auto manufacturers are now investing heavily in R & D to create vehicles which would reduce carbon emissions in the atmosphere and give fuel efficiency. This has become the single most important factor for a company’s success. Companies that produce more carbon-intensive vehicles may have to face consequences of dismissing user base and ability to compete in the global markets. Another key factor which will give an edge to companies over their competitors is development of next generation vehicles such as fuel cell vehicles, hybrid and intelligent vehicles. It is innovation and creation of a brand image that will be the deciding factors for a company’s growth and market share. Smart a new concept Swatch Mercedes ART car, or SMART car revolution began in the year 1990. Smart cars were originally developed as a joint venture between Swiss Watch company SWATCH and MERCEDES- BENZ. In 1998, the company became a fully owned subsidiary of Mercedes-Benz named MCC (Micro Car Compact) Smart. The introduction of smart cars was a novel concept. It revolutionised the global automobile industry by introducing the smallest car (only 2.5 m long) in the market. The idea behind this bold step was to create unique products through innovation and generate a new car-motorist relationship. The Smart car was revolutionary because of its design and the idea behind it which stemmed from a simple yet vital observation. It was observed that on an average a car is driven for 30 kms a day with less than 2 passengers and remains parked for 90 per cent of the time. This led to the creation of the smallest two-seater car in the world. Since its invention, a car has always been viewed as an investment and has stood as a symbol for liberty, power and the amount of wealth that a car owner possesses. According to Nicholas Hayek, inventor of Swatch watch and Managing Director of SMH , smart car created a revolution for it aimed at bringing about a shift in the way a car is viewed. He wanted to create a car which could be bought easily and viewed as any other expense to be entered in the Profit and Loss account and not as a permanent asset that cut through the budget of a household. That was one of the main reasons for the introduction of smart cars. Smart car came as a solution to the growing congestion and pollution in the cities. It provided fuel efficiency and higher vehicle density on roads. The company has introduced customized cars with the option left to the customers to choose from a variety of parts and accessories. This 2.5 metre long car requires half the parking space required by other cars. It not only solved the major concern of parking in today’s congested streets, it also provided enough space for pedestrians and cyclists. The car owners were of the opinion that the remaining parking space could be used for planting enough trees in the city. Therefore, the concept was an original one – that to create an urban mobility tool which could solve The modern day problems of congestion and pollution and yet provide a user friendly, reasonable and hybrid car. The car was made available in petrol, diesel and hybrid diesel-electric system. Reasons for failure This environment friendly approach adopted by the company didn’t find many takers in the beginning. The company expectations were marred in the first few years of the car’s launch. There were many factors which resulted in its failure. Many believed that the car was a luxurious and expensive fashion accessory. Other factors were: Ill conceived advertising strategy: The company targeted the youth and forgot to take into account the fact that it is the middle age population which constitutes a major proportion of car buyers in the world. For e.g., the average age of a person who buys a car in China is 47 years. By targeting youngsters, they lost out on the real customers. Age old beliefs of people: For thousands of years, a car has stood as a symbol of power and wealth. The philosophy behind smart car was to give importance to mobility than sophistication. The idea was not well received by the customers. Safety: Safety was a paramount concern for people. People couldn’t believe how a 2.5 m long car could provide safety and sustain a crash. What led to the turnaround? Irrespective of the factors stated above, the company experienced a spurt in the sales of smart cars. The change was not automatic. In the year 2000, the company worked on the design, production and sales techniques and introduced a better version of the car which was not only cheaper than the original one, it was more technologically advanced and user friendly. The same year the company had the best sales ever and was ranked second for small car sales in Europe, In the year 2002, the company used intensive research to restyle the product and came up with better versions of the car. Smart cars are well equipped with safety tools such as twin air bags, ABS breaking system and electronic gearbox. The smart diesel is available with a 30kW CDI (Common rail Direct Injection). The CDI 800 cm3 three-cylinder engine is the