Transition failure: Understanding continuity in the automotive industry

Technological Forecasting & Social Change 79 (2012) 1681–1692

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Technological Forecasting & Social Change

Transition failure: Understanding continuity in the automotive industry Peter Wells ⁎, Paul Nieuwenhuis Cardiff University, Cardiff Business School, Aberconway Building, Colum Drive, Cardiff CF10 3EU, UK

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Article history: Received 22 July 2011 Received in revised form 7 April 2012 Accepted 24 June 2012 Available online 27 July 2012 Keywords: Automotive industry Innovation Multilevel perspective Technological transitions Regime stability Organizational endurance

a b s t r a c t This paper argues that there is a powerful tendency in forecasting of socio-technical change to focus on the causes and consequences of change at the cost of greater understanding of the reasons for and significance of continuity. Taking the case of the global automotive industry, the paper therefore analyses the evidence for systemic continuity in technologies, economic structures, cultural positioning and embedded social function through the lens of transition theory and the multi-level perspective. It is concluded that the observable processes are as much about enduring technologies and social practices as they are about systemic change. That is, the industry has shown resistance to change notwithstanding the apparent imperatives for radical action or the multitude of attempts via socio-technical experimentation to nurture strategic niches. At a theoretical level, it is concluded that greater attention must be paid to understanding how change can be nullified. Moreover, theoretical expectations of systemic change need a greater emphasis on the way in which technological transition as a process may mean that many existing practices and structures are retained more or less intact rather than entirely replaced by new practices and structures. The future research agenda needs therefore to understand more fully how embedded practices and technological change inter-relate in specific concrete conditions. © 2012 Elsevier Inc. All rights reserved.

1. Introduction There is a powerful tendency among all social actors concerned with the future trajectory of global industrial and economic structures to identify, isolate and often exaggerate change [1]. Indeed, academics from a range of disciplines are often concerned to predict new futures on a grand scale, perhaps rather optimistically extrapolated from the modest, the marginal, the partial, and the inconsequential. We have erred on the side of hopeful and sometimes evangelical expectation [2]. Equally, those concerned with a systematic and scientific understanding of forecasting have inevitably had a focus on the concepts and methodologies to understand change, and an empirical focus on the new, the emergent and the innovative. Broadly speaking, those concerned with a ‘transitions’ approach when seeking to understand the trajectory of future change [3–6] consider that there can be socio-economic or environmental imperatives underpinning the need for transition towards more sustainable structures and practices. The contemporary economic imperative can be traced back to the financial crisis emanating in the U.S. in 2007, which subsequently spread unevenly around the world and was seen by some as the opportunity to introduce radical eco-economic reforms premised on sustainability [7–12], but in practice provided the clearest evidence yet of the primacy accorded to neo-monetarist ‘austerity’ economic strategies. The environmental pressures are no less acute, and often comingled with the economic pressures or with geo-political issues. Evidence with respect to carbon emissions and climate change continues to accumulate, with the need for action becoming increasingly acute [13,14]. For the issue of automobility then there has been no dearth of pressures that might threaten the status of the car or the industry that produces it, and yet, as this paper explores, significant technological change has been scant [15]. Indeed, spatial, physical, social and economic structures, patterns of urbanisation, and concepts of mobility, have frequently been premised on the ⁎ Corresponding author. Tel.: +44 29 20875717. E-mail addresses: [email protected], [email protected] (P. Wells). 0040-1625/$ – see front matter © 2012 Elsevier Inc. All rights reserved. doi:10.1016/j.techfore.2012.06.008

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potential of the automobile and so car-dependency has literally been built into the fabric of contemporary life [16] to the point where something different appears inconceivable. Equally, the industry has become one of the largest manufacturing sectors in the global economy and a crucial ingredient of many advanced industrialised nations [17], with many of the emerging economies placing pivotal importance on the national development of this industry [18,19]. It is evident that if there is to be a systemic transition in automobility as part of a wider transition to sustainable mobility then it necessarily must embrace and include not just the major vehicle manufacturers and their quasi-captive suppliers, but also the entire superstructure required to design, build, furnish, and run innovative mobility systems [20]. While the need for change is increasingly difficult to challenge [13], and in many cases the technology and vision for a future automotive industry and automobility exist [21,22], many of those within the existing system remain incredibly obdurate. There have been many socio-technical experiments, but no fundamental change [23]. There is a tendency to focus only on the technologies of the car [22] without due consideration how long, and at what cost, a transition to a majority electric or alternative energy vehicle fleet would require [24,25], let alone the broader mission of sustainable mobility. Meanwhile, the collective research focus on change has tended to obscure a potentially more important reality, both in theoretical and empirical terms — there is not enough attention paid to understanding, confronting and ultimately resolving the tendency for change not to happen [26]. This paper therefore advances two hypotheses. First, that the automotive mobility system exhibits profound regime stability. Second, that the dominant economic actors (the vehicle manufactures) are a crucial factor in maintaining regime stability. The paper uses the automotive industry and the theme of mobility to illustrate the argument. The contemporary automotive industrial system has shown itself able to respond to pressures for change in ways that continuously fall short of expectations, or indeed of the identified need. In