What Ford can (and can't) do about climate change

The Gunther Report

What Ford can (and can't) do about climate change

When it comes to climate change, Ford and its global director of sustainability, John Viera, want to do what they can to be part of the solution. In its latest sustainability report, the company says, "Ford is committed to doing our share to prevent or reduce the potential for environmental, economic and social harm due to climate change.

Viera puts it simply: Climate change is real. Man has an impact on climate change. We as a company have to do our share.

Behind the rhetoric are actions. Ford has set science-based CO2 targets for North America, Europe, Brazil and China that determine the amount of greenhouse gases that its cars and trucks can emit over time, consistent with stabilizing the concentration of CO2 in the atmosphere at 450 ppm. Along with other automakers, it has agreed to the U.S. government’s fuel efficiency standards that mandate an average fuel economy of 54.5 miles per gallon for the 2025 model year.

All of which is well and good. But as John Viera acknowledged to me the other day, all of those good intentions will not take Ford, or the rest of us, where we need to go. Markets -- which are beyond Ford’s control -- will play a bigger role than corporate commitments or even the CAFE (corporate average fuel economy) rules.

I sat down with John Viera the other day at Net Impact’s 2012 conference. About 2,700 mostly young people -- MBA students, undergrads and young professionals -- gathered in Baltimore to listen to business leaders, network and attend workshops on careers, investing and activism. (Net Impact is a community of young leaders who want to use the power of business to solve the world’s toughest problems. I’m on the board.)

A Chicago native, John has been with Ford for 28 years. He joined the company right out of  the University of Michigan, where he studied engineering, and worked on a variety of cars and trucks, running factories and dabbling in electric cars and natural gas-powered vehicles. When he was tapped to be the company’s sustainability chief in 2007, he was the chief engineer for a couple of truck-based SUVs, the Ford Expedition and the Lincoln Navigator. Yes, that was quite a turnabout.

Now, though, he firmly believes that sustainability issues -- notably the price and availability of energy, and climate concerns -- need to be a central element of the company’s strategy. Ford says that its cars needs to be high quality, smart, safe and green.

But, of course, it’s not as simple as that. Ford can’t force people to buy cars they don’t want. Gasoline prices are a key factor in car-buying decisions. When gas prices hit their historic highs during 2008, topping $4 a gallon in much of the country, Ford sold more small- and mid-sized cars than ever before. “We couldn’t keep them in stock,” John said. “The larger vehicles sat on the lot.” That’s to be expected.

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Only a year later, though, when gas prices tumbled during the recession, American car buyers reverted to habit, buying bigger cars again. Apparently, we have short memories. “We didn’t expect that,” John said. It’s as if buyers were “driving to the dealership and seeing the gas price on the way” and then making up their mind, he said. Gas prices are literally in your face.

This helps explains Ford’s strategy of providing a variety of fuel options -- gasoline, hybrid or plug-in hybrid -- for many of its cars, instead of focusing on a signature “green” vehicle like the Toyota Prius, GM Volt or Nissan Leaf.  The company doesn’t know -- nobody does -- what gas prices will be a year or two or five from now. So its car platforms and manufacturing plants are designed to be flexible when it comes to fuels and to be responsive to consumer preferences.

“The mix is not dictated by us,” John says.

What, then, does that say about Ford’s climate change targets or the government’s 54.5 mpg fuel-economy standard?

Unfortunately, it means that they are little more than exercises in wishful thinking unless gas prices go up.

Although the Obama administration calls the fuel-economy standards its most important environmental achievement, the so-called mandate includes a midterm review of progress, to be conducted by the end of the decade. The standards can be adjusted if manufacturers are having difficulty meeting the tough new guidelines. As an industry trade group, the Alliance of Automobile Manufacturers, put it in a statement: “Compliance with higher fuel-economy standards is based on sales, not what we put on the showroom floor.”

I point this out not to criticize Ford. The company’s chairman, Bill Ford, has been the most forward-thinking executive in Detroit when it comes to environmental issues. John Viera, too, is a straight shooter and a great spokesman for Ford.

But let’s not pretend that corporate targets or so-called mandates will do much, if anything, about climate change. They won’t.

The good news -- for those of us who worry about climate change, anyway -- is that Ford, at least, believes that gasoline prices are going up. That’s why the company is investing in hybrid and electric cars, and more efficient internal-combustion engines.

“We believe gas prices will eventually keep rising,” John says. “People are going to be more and more interested in fuel-efficient vehicles.”

Of course, if we want to guarantee higher gas prices, we could enact a gasoline tax. That would not only affect the kinds of cars people buy; it would affect how much we drive and, eventually, shape decisions about where to live and even whether to buy a car.

That would be a serious response to a serious problem. We’re not there yet.