SUVs, the Environment, Safety, and Stakeholders:
The Evolution and Devolution of the SUV Market:
In 1990, the SUV/Light truck market consisted of approximately 4 million units sold out of 14 million total vehicle sales in the United States. By 1999, the percentage of the total market had increased and total sales were higher. SUVs/light truck sales were 8.2 million of 16.4 million units sold.21 47.6 percent of Ford Motor Company's sales are of SUVs, primarily its Ford Explorer and larger Expedition, but also of its even larger Excursion. These vehicles took the place of the truck like Bronco and smaller Bronco II.
The largest players in the SUV market (with the number of units sold in 2000) are as follows:
Ford Expedition 203,412
Jeep Grand Cherokee 181,908
Dodge Durango 139,811
Ford Explorer 93,710
Chevrolet Suburban 48,982
Chevrolet Tahoe 47,103
In 1997, most auto manufacturers expanded their SUV offerings and entered the luxury SUV market. These SUVs, with prices around $50,000, featured in vehicle televisions and VCRs, leather interiors, and all the amenities of luxury cars. The new market entrants are listed below:
GM Cadillac Escalade
GMC Yukon Denali
GM Tahoe
Lincoln Navigator
Mercedes M Class SW
BMW BMW X5
Lexus RX300
Toyota LandCruiser
By 2000, the U.S. segment of the luxury SUV market was 80.5 percent.23 At that time, SUV purchases constituted one of every five auto sales in the United States and were the highest margin products in all the automakers' lineups .24 Profits per SUV averaged $ 10,000 per unit. Profits on the Ford Excursion were at the top of the field at $18,000 per unit. At that time, SUVs comprised 20 percent of all of Ford's vehicle sales and accounted for the majority of Ford's profits.25
By the summer of 2001, there were some indications of a slowdown in the SUV market. Many attributed the decrease in sales to the price of gasoline and its escalation. However, vehicles that are crossover SUVs, part auto and part truck, appeared to be enjoying an increase in sales by mid 2001 .26
In 2002, there were 750 million cars and trucks on the road around the world; 4 million vehicles sold in 2003 were SUVS.27 Sales of the larger SUVs dropped during 2002, about 2 percent, the same drop rate for all vehicles. Sales of the car based SUVs were, however, up 23 percent in 2002.28 Other figures show SUV sales up 6.9 percent for 2002. SUVs and pickups produced 90 percent of the Big Three automakers' profits in 2002.
Market data on SUV buyers indicated that the primary reason for their purchase of an SUV is safety (44 percent) followed by need (due to family size 33 percent) followed by a desire to go off roading (10 percent) and finally by "wanted to be with the latest trend" (10 percent).
The SUV has proven to be a lightning rod in public discussion in the areas of environmentalism and safety.30 There has been intense media coverage of SUVs and a resulting emotionalism on all sides about the ethics of owning, driving, and manufacturing SUVs. These issues and attitudes are explored in the following sections.
The SUV and the Environment:
Among industrialized nations, the United States emits the greatest amount of carbon dioxide, the greenhouse gas (GHG) most often mentioned in connection with the phenomenon known as global warming. As of 1998, one third of U. S. GHGs come from motor vehicles. That figure was one fourth in 1992 when the Framework Convention on Climate Change was agreed upon at the Earth Summit in Rio de Janeiro in 1992.31
Between 1992 and 1997, the nations in attendance at the Rio summit engaged in negotiations over both voluntary and binding emissions standards. Those negotiations could be charitably described as contentious. At the Kyoto meeting in 1997 and the Buenos Aires meeting in 1998, the U.S. delegation argued for developing nations to make commitments for reduction in their GHG emissions. The position of the developing nations is that GHGs have resulted from the expansion of industries in countries such as the United States and that the United States and other industrial countries should bear the greatest burden when it comes to reduction of GHGs.
Since the 1992 Earth Summit, CO2 emissions from motor vehicles have outpaced all other U.S. sources. The largest growth in auto sales has been in sport utility vehicles (SUVs) and light trucks. Both of these vehicles are covered under more lenient government fuel efficiency standards. Trucks, buses, and vehicles in excess of 8,000 pounds are not subject to federal fuel efficiency standards at all. Sample weights of SUVs follow:
Toyota LandCruiser 5,115 pounds
GM Tahoe 4,828 pounds
Lincoln Navigator 5,390 pounds
GM Suburban 4,914 pounds
Toyota 4-Runner 3,885 pounds
A Lincoln Towne Car, a four door luxury sedan, weighs 4,156 pounds.