some respects this is a subset of the greater problem identified by Diamond [27] who argued that entire societies have failed to adjust even when confronted with a compelling and overt need. There is an understanding therefore that there is a compelling need deliberately and overtly to create what might be described as a benign path dependency [28] for the future trajectory of the automotive industry in which the actions of multiple social actors and agencies are orchestrated. Such a transformation of organizational structures, economic relationships and social or cultural attitudes is seen as fundamental to the ability to create a new, sustainable mobility. The paper commences with a discussion of transitions theory and the multi-level perspective, but with a view to understanding regime stability rather than change. It is argued that one possible means of understanding why transitions sometimes fail to happen is that the application of transitions theory neglects in general the role of businesses as vectors of change, or indeed the lack thereof. Transitions theory itself is built upon the insight that certain socio-economic structures are enduring enough to be called ‘regimes’, but because the focus is on hoped-for or expected change the relative significance of regime stability is neglected. This neglect is particularly significant in respect of industries that have deeply entrenched organizational isomorphism along with powerful forces at the landscape level that act to reinforce the existing regime. Oltra and Saint Jean [29] identify three elements to their understanding of inertia in the French automotive industry: technological regimes, demand conditions and environmental and innovation policy, but give rather less attention to the corporate aspects of path dependency. Therefore this paper explores in more depth the theoretical foundations of regime stability in order to identify the most salient features for measurement and analysis. Six such mechanisms are identified: the dominant business model that not only entails high sunk costs but also creates larges barriers to change; the scope for continuous improvement which allows change to be deferred; internalisation of the threat via corporate capture; institutional isomorphism that reinforces a set way of doing business; the profound socio-economic embedding of the industry giving it privileged policy prescriptions; and the cultural status of the car which reinforces social practice built around car ownership and use. The analysis section of the paper relates contemporary events around electric vehicle deployment to the six foundations of regime stability, while the concluding section revisits the two hypotheses and offers a tentative analysis on the future prospects for radical change in the automotive industry. 2. Transitions, the multi-level perspective and the role of pivotal organizations The idea of ‘transitions’ has gained much currency, building not only on the idea that technological change and economic growth are intrinsically linked but also on the insight that the mechanisms by which innovations diffuse into an economy may be many and varied [3,4]. Conceptualisation based on transition theory has provided powerful tools by which to analyse and understand complex, inter-connected and variable socio-technical processes. In the multi-level perspective, there are three broad levels: the overarching landscape; the regime; and the niche. These levels interact in a dialectic manner; hence changes at the level of the regime could reflect up to the landscape, and then back down again to the regime in a reinforcing manner. Initially, transitions theory was developed in a somewhat abstract form to embrace broad concepts; Geels [30] for example defines ‘transport’ as a socio-technical system that fulfils a societal function. In much contemporary society, however, personal transport is dominated by the car, which in turn places the automotive industry at the heart of the entire socio-technical system for transport. In the automotive industry the landscape could be said to be determined by features such as the physical infrastructure of roads, houses, and other built features; by the use of petroleum as a fuel source; and by a mobility paradigm informed by the private ownership and use of passenger cars [20]. The regime level captures the participants of the contemporary automotive industry, not only centred on the vehicle manufacturers but also including the suppliers of materials and components, the franchised and independent dealers, the legal and regulatory rules that govern car design and use, and the myriad support industries including insurance, telecommunications, vehicle recycling and others. The niche level can refer to product niches (defined by market segment, geography or technology) and, more recently, to instances of socio-technical experimentation or

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innovative entrepreneurial businesses that have sought to flourish outside the mainstream industry regime around the more general concept of mobility. While much research effort has gone into understanding the role of niches as the ‘seedbeds’ of regime transformation (through the concept of strategic niche management), the concept of regimes is particularly important, as it captures the idea that both physical investment and cultural norms of behaviour and practice can act to reinforce the stability of a regime of accumulation. Some elements of a regime may be extremely enduring, comprising durable capital investments in infrastructures for example that result in considerable uncertainty for those contemplating transition in those infrastructures [31]. Transition is said to involve multiple parties making more or less synchronous steps such that, in the case of automotive mobility, there is a co-evolution of infrastructures, vehicles, and supporting frameworks such as legislation and incentives that redefine the regime [32–34] in part at least due to over-arching changes in the field above the level of the regime, or the ‘upward’ penetration of niches from below the regime. Given the complexity of contemporary social and economic structures along with the tangled character of the problems those structures face, it is argued that transitions need to be managed or orchestrated rather than simply left to market forces. One approach advocated by the transition school is that of strategic niche management [5]. It is argued that alternatives to the embedded (unsustainable) regime need to be nurtured in favourable micro-settings, with the niche(s) subsequently expanded to displace the existing regime. The analysis is, however, largely centred upon the management of future change, not on the many reasons why benign or apparently progressive developments can fail