The co-evolution of product and environmental performances: the trajectories of car manufacturers in the European market

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Abstract:

Purpose

There are several European regulations that constrain car manufacturers to target product characteristics, in terms of safety or pollutant emissions. The regulations of air pollutant emissions (“Euro standards”) force new vehicles to meet targets of hydrocarbons, carbon monoxides, nitrogen oxides and particulates emitted by exhaust system. Such pollutants are heavily correlated with the power of the engine: the bigger the engine is, the higher the amount of pollutants is. So, car manufacturers have two ways of complying: less powerful cars, or more powerful car equipped with advance emissions control technologies (ECTs). So, there is a trade-off between product characteristics (and price) and level of emissions. However, as long as Euro standards set the same limits whatever the car characteristics, the relationship between product characteristics and level of emissions should be linear. If we consider the temporal dimension, the regulation could be divided in some periods: negotiated, adopted, and enforced. At each period, the level of uncertainty is different. So, there is a three-dimensional problem: product, pollutant emissions and time, which are correlated. There could be theoretically three patterns of co-evolution between product characteristics and compliance:

• First, the car manufacturers comply with advanced ECTs then implemented them in every model whatever the characteristics (“Technology-driven”, learning capacities, anticipation…)
• First, the car manufacturers develop new models with distinct characteristics, then comply with air pollutant regulation when they enter in force (Modularity, product-flexibility, end-of-pipe compliance…)
• If the product evolves, the environmental performance evolves too (adaptive evolution, product diversification…)

Questions

The aims of this paper are first to characterize the pattern for each car manufacturers of the evolution between product and environmental characteristics during time. Second, the aim is to interpret these patterns regarding the stage of the regulative process.

Design

The methodology used in this paper is a statistical analysis of trajectories in a two-dimensional plane. In using the ICCT worksheet on average product characteristics sold by each brand in the European market between 2001 and 2012, we extract with a principal component analysis the variables representing the product characteristics and the environmental performances for each brand. With this data mining method, we can extract the position of each brand in this two dimensions at each year, compared to the position in 2012 (perspective analysis). Then, we build a test procedure to compare the trend of each variables for every sub-period, in comparing the distance between consecutive couple of coordinates. Findings Except for one car manufacturer, we never observe a case where an acceleration of environmental performances isn’t concomitant with a similar move in product characteristics. On the contrary, for most case, we observe sub-periods were the environmental performance does not evolve while product characteristics strongly changed. We can conclude that globally, car manufacturers do not have “end-of-pipe” compliance. On the other hand, for some of them, there are some periods where car manufacturers “stop” the improvements on ECTs, and can sold different models with the same level of environmental characteristics. Such phenomenon seems occur after the enforcement of Euro 4 regulation (2005), or after the adoption of Euro 5 regulation (2007).

Practical implications

This paper aim to characterize the behaviors of car manufacturers vis-à-vis environmental regulation, and their translation in their trajectories. This study could be completed with additional works, for example, in calculating the probability to release a new model at date t considering that regulation will occur at the date t’. Such further work could expand the correlation between the patterns of compliance and the regulation construction.