In 1997, The New York Times ran a report that concluded that because of a loophole, these vehicles, including SUVs, had emissions 20 to 100 percent higher than cars."33 The article noted that if Americans had continued buying just cars instead of light trucks and SUVs, then CO 2 emissions would have been "down by 9.3%."
Later in 1997, California air quality officials revealed a proposal to require trucks, minivans, and most SUVs to meet the same emissions standards as passenger cars by the year 2004. That proposal is now law.
Following the Kyoto treaty of December 12, 1997, which, if ratified by the United States, would have required the United States to reduce its emissions to its 1990 levels by the year 2012, Ford and Chrysler announced on January 5, 1998, that they would cut the emissions of their SUVs and minivans. At a cost of $100 per vehicle or $100 million per year, Ford announced that its Windstar vans would immediately meet the same emissions standards as its passenger vehicles. The New York Times reported on the Ford decision as follows:
Jacques Nasser [Ford's president of worldwide automotive operations] made clear in an interview that Ford wanted to maintain the acceptability of sports utility vehicles as alternatives to cars, while gaining an advantage over rival automakers in catering to environmentally aware families. 'Anybody who has concerns about the environment can set them aside,' Nasser said adding that Ford was also influenced by recent articles in The New York Times on the environmental problems of light trucks."
USA Today ran a series of articles during 1999 on the following topics: the disadvantages of driving a small car in an SUV dominated market and road; the high center of gravity in small SUVs and the danger of rollovers; and the car makers' detours around CAFE rules. CAFE (Corporate Average Fuel Economy) rules are the mileage standards the federal government requires each automaker to attain when the fuel economies of all the vehicles they sell in a model year are averaged together. The standard for cars is 27.5 miles per gallon in combined city and highway driving and the standard for trucks and SUVs is 20.7 miles per gallon. The fine for failing to meet CAFE is $5.50 for each 0.1 miles per gallon short of the CAFE standard. If an automaker sells 1 million cars that average 27 miles per gallon instead of 27.5 miles per gallon, then the fine is $27.5 million.
Foreign automakers have generally ignored the CAFE standards and simply paid the fines, as they say, "as a cost of doing business." U.S. automakers are in compliance because criminal sanctions include prison time for officers and managers. USA Today concluded, however, that U.S. automaker compliance was meaningless because the automakers are permitted to carry credits forward when they exceed CAFE and juggling model years, by mid year introduction of vehicles, can result in exclusion of large chunks of sales of larger vehicles that would decrease the miles per gallon.
Following the series in The New York Times and USA Today, Ford announced that it would escalate its emissions standards for its trucks and SUVs. Jacques Nasser announced on May 17, 1999, that Ford's trucks, including its Explorer and Expedition, would meet EPA (Environmental Protection Agency) emissions standards for 2004 by the year 2000. Nasser said he wants customers to have the choice of a full range of Ford products and not have to choose "between the one that is environmentally friendly and the one that isn’t."
In early 2000, Ford released its social responsibility report, called "Corporate Citizenship Report," and its chairman announced it to the shareholders at Ford's annual meeting in May 2000. William Clay Ford, Jr. read the Sierra Club's description of the Ford Excursion at the meeting as, "a gas guzzling rolling monument to environmental destruction." Mr. Ford promised that his company would do better. Sales of the Excursion in 1999 were 15,838 units, in excess of the 15,000 produced. There was a waiting list for buyers.
The following day, The Detroit Free Press carried the story of the Ford announcement with the following headline in its business section, "Ford admits its trucks hurt the earth The Associated Press headline was, "Ford admits dilemma: SUVs vs. environment. Environmental groups said that they would use the report for lobbying in Washington for more stringent regulations. Debbie Zemke, director of Ford's corporate governance, said Ford still stood by its decision to be forthright, "We just said: 'For heaven's sake, everybody else is talking about it, so why shouldn't we?”
While environmental groups praised the admission, others questioned the wisdom of such a step. A member of the Michigan congressional delegation said, "It does make it more difficult for us to propose reasonable standards. The company is trying to find itself right now, and we're not sure where it is."37
With increasing sales of SUVs, radical environmental groups that were anti SUV began to emerge and there was a flurry of activity related to the SUVs. Law enforcement officials noted an increasing trend around the country in which SUVs on dealership lots are set afire during the night with calling cards left by environmental groups." Generally, the fires are started by the Earth Liberation Front (ELF) and 30 SUVs were burned at an Oregon dealership in 2001.
