Green Technology Innovation IN Volkswage PDF

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INTERNATIONAL CONFERENCE ON MANAGEMENT (ICM 2011) PROCEEDING

GREEN TECHNOLOGY INNOVATION IN VOLKSWAGEN PASSAT

Reihaneh Montazeri Shatouri* and Wan Khairuzzaman Wan Ismail**

With an aim of protecting the natural resources and environment, many automakers have embarked on green technology initiatives to gain market competitiveness. Volkswagen (VW) has jumped into the bandwagon and has focused on this innovative technology in its products. This study reviews the innovation at VW in particular its latest model, Passat. The authors explore the BlueMotion technology in VW Passat and determine the key success factors in green technology concept. Using information obtained from secondary sources and company documents. BlueMotion technology is based on three areas of improvement: engine, transmission and rolling resistance. The technology emphasizes on higher fuel efficiency and lower emissions of carbon dioxide (CO 2), carbon monoxide, nitrogen oxides (NOx) and hydrocarbons. BlueMotion is a symbol for interaction of several innovations such as, Turbocharged Direct Injection (TDI), Turbo Stratified Injection (TSI), start-stop system, the brake energy recovery system based upon energy recuperation, NOx exhaust treatment, and improved aerodynamic spoilers, bumpers, and grills as well as low suspension which reduce petrol consumption. Based on the study of market penetration of VW, it can be concluded that governments’ authorities is one of the main factors affecting the market for VW. Generally, the key success factors which resulted in the popularity of Passat in the global market include innovative technologies, market compatibility and flexibility, appropriate mix of price-value and unique design. Key words:

1. Introduction Car pollutions are known as one of the six most dangerous air pollutants releasing carbon dioxide, carbon monoxide, nitrogen dioxide, and hydrocarbons in the air every day. These harmful gases lead to global warming, green house gases and human diseases like asthma, lung cancer, etc. Statistics shows that vehicles consume 50 percent of the oil in the United States, pollute around half the urban pure air, and make 25 percent the greenhouse gases (Action Group 2008). They release 1 million tons of CO2 per day and kill around 80 people in United States (Autoincar 2010). Therefore, using green innovative technologies to reduce the air pollution is very essential. Green technology is an environmental friendly technology that conserves natural resources and environment. Applying green technology in automotive manufactures leads to reduction in air pollution and its hazardous effects. In recent decade producing ecofriendly cars has been considered more by car manufacturers. There are several automotive companies which produced green cars in the world. Volkswagen is one of the world's largest car manufacturers that has focused on green technology innovations particularly in its latest model, Passat. VW has used innovative BlueMotion technology in order to achieve its green goals (Nunes and Bennett 2008). As the air pollution crisis is a major problem all around the world that made critical problems on human health and natural ecosystems, most large automobile manufacturers try to produce the most fuel efficient cars to protect the earth. Several famous car makers such as Volkswagen, Toyota, Honda, BMW and Ford are in close competition with each other in producing green cars. The lack of success for some green car makers reveals that introducing and selling *

Reihaneh Montazeri Shatouri, International Business School, UTM. Email: [email protected]

**

Wan Khairuzzaman Wan Ismail, International Business School, UTM. Email: [email protected]

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green cars in the global market needs to some strategies. Studies toward green technology management in automobile industry can develop this environmental friendly technology. The objectives of this study are to explore the BlueMotion technology in VW technology, to determine the success factors of Volkswagen Passat in green technology concept and to compare the capabilities between Volkswagen Passat and Toyota Prius in developing the green technology.

2. Literature Review 2.1 The Evolution of Green Technology in Automotive Industry As automotive industry is one of the main factors of air pollution in the world; there have been strong demands for manufacturing the eco-friendly cars. In 1973, Lars Ringdal, posed a cheap and ecological car to overcome oil crisis. The idea can be traced back to the early 1990s and Pivco Vehicle Company, was established to manufacture a prototype TH!NK which participated in the Winter Olympics in 1994 (Nunes and Bennett 2008). Today, famous carmakers are in close competition for producing eco-friendly cars. Toyota, Volkswagen, Honda, Ford, BMW, and Mercedes Benz try to reduce fuel consumption and their products emissions. In recent years most of the eco-friendly cars has designed based on electrical systems such as Hybrid system in Toyota’s cars and Start-Stop system in Volkswagen cars. World Green Car 2008 competition revealed that Volkswagen, Toyota and Honda have reached green technologies to produce more popular green cars.