to displace existing practice through less managed processes, such as the market. The lack of evident progress has resulted in a concern to identify why evolutionary technology policies [35] have thus far yet to prove their effectiveness in instances of radical or system change [36]. When considering the issue of continuity it is important to identify the features that have enabled an existing regime to exemplify regime stability. Such features may, for example, enable periodic economic crises to be surmounted or environmental (regulatory) imperatives to be subjugated, and thereby allow the existing regime to prevail. Particularly the latter has provided ample scope for the established automobility regime to stake its claim and help shape the regulatory environment in its image through a combination of technological fix compliance and policy resistance [37–40]. Interestingly, it is probably important that regimes have stability or else accumulation process would become chaotic, leading to socially-disruptive economic volatility. Stability is arguably the defining feature of a regime, because only by being relatively permanent and embedded does a set of structures, relationships and attitudes solidify into an enduring identifiable regime. For those concerned to understand the lack of change in socio-technical systems the concept of path dependency has been a useful theorisation. Path dependence refers to the situation whereby decisions made in the present are (illogically or inefficiently) constrained as a consequence of decisions made in the past, and is a central concept in environmental economics. As a consequence of positive feedback mechanisms such as learning effects, group behaviour effects or network effects a reinforcing process is set in train and results in a more or less stable equilibrium position from which alternatives are excluded. Reliance upon fossil fuels, in which the automotive industry is strongly implicated, may be considered as one important instance of path dependency [41]. The sources of such path dependency are thus at least partly in the social realm of the market or social behaviours in what might be termed cultural lock-in [42] — factors that equally are influential on the rate of diffusion of innovations [43]. Path dependency can readily result in a dominant design retaining ‘possession’ of the market, as David [44,45] demonstrated with respect to the QWERTY keyboard example. Moreover, from an evolutionary economics perspective the alternative to path dependency is generally considered in terms of the emergence of a new (single) dominant design, not least because diversity of solutions is held to be sub-optimal in cost terms as it undermines economies of scale. However, as van den Burgh has argued [46], such a perspective neglects the scope for recombinant innovation. As a result, emergent diversity poses new challenges and opportunities in terms of identifying ‘coherent’ socio-technical and organizational innovations within a given field [47]. As Murmann and Franken [48] argue, the notion of a dominant design is somewhat simplistic when products emerge out of nested cycles of technological development — a feature amply embodied by contemporary cars. Still, the body of work achieved by those working with path dependency and evolutionary economics seems to have eschewed focus on pivotal organizations, tending instead to consider individual behaviours on the one hand, and the entire socio-technical system on the other [49]. The multi-level perspective recognises that behaviours and attitudes are an important part of the structures that support a regime, but the insight is not sufficiently developed. A key issue is the role of prominent institutions and pivotal organizations, and in particular their degree of resistance to transition. Individual organizations can be said to exhibit deleterious path dependency, as has been argued in the case of NASA for example which became ‘trapped’ in an approach predicated upon human space travel [50]. The automotive industry may be said to be prominent in the electric vehicle technological innovation system [51], but the ability to foster radical change may be encumbered by similar deleterious path dependency. In the automotive industry the vehicle manufacturers are precisely such pivotal organizations, sitting as they do at the apex of global supply chains and the centre of local network clusters. Organizational stability does not preclude all forms of change, as has been evidenced in respect of other sectors and contexts [52] where ‘misfit’ organizations may continue to function acceptably without the social cost of creative destruction by processes that transpose functions across the organization. Working from a business strategy perspective, Tushmann and O'Reilly [53] argue that management needs to exhibit an ‘ambidextrous’ character that combines incremental and radical change. Others working in theories of business strategy and business models have sought to argue that technological innovation (in the firm) usually requires organizational innovation (in terms of business models) to achieve market success [54]. However, context is significant for an understanding of transitions generally [55], and hence sector-specific studies are valuable for providing operational insights into the processes of change or non-change. Unruh [41] argues for

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the concept of a ‘techno-institutional complex’ to explain the enduring reliance on fossil fuels arising out of the co-evolution of technologies and institutions. This is an important start, but does not capture all of the potentially significant elements of inertia and regime stability, or explicitly consider the contribution of pivotal organizations. The following section therefore seeks to understand the sources and extent of regime stability premised on the pivotal organizations and their relationship with other elements of the regime, and the ways in which the regime is therefore able to produce and reproduce the conditions for its own continued survival. 