smallest CDI series in the world and its average fuel capacity is 3.4 litres of diesel per 100 km. It also meets the emission norms i.e. 90 grams of carbon dioxide per kilometre. To attract more customers, the company offered a number of financing options adapted to suit individual needs, such as traditional credit with or without an initial down payment; leasing which allowed a person to use the car for a certain period of time without purchasing it; baloon credit which is a mid way option between traditional credit and leasing. The company came up with innovative services to keep the customers happy like 24 hours assistance in case of breakdown or any other problem that a smart owner might encounter; insurance policy which provided wide coverage against accident, theft or any other mishap. Smart car owners have the added option of using their favourite luxurious car like Mercedes for fixed number of days in a year by paying a small amount. The company also initiated an aggressive distribution network by starting its own smart centres by entering into franchise style agreements. The company has adopted a policy whereby any client who walks into a smart car showroom can just select the car, pay and leave with it immediately. Spare parts are made available immediately or within 24hours.The company has refrained from high-profile advertising campaigns thereby reducing the advertising costs and have relied on curiosity created by the product. Apart from all the above stated factors, smart’s integration in the Daimler Chrysler was a driving force behind the turnaround in smart car’s sale which gave an assurance to the customers that the car is reliable and worth purchasing. It offered the much needed confidence which was lacking in the customers in smart cars. The success of smart car was also an indication of the changing perception of people about cars –a shift from sophistication to mobility. It showed that people are now open to new designs and technology. Outlook for future: Smart car offered a new solution to the ever growing problem of urban mobility. It is unique in its concept and characterizes a new age car which does justice to the pockets of consumers and provides fuel economy. Their ability to save gas by consuming less, as well as reduction in atmospheric pollution are the twin benefits that make it unique and customer friendly. As mentioned above, smart cars are available in hybrid styles which run on both fuel and engines that are powered by battery. This means that, they consume less oil and emit less gas when compared to gasoline powered vehicles. Smart car, no doubt is a possible solution to the sporadic hike in fuel price in the oil market. Advantages derived from smart cars Savings on low gas usage: Smart cars come with hybrid drive system – diesel, petrol and hybrid diesel electric system. They combine both electric power and gasoline powered engine capacity even at reduced speeds. Hybrid cars function normal and on a consistent basis at any motor speed. Environmentally friendly: Smart cars, because of their combination of electric powered and gasoline powered engines, emit significantly less gas into the environment. Convenience and mobility: Smart cars are half the size of an average car. Only 2.5 m in length, they come as a respite in congested streets as they can be easily manoeuvred and occupy less parking space. They provide an effective mobility tool for the car owners. Many believe that smart cars are expensive and not worth spending money on a two-seater. Contrary to public opinion, this car might seem expensive in the beginning but it offers benefits in the long run. With growing fuel prices, people are now looking for alternatives to reduce their expenditure on fuel. Hybrid cars such as smart cars are an answer for all those seeking to curtail their expenditure on fuel. In conclusion, smart car seems to have emerged as a “new age” car combining the advantages of being environment friendly, fuel efficient, innovatively designed and suiting the consumer’s pocket. Daimler-Chrysler could not meet its expectation when the car was newly launched. However, the company is now expecting to make huge profits through its launch in the U.S. market. The American model is similar to the two-seat European model, known as the "For-Two” and is three meters in length. The car meets the U.S. emission control and safety standards. It will require mass selling of cars for the manufacturers to make enough profit. The future looks bright for this car which though didn’t take off in the beginning is sure to be remembered as a revolutionary concept. Works cited Dwyer, George. “Daimler-Chrysler Seeks Big Profits with Small Smart Car.” 5 July, 2006 < http://www.voanews.com/english/archive/2006-07/2006-07-05- voa49.cfm?CFID=180782146&CFTOKEN=59653116 >. Valentine, Leslie. “Carbon Nation: How U.S. Automakers Contribute to Global Warming -- And What They Can Do to Stop it.” 30 July, 2002. . Venkatakrishna, Kothandaram. “Climate Change Policies and Global Automotive Industry.” 29 Sept, 2005. . Read More