2.2 Volkswagen in Brief VW Group with its headquarters in Wolfsburg is one of the world’s leading automobile manufacturers and is the largest carmaker in Europe. Literally, Volkswagen means "people's car" in German. This company has established in 1937 by the National Socialist trade union. In 2007, the Group delivered to customers 6.189 million vehicles and provided around 10 percent share of the world automobile market. Volkswagen obtained 19.5 percent market share of the Western Europe. Volkswagen moved its production toward green technology innovation in 2003 by selling low sulphur diesel-powered engines in the European market. They developed Turbocharged Direct Injection (TDI) technology. This modern diesel engine consumes 30 percent less than gasoline engines that resulted in reduction of greenhouse gas emissions. Volkswagen also developed hybrid technology for diesel-electric cars by Golf (Wikipedia 2010). VW plans to introduce Golf, Passat and Touareg hybrid until 2013. Recently, Volkswagen has achieved BlueMotion technology to protect environment and resources. Figure 1 reveals that this company has increased its sales in the 2010 compared to 2009.

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Fig. 1 Volkswagen Delivered Vehicles by Month (vehicles in thousands) for 2009 and 2010 (Volkswagen Group)

2.3 The Vision of Volkswagen in Green Technology Innovation The VW’s mission statement signifies the importance of green technology for the automaker, “Protection of the environment and the species has long been firmly established in the company” (Volkswagen Group 2008). For many years, Volkswagen has shown that the protection of natural resource and environment is its main vision. According to this vision, they use innovative technologies to reduce CO 2 emissions and other pollutants (Koplin et all. 2007) Also, VW’s environmental management has seriously protected the biodiversity. Volkswagen was one of the first companies that joined to “Business and Biodiversity Initiative” in February 2008. VW engages in a multitude of projects relating to biotopes, the environment and protection of the species, and supports research programs in Germany and all over the world. Volkswagen has found that retaining biodiversity also depends on greenhouse gas reduction. Then, they developed highly resource-efficient vehicles like BlueMotion models ( Oneighturbo 2008).

2.4 BlueMotion Technology in VW Models BlueMotion is a trade name for Volkswagen car models with an emphasis on higher fuel efficiency. The term BluMotion comes from Volkswagen Group’s official color, blue, and ‘motion’ added to denote mobility. BlueMotion technology was introduced on the Mk4 Polo BlueMotion Auto show by Volkswagen in 2006. Passat is another BlueMotion model that has been released in 2007. This technology represents the interaction of several innovations, such as recuperation, the start-stop system and nitrogen oxides exhaust treatment. BlueMotion technology makes cars more economical with reduced emissions. The BlueMotion technology is based on these three areas of improvement: 1- Engine: Diesel particulate filters and oxidizing catalytic convertors reduce the fuel consumption with lower nitrogen oxides levels. Moreover this technology, start-stop system halts restarts the motor at short stops like red lights. 2- Transmission: The last two gear ratios are longer than standard Turbocharged Direct Injection (TDI) engine gearboxes. 3- Reduced rolling resistance: Low-resistance wheels and better aerodynamic shape through lowered suspension, new spoilers and extra enhancements underneath car produce better fuel consumption (Wikipedia 2010). 1359

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Passat has been dubbed as the most environmental friendly available car in the world (BlueMotion Website 2008). This model creates the lowest CO2-emitting among other models. VW’s start-stop system saves fuel by turning a car's engine off when the driver stops completely. The Passat BlueMotion offers small body changes for less drag, which reduces petrol consumption through more aerodynamic spoilers, bumpers, and grills and lower suspension. BlueMotion cars also offer regenerative breaking and low rollingresistance wheels (Lombardi 2010). Its fuel consumption is nearly 4.9 per 100 kilometers with only 128 gram carbon dioxide emissions per kilometer. Passat BlueMotion via a 105bhp TDI engine and its unique diesel particulate filter helps the car to pass the mountain easily even when the car is fully laden. Passat BlueMotion was ranked the top 3 of the “World Green Cars 2008” in the New York International Auto Show. According to its considerable fuel efficiency and low carbon dioxide emissions, the Passat fended off competition from many hybrid models and fuel cell vehicles such as Toyota and Honda (Volkswagen Group 2010).