Emotion has surrounded the debate on SUVs. The Detroit Project announced its "What would Jesus drive?" campaign in which priests, ministers, and rabbis denounced the SU Vs as evidence of an uncaring soul insensitive to God's earth.”
Near the end of 2000, several environmental groups began a project of tagging SUVs. The bumper stickers are placed, stealth fashion on parked SUVs, and they read, "I'm changing the environment. Ask me how!" Those participating indicated the bumper stickers are a form of public shame designed to modify behaviors. The bumper sticker includes the name of a Web site,
https://www.changingtheclimate.com,
which provides instructions for the removal of the bumper sticker.
When the United States invaded Afghanistan, antiwar activists introduced ads, paid for by Ariana Huffington, which linked driving an SUV to funding terrorists through the use of so much oil.
GM and DaimlerChrysler announced that while they would not be accelerating their emissions reductions programs, they were working on alternative fuel vehicles. "We have different objectives on how we get to lower emissions," was the DaimlerChrysler response. GM noted, "It is taking its own path to lower vehicle emissions in the U.S. and around the world."
Since 1996, the automakers have funded ($1.6 billion to date) the Partnership for a New Generation of Vehicles (PNGV). The goal is to develop an 80 miles per gallon family car. There have been alliances with fuel cell technology firms as part of the project, but there are not results as yet and there is no pledge that anything developed there will be brought to the market.
By 2001, the industry average of miles per gallon for sport utility vehicles was at 21.2 miles per gallon, which exceeds the mandatory federal standard of 20.7. Automakers point to the achievement as an indication of their good faith. Environmentalists point to the achievement as an indication that Congress needs to raise the miles per gallon standard.42 However, by the end of 200 1, executives of all of the Big Three auto manufacturers were expressing doubts about Ford's ability to meet its pledge of improving fuel economy from 20 miles per gallon to 25 miles per gallon by 2005. Dieter Zetsche, CEO of the Chrysler Group, said, "Taking 25 percent out in five years is very ambitious."43 In 2004, Ford announced it was ending production of the Excursion.
A recent poll reveals that 66 percent of U.S. citizens believe global warming is a reality, and 72 percent support an agreement among nations to cut C02 emissions. Other studies show that drivers may love their SUVs, but also feel some guilt. Some have quoted the 1960's activist Eldridge Cleaver and concluded that they "are not part of the solution, but part of the problem."
The Energy Department began publishing a list of the vehicles with the highest rates of gas consumption, known as the "worst gas guzzlers," with the following vehicles leading the list:
Hummer H2 12 mpg
Lincoln Navigator 13.25 mpg
Mercedes-Benz G500 13.45 mpg
GMC Yukon XL, Cadillac Escalade 13.8 mpg
Land Rover Discovery Series II 13.8 mpg
The Hummer has been an unusually emotional target for environmental groups. A book by John Lamm, the editor of Road & Track, calls this new SUV "Satan's station wagon.' Lamm documents that only 5 to 10 percent of sales of the vehicle are to ranchers and others who use the vehicle for off road driving; 90 to 95 percent of sales are to "successful achievers" whose only brush with off road is "with the landscape architect."
SUV owners have formed their own group for advocacy. The Sport Utility Vehicle Owners Association of America, Inc. was started in 2000 and is self described as an advocacy group for life, liberty, and the right to drive a large vehicle. The association charges $50 for membership and has not been given any funding by automakers. A spokesman for DaimlerChrysler said, "To some extent, he's [William D. Brouse, the president] got more credibility if he's not supported by the auto industry."47 The association has taken the approach of educating policymakers and the public on the virtues of SUVs, including safety and their ability to carry significant numbers of passengers at one time.
The SUV and Safety:
At the same time that the Kyoto coverage and SUV emissions issues arose, questions about SUV safety erupted. Data from the U.S. Department of Transportation showed that the death rate for accidents involving smaller cars is 3 per 10,000 registered vehicles.48 The death rate for SUVs is 1.3 per 10,000 registered vehicles." A study of fatalities revealed that over half of the deaths of small car drivers and occupants resulted from collisions with other cars, not SUVs. SUV collisions with smaller vehicles that resulted in deaths of the occupants of smaller cars constituted 7 percent of the total vehicle fatalities.49 The conclusion of the study by the Insurance Institute for Highway Safety was that small cars do not provide sufficient protection for their occupants. The data also show that large SUVs are three times as likely as large cars or minivans to kill occupants of the other vehicle in a crash.