3. Sources of regime stability In transition theory and the multi-level perspective there is a nested hierarchy of causal relations in which the field is the top level, with the regime underneath and niches below that. What is less clear is where change first commences and how it propagates. Alternatively, in order to retain regime stability the participants need to be able to achieve two things: prevent the successful expansion of alternative niches; and resist landscape-level pressures for change. There is insufficient understanding of this particular dynamic; whether for example resistance to change is orchestrated by coalitions of vested interest, or whether pivotal organizations are themselves able to mount resistance. While studies have sought to expose the inadequacy of government regulation (or more precisely governance) as a mechanism to achieve technological and social change [56,57], the corporate contribution to regime stability remains neglected. Equally there is insufficient understanding of the value of time, or of delaying the implementation of change, for regime participants. Simply delaying change long enough may be sufficient to extinguish a potentially viable niche or prevent meaningful expansion of that niche. Resistance to change is frequently portrayed as a ‘bad thing’, whereas logically this may not be the case either for members of regime organizations that internally resist change, or for the organization as a whole. Methodologically, this paper seeks to understand regime stability through the literature on organizational inertia and its wider contextual setting in which the contributory aspects of non-change are identified and explored. This is supported by secondary sources (press reports and releases; academic studies, and other reports) and interviews with key protagonists in the automotive industry case study. The approach is to integrate the wider literature that assists in the identification of sources of regime stability with the contextualised case study material to generate the six main causes of stability. As such the findings are specific to the automotive industry but potentially have wider application to other transformation trajectories. The paper is exploratory in nature, and hence reflects back on the multilevel perspective to argue that at a theoretical level insufficient weight has been accorded to the role of pivotal organizations. That is, transitions theory ultimately depends upon organizational change for existing incumbents rather than new ways of working with new entrant organizations, an aspect that has been relatively neglected thus far. The analysis must be historically and empirically grounded because the outcomes are contingent upon concrete reality that varies according to the product technology under consideration. In the case of the automotive industry we can identify six key features that underpin continuity, four related to the role of vehicle manufactures as pivotal organizations, and two to their wider socio-economic setting. Each is outlined and then expanded upon. Firstly, there is the initial combination of product technology, process technology and organizational design to create a universally powerful business model that was able to displace alternative technologies and business practices, and continues to act by providing significant barriers to entry. Secondly, this initial advantage was reinforced by the scope for continuous improvement in product technology (e.g. in terms of safety, fuel economy, comfort, ease of use, and performance) and process technology (e.g. in terms of automation, productivity gains, and reduced pollution). In turn, the industry as a whole had a development path that allowed profitability to be restored through organizational improvement measures such as purchasing strategies, mergers and acquisitions, and platform strategies. Thirdly, there is organizational isomorphism and ‘internal’ resistance to change that may act to prevent dominant organizations from making adjustments. Such resistance may also be encountered in business-to-business relations that are ‘external’ to the dominant organization. Fourthly, the industry as a whole and the vehicle manufacturers in particular have been able to absorb and control change, for example through acquisitions and alliances with potentially destabilizing entities in a process of niche capture. Fifthly, the increasing scale and significance of the industry over a period of decades allowed the embedding of the automotive industry as economically critical, thereby providing the leverage to enjoy a privileged status in policy terms (e.g. not only to defer or prevent regulation, but also to obtain state support during periods of crisis), not least through deliberate lobbying activities. Moreover, more recent incremental technology improvements e.g. with hybrids, provided resilience in the face of exogenous changes such as higher oil prices or increasingly stringent regulation on CO2 emissions, thereby allowing change to be absorbed more slowly. Finally, the cultural status of the car (and of mobility) as currently defined, and the spatial structures and social practices built around car ownership and use, are largely predicated on existing vehicle technologies, features that have continued to be reinforced by adept and powerful lobbying and advertising. 3.1. The initial combination of product technology and process technology created a powerful business model Initially of course there was a variety of potential technologies that could have been used as the platform for the automotive industry. The early participants in the sector were often themselves drawn from a diverse array of industrial and craft backgrounds, and many competing technological, product, and business solutions to the issue of powered personal mobility were offered. Mass production is widely regarded as an inevitable consequence of this process, combined with a growing demand for automobility and an equally inevitable path of technological progress [58]. However, it is important to highlight in this context, as Sabel and Zeitlin [59,60] have argued, that mass production was but one of a range of manufacturing strategies each of which was in

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reality of comparable technological validity. It is also important to understand that Rosenberg's notion of complementary technologies being needed to make mass production possible was in this case achieved through a combination of chance and design [61,62]. By the 1920s however the industry had come to be characterised by the increasingly dominant technologies of the all-steel body and the internal combustion engine along with the appropriate secondary systems packaged into a product concept known generically as a mass-produced car [63]. Equally, the business model for the industry became firmly established, such that the product, the production system, and the means by which consumers could access the product (and the services it provided) became entrenched as custom and practice. Three key clusters of innovation define the contemporary vehicle manufacturer at the heart of the automobility system, and all can be traced back to America in the early period of the 20th century. The vehicle manufacturers are in turn the major determining force that defines the characteristics of the broader automotive industry as a whole, and the socio-cultural place of the car. Ford adapted pre-industrial car designs to mass production: at least in terms of the