3. The Concept of BlueMotion in VW Passat VW claims that BlueMotion is the technology that makes the vehicles more efficient (Volkswagen Group 2008). This technology has combined several innovations; such as, the brake energy recovery system based upon energy recuperation, the start-stop system and nitrogen oxides (NOx) exhaust treatment, and improved aerodynamics as well as low suspension. These innovations make the cars more fuel efficient and eco-friendly. More efficient models of Volkswagen have been recognized by VW’s concept brands, BlueMotion, BlueTDI and TSI EcoFuel or by the name BlueMotion technology. Figure 2 shows the Eco-Friendly products and technologies under one umbrella, BlueMotion technology.

Fig. 2 Eco-Friendly Products and Technologies under One Umbrella (Volkswagen Group 2008)

As Martin Winterkorn, VW's chairman of the board, said, "BlueMotion shows just how to make conventional – and therefore affordable – cars extremely economical by applying sophisticated drive technologies and special aerodynamic modifications. The BlueTDI concept shows, in parallel, how a high-tech emissions system can further reduce emissions using a SCR catalytic convertor. When both of these are packaged together in a car, entirely new

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possibilities emerge: the 4.1L fuel consumption and over 1,700km [1,062mi] range of the large Passat Variant demonstrate the potential of our drive technologies impressively" (Ireson 2008).

3.1 Success Factors of Volkswagen Passat in Green Technology Concept There are several factors that resulted in the success and popularity of Volkswagen Passat in the global market. VW could grab the market and achieve more sales in competition with the other famous brands. The innovation, leadership in quality, sales and profitability of the automotive industry with a high performance team and focusing on sustainable development were the initial positive points of Volkswagen. Key success of Volkswagen can be summarized in using innovative technologies, compatibility and flexibility in the global market, and matching price and value. All of these unique features follow one aims; protecting the environment and natural resources. Passat innovative technologies are included BlueMotion technologies like Turbocharged Direct Injection (TDI), Turbo Stratified Injection (TSI), start-stop system, and lower suspension. VW group has applied these technologies in Passat to reach fuel efficient car with lower CO2 emissions. Popular and modern aerodynamic shape and high quality interior and exterior have attracted more customers to buy this model.

4. Evaluation of BlueMotion Technology Innovation VW’s management and marketing strategies are two success factors of Passat. Introducing and maintaining innovative products in the competitive global market needs to new strategies. Nowadays, financial and economic crisis and lack of natural resources have motivated people to choose the fuel efficient cars. VW is the largest European leading automobile manufacturers and has focused on producing eco-friendly and fuel efficient Passat VW Group has applied BlueMotion technology innovation to reduce fuel consumption and CO2 emissions. High quality materials in Turbocharged Direct Injection (TDI) engine and popular interior and exterior design have grabbed more share of market for Passat. According to these strong technological backgrounds, many versions of Passat have been widely developed in the market. Developing marketing strategies has increased the number of delivered VW’s vehicles to customers up to 6.189 million in 2007. Volkswagen Group sells its cars in more than 150 countries of the world. Also, in Western Europe, VW group could achieve around 20 percent of the market share. The sales increased to 108.9 billion Euros in 2007 compared to 104.9 billion Euros in 2006. Moreover, profit after tax in the financial year 2007 amounted to 4.12 billion Euros (2006: 2.75 billion Euros) (Volkswagen Group 2008). The key success of marketing management in Volkswagen is also contributed by its manufacturing compatibility and flexibility in global market. For example when the German manufacturer introduced the "four-door coupe" version of the Passat for the first time, the CC was offered only as a four seat. The lack of a back centre seat was a weakness point for the Passat CC, which pointed out by journalists, quickly. On the other hand, buyers preferred one more seat at the back. VW then upgraded the UK market Passat CC with a three-seat rear at the back and new standard features such as touch screen Bluetooth device for the 2010 model. These changes resulted in an extra £1,000 worth of equipment, whereas, the revised Passat CC will cost only £515 more than the model they replaced (Carscoop Group 2010). Figure 3 shows the proportion of Volkswagen and other carmakers in global market share.