A 2001 study by the Insurance Institute for Highway Safety concluded that it was the height of the SUV that was a critical factor in the amount of damage and types of injuries in other cars struck by SUVs. This study was particularly critical of the Mercedes M Class SUV, a product of DaimlerChrysler, which was, oddly, promoted as the first SUV to minimize damage to other vehicles in the event of a collision. Also, by lowering the vehicles the Institute found that the SUVs caused greater damage, but the damage to persons in other vehicles was to the legs and lower parts of the body. Injuries to the torso and head are more dangerous. The Institute report stressed the need for lower vehicles.
Further data focused on the rollover risk of SUVs. A series in The New York Times on rollover risk concluded:
The number of people in all types of vehicles dying in crashes has remained relatively steady over the last decade, as has the number dying in crashes involving rollovers. But the number of people in sports utility vehicles dying in crashes has grown almost as fast as the number of SUVs on the road, and most of the deaths have been in rollovers.
Total deaths of SUV drivers per million registered vehicles in 1998 were 550 for all SUVs, 641 for small vehicles, 472 for trucks, and 348 for cars. Also, in 62 percent of the fatal accidents involving SUVs, a rollover was involved.
As a result of the various reports, the National Highway Traffic Safety Administration (NHTSA) proposed requiring rollover warning labels in all SUVs. Phil Haseltine, the president of the American Coalition for Highway Safety, a group funded by the auto industry, responded to the NHTSA proposal, "The vast majority of rollover fatalities results from high risk behavior, not vehicle design. Colorful warning stickers aren't going to make a difference."54 The 1998 statistics show that 62 percent of all deaths in SUVs were the result of rollovers. That rate is three times the rollover death rate for cars. Deaths in 1998 from SUV rollovers were 1,705. The 2002 safety studies indicated that there is a higher fatality rate in SUV rollover accidents, but in those accidents, nearly all drivers and passengers were not wearing their seat belts.
With confusing and contradictory studies, the NHTSA still eventually mandated warning stickers that were placed in all SUVs and included the following language:
WARNING: Higher Rollover Risk
Avoid Abrupt Maneuvers and Excessive Speed
See Owner's Manual for Further Information56
The pro and con SUV studies continued and a Rutgers University study concluded that since SUVs have been on the road, single driver fatalities have decreased by 7.5 percent.57 Overall, since the upward swing in the sale of SUVs, there has been a 50 percent decline in traffic fatalities per vehicle.58 The authors of the study do note other factors such as increased penalties for driving under the influence, seat belt laws, and air bags. However, even after controlling for these factors statistically, the professors believe that SUV ownership carries substantial safety benefits for both drivers and passengers. The authors refer to their results as a "net savings in lives," with this conclusion, "The increased safety to occupants of light trucks outweighs potential increases in fatalities to occupants of other vehicles."
In September 2000, Congress held hearings on rollover deaths. The hearings released information indicating that of 35,806 deaths that occurred in vehicles in 1999, rollovers were a factor in 10,657. Ninety two percent of all rollovers occurred because the vehicle was "tripped," which means that it happened because the vehicle struck another car, a curb, a guard rail, or other large object that caused it to teeter onto one side. Legislation with bipartisan support would require all vehicles to carry a rollover rating given by the National Academy of Sciences following their studies of the vehicles and attributed risk factors for rollover.60 The insurance and auto industry support the proposed rating system. Consumers Union, publisher of Consumer Reports, opposes the rating system on the grounds that standards for the rating are too lax.
Running parallel to the rollover issues has been the Ford Explorer/Firestone Tire controversy (see Case 7.22). Both companies were defendants in class action lawsuits brought against them for those injured or killed in rollover accidents involving Ford Explorers equipped with certain brands of Firestone tires. The cause of the accidents and ultimate accountability remain questionable, but the accidents have been lumped together by the public with the general SUV safety concerns.
The Ford Explorer/Firestone Tire issue had a dramatic impact on the sales of the Ford Explorer. Ford tried to change public perception by releasing data showing that the death rate for its Explorer is lower than the death rates for smaller SUVs of other manufacturers. The NHTSA released figures showing that the Ford Explorer had a driver death rate of 56 per million registered vehicles. But of the 89 car models for which death rates are available, 74 had higher death rates. Of 34 pickups, 32 had higher death rates, and the death rates for 7 sports cars (including the Mazda Miata and Ford Mustang) were all higher.