standardised manufacture and assembly of the mechanical, engine and chassis elements [64,65]. Key innovations here included the use of the moving assembly line, and the fragmentation of work tasks into small, repeated and often de-skilled steps. Edward Budd developed technologies enabling the mass manufacture and assembly of stamped and welded all-steel bodies with multiple secondary advantages [66–69]. Here the main innovations were in terms of metal forming technologies, jigs and fixtures to hold parts together for welding. Finally, a new business model was created by Alfred P. Sloan that embedded mass production and enabled mass motorization [70]. Sloan introduced the concept of consumer credit for vehicle purchases, and also related strategies to expand the market such as the concept of the trade-in, and of the annual model change cycle whereby superficial external appearance details were changed while the underlying structural and operational components often remained the same for years [71]. In addition, Sloan initiated the first major multi-brand group strategy under the umbrella of General Motors. The dominant form that emerged was, and still is, characterised by large centralised manufacturing plants securing production economies of scale. These plants were necessarily remote from much of the spatially extensive markets they sought to serve, which in turn resulted in a requirement for long logistics lines to supply finished cars to a dispersed network of franchised dealers. Revenues were principally obtained from the sale of new cars, though spare parts and vehicle finance also became significant revenue streams. As this ‘mainstream’ automotive industry regime developed, so smaller, niche companies embodying alternative technologies and business models tended to fail in the market, unable to compete on cost, perceived quality or the expected rate of new product introductions over an extended period of time [72,73]. Those that remained were largely then acquired by the larger vehicle manufacturers within multi-brand portfolios, which either absorbed or adapted them to the prevailing norm. Ultimately, the industry became characterised by large barriers to entry and exit, a feature that militates against radical structural change. 3.2. The scope for continuous improvement in product and process allows resistance to change The thumbnail description of the vehicle manufacturer organizational structure does not capture many changes to the automotive industry regime that could be argued to be significant. Examples in terms of the production system include: The progressive automation of key processes, for which the innovations of Ford and Budd were eminently suited; the long-run trend of increasing vertical disintegration as vehicle manufacturers outsourced components, sub-systems, and material supply; and the adoption of variants of the Toyota Production System by most vehicle manufacturers and suppliers in the period from around 1980 onward [74]. Such developments are not here dismissed as trivial; far from it. Rather, these developments alongside others such as mergers and acquisitions, the shift of production to low-cost locations, or indeed the spatial extension of markets are all envisaged as vital mechanisms whereby the inherent contradictions and tensions within the entire automotive industry regime have been deferred or resolved. In other words, the structure of the regime has adjusted in certain specific ways while the fundamentals have remained intact, and in so doing the imperatives for more fundamental regime shift have been negated. In the meantime, the automotive industry has been able to develop and adapt existing technologies to take product performance ever-closer to the regulated requirement in an approach typified by the BMW EfficientDynamics concept. This sort of optimisation and weight-reduction strategy, allied to other measures such as the deployment of niche battery electric vehicles in low volume and the opening up of city-car size segments has enabled the industry as a whole, and individual groups (i.e. collections of brands under one umbrella such as VW-Audi Group) to continue to manufacture and sell manifestly un-environmental but profitable vehicles. Resistance of this type reduces the disruptive characteristic of change by giving vehicle manufacturers and others more time to adjust, and by allowing existing technologies, capital investments and practices to be retained. In this respect, it is unsurprising that the industry as a whole is better able to cope with the many forms of hybrid vehicle that combine an internal combustion engine, or simply to develop better engines [75]. In addition, many vehicle manufacturers offering electric versions of their mainstream vehicles are hardly optimising the design of such vehicles around a battery-electric powertrain (see the VW Up! launched in late 2011 for a typical example), but are reducing cost and risk by using an existing platform, or at least retaining existing body-chassis technologies, that are in reality optimised for conventional internal combustion powertrain technologies rather than battery-electric solutions. This is a strategy of least-compliance, to meet the regulatory requirements at as low a level of compliance as the regulation allows and with the lowest possible risk to the business. 3.3. Institutional isomorphism and internal/external organizational inertia increase resistance to change Institutional isomorphism is characteristic of long-established businesses operating in similar market contexts, and can lead to routines of behaviour, attitude and expectation that become firmly entrenched [76,77] along with routine processes with associated reward structures that define success in the organization. Moreover, it may be difficult to re-design entrepreneurialism