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Fig. 3 Proportion of Volkswagen and other carmakers (Economics newspaper 2011)

Based on the present unstable world economic overview, price and value are two influencing factors in the competitive global car market. Hence, VW replied to consumers by adding a fifth rear seat and more standard equipment with little extra money (Franzen 2010). Volkswagen management team found unique ways to attract more overseas costumers, too. For example, they have offered significant savings to be exempt from registration tax in Spain. This offer definitely will catch more market share in Spain (Auto Car Shop 2010). VW expects the US to be the major market for the Passat; around 60 percent of the yearly worldwide sales of around 300,000 units are expected to be sold in US. The management also has focused on its advertisement toward fuel efficiency of Passat to obtain more global market share. For instance they have stated 70 liters full tank of Passat will get 1,350km. Based on an average yearly mileage is 15,000km, then it is expected VW Passat BlueMotion only being refueled 11 times a year, approximately once a month Absolutely this feature would be so attractive for buyers (Dellmann 2005 and

Tan 2007) Finally, VW worked hard on the pricing strategies to achieve its objectives. Although the company has three price constraints, the cost of production, competitive prices in the international markets and consumer purchasing power, the strong management of VW determines the affordable and competitive price in the market which coordinates to the customers’ purchasing power (Hil 2002).

4.1 Comparison of the Capabilities of Volkswagen Passat and Toyota Prius in Developing the Green Technology There are several car makers that are seriously competing with each other in producing of eco- friendly cars. Prius is a full hybrid electric car manufactured by Toyota. Prius is one of the most fuel efficient gasoline cars and has been ranked by the United States Environmental Protection Agency (EPA) and California Air Resources Board (CARB) as among the cleanest cars based on smog forming and toxic emissions. The largest market of this Japanese car is in Japan and North America (Wikipedia 2010). Table 1 reveals the technological comparisons of VW BlueMotion and Toyota Prius. Curb Weight Fuel Capacity

3576 Lbs.

3042 Lbs.

18.5 gal.

11.9 gal.

Table1. Technological Comparisons of Volkswagen BlueMotion and Toyota Prius (New Car Test Drive Group)

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Fig.4. Fuel Consumption Comparison of Volkswagen models and Toyota Prius II

It can be inferred from Figure 4 that Passat BlueMotion has the lowest fuel consumption compared to Toyota Prius and even other models of VW. The VW Passat Eco-fuel recently surpassed the Toyota Prius in “Greenest Car in Europe”. Although Passat and Prius scored 92 out of 100 on the tests, the less expensive natural gas fuel system surpassed VW. The test evaluated emissions of CO2 , carbon monoxide, nitrogen oxides and hydrocarbons (Sam Abuelsamid 2010). Although the CO 2 emissions of Toyota Prius are less than VW Pasat, the fuel consumption and lower release of other emissions of Passat are the major advantages of this car. Volkswagen BlueMotion cars (Passat, Golf and Polo) successfully obtained the World Green Car acceptance over finalists Honda Insight and the Toyota Prius. “It is not necessary to add an electric motor and a heavy battery pack to achieve class-leading efficiency. Based on VW’s common rail diesel engines, the BlueMotion models are among the most fuel-efficient vehicles on the market. In fact, the Passat BlueMotion can travel just about 1,000 miles on one tank of fuel in the European cycle. As far as internal combustion engines go today, these models are the ultimate you can get,” the jurors explained (Tan 2010).

5. Conclusion This investigation focuses on the applied green technology innovations in VW Passat through secondary data analysis. The aims of this study are, to explore the applied technology innovations in Passat and determine the key success factors of this green model in global market. Cars emissions are known as the main source of air pollution. Hence, VW has attempted to produce more eco-friendly cars to protect the environment and natural resources. The company has invented BlueMotion technology to manufacture green vehicles which included several innovations, such as, the brake energy recovery system based upon energy recuperation, the start-stop system, NOx exhaust treatment, and improved aerodynamics as well as low suspension. Applied BlueMotion technology in Passat has attracted many customers in the world as the innovative green technologies; compatibility and flexibility of VW in the globa...