However, Ford continued to feel the sting from the questions about SUVs, and its CEO, Jacques Nasser, resigned in October 2001 following questions by the Ford board about his management style and approach to issues and employees.
In March 2000, all the automakers announced that they would redesign their SUVs by placing steel rails two inches lower inside their underbodies to reduce the risk of their overriding cars' bumpers and doorsills in collisions. The change in design came from complaints of small car drivers who pointed to the data on SUVs actually driving over cars following collisions.
At least one class action suit is pending on SUV rollovers.64 An appeals court has ruled that there was a sufficient basis for pursuing the plaintiffs' theory that there was a failure to warn about the rollover risk. Trial in the case is now pending. Other cases are pending and an increase in the number of suits is likely.
In 2003, Jeffrey W. Runge, the new head of NHTSA, testified before Congress and indicated that SUV rollover risk was great and that consumer perceptions about increased safety in SUVs was largely misplaced.66 He placed rollovers as 3 percent of all U.S. auto accidents in 2001 and noted that deaths in rollover accidents were most likely to occur in pickup trucks.
The rollover issue was not the only safety risk. In 1998, The New York Times created a new SUV concern when it ran a series on the danger of the headlights of SUVs. The series concluded:
As sport utility vehicles get higher, their headlights have reached the level of the side mirrors of the cars, producing a blinding glare when cars are in front of them.
The head of the society for automotive engineers said of the glare problem, "My feeling is that it's debilitating; it wears you down." Robert C. Lange, vehicle safety director for GM responded, "I suspect there are very few if any collision events associated with glare, "68 Sonia L. Bultnyck, a spokeswoman for Chrysler, said that the problem is that drivers do not keep sufficient space between their vehicles when they are driving and that the headlight problem is not one of vehicle design but inconsiderate drivers.
The public reports on the headlights were largely based on a 1996 auto industry task force report recommending that the headlights on trucks and SUVs should be lower. The report from a group comprised of engineers from the major auto manufacturers recommended that the maximum allowable headlight height be reduced from 54 inches to either 36 or 40 inches. Twenty years ago the headlight height on a Jeep Wagoneer was 33 inches. Today's GM Suburban's headlights are at 39 inches.
The headlight battle took a new turn in 2001 as drivers complained about the brightness and color of headlights, and an ongoing investigation into the safety issues focuses on all headlights and not just those Of SUVS.
Americans and Their SUVs:
Despite the intense media coverage of the safety and environmental issues, sales of SUVs indicate a strong love affair between these vehicles and the American public. Auto industry analyst Maryann Keller notes that consumers' car purchases "are dictated by their desires for performance, comfort, and safety, not by an ecological standard . "A Detroit consultant notes that the SUV has enjoyed a particular connection with customers, "The SUV is such a close connector with their values. They're not going to give it up easily." A GM spokeswoman noted, "We're hell bent on continuing momentum in SUVs and trucks."' GM did introduce a new hybrid electric vehicle that it plans to put in 1 million vehicles to increase fuel efficiency, from an average of 20.7 mpg to 22.2 mpg. CEO G. Richard Wagoner noted, "We have a responsibility to provide cleaner emissions and better fuel efficiency."
The GM momentum has continued among other car companies as they have designed, produced, and sold a slightly different type of SUV. The new SUV is the "Family size crossover vehicle" which includes features of a car, a minivan, and an SUV. These are vehicles with reduced rollover risk, lower headlights, and a perceived greater comfort level in the consumers who buy them. Nissan launched its Murano. Honda introduced its Element. GM introduced its Saturn Vue. Ford introduced its Freestyle in 2004. Acura has its MDX, Volvo its new XC90, Infinity its FX 45, Lexus its RX 330, Honda its Pilot, Buick its Rendezvous, and Toyota its Highlander. Women have driven the change, as it were, in the design because they did not like the truck feel of traditional SUVs and were concerned about the safety issues. Many of the new models feature air bags for knees.72
Directions for Case Study Analysis
Refer to the instructions in the Syllabus
To assist you with your case analysis, you may want to address several of the following items. This should help you get started with this case study analysis.
List all of the stakeholders in the SUV controversy and explain their desires and interests in whether auto manufacturers continue to produce SUVs.
What do you think is driving the demands for the SUV?
How do you resolve conflicts among the various stakeholder groups in the SUV controversy?
Assume the role of a senior manager at one of the major U.S. automakers. What steps would you take to resolve the controversy? Do you think the crossover vehicles were the solution?
How would you apply stakeholder theory to the SUV controversy?