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into an existing corporation [78]. Although faith is often placed in the abilities of charismatic leaders to enact change [79], a powerful leader taking the company in the wrong direction can be calamitous [80]. Moreover, as Sherman and Garland [77] demonstrate, those enacting change may subsequently become the victims of management disapproval, even where the change has been a success. The promotion of fuel cell technology for cars owed much to the initial efforts of Mercedes-Benz (Daimler) [81] which, given its status as an emblematic and technologically advanced member of the automotive industry, prompted others in the industry to follow their lead. Following a failure to resolve costs and infrastructure issues, however, the industry focus shifted to hybrids in the wake of Toyota launching the Prius model [82,83]. Thus there has been an observable ‘herd’ effect in the industry, sometimes magnified by media and public attention, as certain technology solutions have become fashionable and then unfashionable again. Business-to-business relationships may be the cause of lack of change [84], which is significant in the automotive industry because a substantial proportion of new car sales in some mature markets are to companies or government departments and agencies, and these customer segments (e.g. in postal/delivery services) are often anticipated to be leading application niches for alternative fuel vehicles. Moreover, enduring relationships in the realm of distribution further militate against radical change [85]. Similarly, a high proportion of the ex-works cost of a car is accounted for bought-in components and materials, and again institutional isomorphism in supply chain management and inter-corporate relations in the form of procurement practices may act to militate against change or otherwise impose structures on subservient suppliers [86]. 3.4. Internalising the threat can neutralise the pressure for change In practice, part of the industry response has been absorption of the threat posed by radical new technologies and associated companies by internalising those technologies and companies [87], making it very difficult for new entrants to escape lock-in [88]. It is notable that initially Toyota was widely criticised by others in the industry for introducing to the market the first-generation Prius hybrid at what was universally regarded as below cost [89]. Three model generations later, Toyota has rolled out the technology to many other vehicles in the range (and to Lexus models), and thereby obtained both economies of scale, learning opportunities that could also apply to pure electric vehicles, and as importantly enormous market recognition as a sustainability leader. Whether hybrids are seen as an elaboration of the previous technological trajectory or the start of a radically different and new trajectory is debateable, but undoubtedly these developments arose out of the need to respond to external regulatory pressures. The automotive industry has long been under pressure to change in terms of technologies and fuels. In the latter 1990s and early 2000s the prospects for battery-electric vehicles were poor, while fuel cell vehicles were seen as offering great potential as a technology [90] but also as a point of entry for new actors in the total value creation system [91]. More recently, the mantle has passed to the electric vehicle again, with the same ideas forthcoming [92,93]. Again, this is not entirely new — Ford did this with Think for example during the 1990s [94]. Mercedes acquired the automotive fuel cell interests of Ballard in Vancouver, Canada and moved its fuel cell R&D activity to this location; the same company also acquired a significant share of the electric sports car new entrant Tesla and has developed links to Chinese electric vehicle industry. Not surprisingly, Daimler has put significant corporate effort into forecasting the future business environment [95], an increasingly important activity in many sectors [96,97]. BMW has links with plug-in hybrid producer Karma, and has acquired patent rights to carbon fibre construction technologies. Renault has participated as the vehicle provider for the Better Place project in Denmark, where the battery-swap system will be utilised as part of a wider Renault-Nissan group strategy to capture a leading position in the emergent electric vehicle market. In a related manner, Toyota has formed links with wind power generator companies, as has Audi. The central strategy for the vehicle manufacturers appears to be one of making the electric car, and its role in society, as much like a traditional car as possible [98] and is a long way short of the imaginative solutions offered by long-term visions such as those of Mitchell et al. [21] Key to this is reducing the cost of the battery system to as near to parity with mainstream vehicles as possible in order to force this competing and quite different technology into the constraints of the existing regime to which it is not optimally adapted. Due to the nature of battery performance compared with petrol or diesel a direct equivalence is impossible on most parameters such as range, longevity or the balance between purchase price and operating cost. As a consequence there is some experimentation with novel business models such as the Peugeot Mu concept for electric mobility, or the Nissan-Panasonic ‘Second Life’ concept that seeks a second (post-automotive) function for battery packs. To take the Peugeot example further, it is notable that the new ‘usership’ approach offered to customers will only be available in a very limited number of locations, and in all cases out of dealerships directly owned by PSA Peugeot-Citroën group rather than franchised outlets, so again the emphasis is on a gradual, contained experimentation, as much as possible anchored within the status quo. Similarly, General Motors' Volt plug-in hybrid vehicle was initially only offered in a limited number of US states. 3.5. Embedding of the automotive industry as economically and socially critical allows the existing system to enjoy a privileged status Lobbying by industries is clearly an important factor in governance and its outcomes [99,100]. Historically, the automotive industry has been adept at resistance to change mostly through an ability to delay and sometimes defer indefinitely the imposition of government regulation, where the record on technology forcing by government is decidedly uneven [101,102]. Two prominent examples are the California Zero Emissions Vehicle mandate scheme which initially envisaged setting market share targets for electric (or zero emissions) vehicles [103–105], and the European Union carbon emissions reduction targets for new vehicles which have gone through several iterations of failed voluntarism until a somewhat diluted mandated target was

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established for 2020 [106,107]. As Unruh and Carrillo-Hermosilla [108] have previously observed, the relative ease with which regulatory measures are introduced is itself an outcome of path dependency, but can easily result in sub-optimal policy outcomes. The automotive industry came to be seen as fundamental to the economic health of the industrialised nations, and those that sought to emulate them. India, China, Brazil and others sought to nurture the industry that was seen as pivotal to technological and economic progress, by providing protective trade, market and industrial policies. Inevitably, once established as a vital manufacturing sector, policy makers have been reluctant to enforce potentially punitive environmental regulation. It is interesting in this regard that California, lacking an indigenous automotive industry, was at the forefront of environmental regulation of the industry [38,104]. Equally it is suggestive that attempts to develop niche electric vehicle markets by Better Place are to be found in non-automotive industry enclaves such as Israel, Denmark and Hawaii. 3.6. The cultural status of car (and mobility) as currently defined reinforces spatial structures and social practices built around car ownership and use Around the core automotive industry business model emerged related activities and businesses in the supply of inbound materials and components, and of course more widely in the use of vehicles in the market with service and repair garages, petrol stations, traffic police, motorway construction techniques, insurance, and so forth. The spatial separation of work, home, leisure, shopping, education and other activities further reinforced car dependence. The car became firmly entrenched as a consumer durable, as a cultural icon, and as a symbol of individual freedom as much as a functional tool for mobility. Hence cultures of automobility became established around the car in society [109,110], and even without overt co-ordination the multiple agents and parties to the world of automotive mobility co-developed in tandem over an extended period of time. With the automotive industry it is arguable that much of contemporary social and economic life is predicated upon automobile ownership and use, such that we have collectively built dependency upon the car into the fabric of our lives. This not only reinforces the positive feedback loop on the development of the industry itself, but it also tends to preclude the alternatives [111]. This is more than technological lock-in, because it speaks to profound cultural concepts such as personal freedom that have come to be associated (however misguidedly) with car ownership and use. 4. Analysis: change and stability with electric vehicles 4.1. The business model as a constraint to change History is replete with examples of brave attempts to challenge the technological orthodoxy or business logic of the automotive industry, or to displace the privately owned car running on petrol or diesel, but none of these attempts has as yet achieved any significant impact at all. Examples include Think, Indego, Ridek, Local Motors, MDI Air Car, EcoMotors, ZENN, ZAP, Tesla, GEM, REVA, ElectricBlue, Riversimple, Bright Automotive, BYD, Better Place, Loremo and Axon Automotive [94,112,113]. An important question is whether the intertwined character of the car as a technological artefact with the business organizational model that brings it to market is susceptible to redefinition. That is, in order for technological transformation to occur, is it necessary to restructure the automotive industry as a whole and the business models of its participants? Alternatively, can the industry bring about a technological transformation without the need to make fundamental changes to operational practices, norms and strategies? If the former is the case, then instances such as Better Place are harbingers of a radical shift in the automotive industry regime. By integrating the deployment of electric vehicles with ‘smart grids’ and renewable sources of electricity generation Better Place effectively redefines the membership of the automotive industry regime [94,114] and the business model of the vehicle manufacturers. It is worth noting that the consultant organization Roland Berger includes new business models as one of the key megatrends in the automotive industry in the period to 2025. If the latter is the case, then transformation as a process means that many existing practices and structures are retained more or less intact rather than entirely replaced by new practices and structures, thereby largely preserving the fundamental integrity of the system. In a related manner, it may become significant to be able to identify a systemic ‘tipping point’ [115] where the industry can be said to have entered a new state of homeostasis premised on the requirements of sustainable mobility. To date at least, despite some experimentation at the margins of the business model with the introduction of electric vehicles (such as the separate leasing of the battery by Renault when selling its Fluence electric vehicle), it would appear that the industry overall prefers to make electric vehicles as traditional as possible, even if this does compromise performance. Of the major brands, only BMW for example has committed to the use of lightweight carbon fibre vehicle body technologies, even though it is clear that for other electric vehicles the sheer mass of the all-steel body is a significant encumbrance on performance. Not least, this preference for traditional body technologies ensures that the prevailing orthodoxy of the existing business model is also retained. 4.2. Continuous improvement as a constraint to change It is notable that with the threat of impending fuel economy or CO2 emissions legislation, with targets backed up by fiscal penalties in the case of the European Union [116] due to come into force in 2015, the automotive industry has demonstrated once more its capacity to improve performance and reduce costs. Indeed, the capacity for continuous improvement in the product and in the production process (including supply chain management), alongside strategies such as platform architectures, has enabled the automotive industry in the European Union market to meet repeated rounds of environmental, health and safety regulation

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over the period 1995 to 2010 with no real (inflation adjusted) increases in list prices [117]. Most significantly, the study by Varma et al. [117] found that the average petrol engine vehicle increased its power/weight ratio by 19% and the average diesel engine vehicle by 31% in the period 1995 to 2010, average fuel consumption has fallen by around 20%, and (even more surprisingly) overall cars have become 12% to 22% cheaper – after inflation – in the eight years from late 2002 to late 2010. Hence electric vehicles, already labouring under a cost penalty compared with traditional cars in the dominant design idiom, must also struggle against the continued capacity for cost reduction. While it may be the case that the ability to achieve such reductions in petrol or diesel vehicles could also be applied to electric vehicles as scale and learning economies start to apply, it is also the case that the cost reduction to be achieved by electric vehicles in order to be competitive is a moving target. 4.3. Institutional isomorphism and organizational inertia as a constraint to change Competitive pressures allied to the emergent regulatory context may however provide impetus for a break from institutional isomorphism. Technology watersheds in this respect offer a strategic opportunity, with risk and reward attached. For example, Nissan, in its attempts to bring electric vehicles to market, has sought to emulate the Toyota experience: “Remember, just two or three years ago when we started talking about mass-marketed electric vehicles, most of the industry thought we were crackers…It is also interesting that nobody else has been successful in hybrids. Many have tried and none have been really successful. You can only find the leadership space at the beginning, being first is a real advantage and this is a space that we want to own”. Andy Palmer, VP Nissan Motor. Even within the industry therefore there is a dilemma. On the one hand, corporate risk avoidance is best achieved by technological and strategic conservatism. At the collective level, the industry has a strong interest in thwarting any measures that might accelerate the pace of change. On the other hand, at the corporate level there is also an incentive to break ranks, and to bring innovative vehicle concepts to market, and at the collective level there is a pressure to be seen to be acting for the wider and longer-term interests of society. Organizational inertia is somewhat inevitable, if only because the established competencies are likely to be around existing technologies in engines, vehicle body materials, and design architectures. While it may be possible to develop show cars and prototypes with innovative technologies, it is much more difficult to then commence full-scale production. 4.4. Internalisation of the threat as a constraint to change Perhaps the existing automotive industry is not as monolithic and unchangeable as had been thought, but it is increasingly able to incorporate (literally in some cases) diverse technologies and revenue opportunities in diverse settings [119]. Risk is diluted this way, but this is also the key to absorption as a strategic response. Internalisation offers other strategic rewards. For example, after around 2000 there was a growing interest in the use of magnesium in vehicles as a potential route to weight reduction, but world-wide sources were limited. Some vehicle manufacturers then sought to secure their own supplies of magnesium by investing in production facilities (e.g. VW in Israel; Toyota in Canada), which had the double benefit of excluding others. Similar concerns have now arisen over supplies of lithium for the batteries used in electric vehicles, with much of the global resource located in China. Thus, if the industry cannot internalise key resources such as this, then the lack of internalisation might also be a hindrance to further market development of an innovative technology. Moreover, internalisation is itself no guarantee of success — as Ford discovered with its failure with the electric vehicle producer Think. 4.5. The privileged status of the industry as a constraint to change A feature of the post-2007 economic crisis as it unfolded in different nations was that those with a significant automotive industry sought to find ways to help the industry through the crisis period. That help typically comprised market stimulation measures such as the ‘scrappage schemes’ that removed older vehicles from the road while tying such removal to the sale of a new vehicle [2]. If ever the industry was to face a period of ‘creative destruction’ then this was surely the time. Evidently, the economic and political status of the industry demanded intervention for ‘life support’. The closure of a car plant remains a highly charged political issue, with localities unwilling to shoulder the economic burden of restructuring. These are features that enable the existing industry to continue. However, one interesting aspect of the emergent future of the automotive industry is that different places have different visions of the pathway to be followed [120]. Many places have sought to combine an encouragement of, say, electric vehicles in use with an encouragement of the industry to manufacture and supply those electric vehicles, the associated infrastructure of recharging stations, etc. and the ancillary services that might be delivered to them [121]. Just within the UK it is possible to identify distinct regional development strategies by for example the North East (electric vehicles); the West Midlands (low-carbon vehicles) and Wales (hydrogen vehicles). Such differences are reflected and amplified in many locations around the world, and can be said to derive from divergent interests as well as differential opportunities to construct more sustainable automobility. Unsurprisingly, regions want to nurture the pathway that most clearly speaks to their particular problems and opportunities. While the automotive industry may not explicitly have adopted this as a strategy, and in many regards is in favour of technological standardisation and uniformity, the fragmentation of responses is perhaps a form of ‘divide and rule’ whereby the

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incumbent automotive regime is able to deflect the pressures for change into multiple smaller (and hence less disruptive) mini-transformations. In some respects these features came together in the post-crisis period from 2007 because government assistance to the industry (to enable short-term survival) was sometimes tied (or legitimised) to longer-term ambitions to see the industry make progress on environmental goals [15]. According to one senior industry manager, when talking about the impact of the crisis on forward plans for electric vehicles: “In fact it was a major step on the throttle. The reason why I say that is that late 2008 and early 2009 most car companies were in cash flow crisis. This industry is very cash intensive and we all faced a challenge to find enough cash to run the business month to month; almost all of the sources of loans dried up due to the Lehman shock and subsequent financial crisis. The only source of such funds in general was government, and the governments put behind it a green agenda. So for example if you take the Energy Department (Advanced Technology Vehicles Manufacturing Loan Program) lines that we received in the United States which was worth US$1.6 billion it was related to investing in green technology, in this case bringing battery production to the country. The same is true of loans we received in the United Kingdom, and indeed in Japan. If we had had to fund those battery plants from normal operations the cadence of product roll-outs would have been much slower. So I actually think that viewed from my side, the electric vehicle business benefitted from the crisis. We did not cut one line of investment on electric vehicles throughout the crisis.” Andy Palmer, VP Nissan Motor. Similarly, in the US, federal government support for GM was closely linked with its ability to deliver lower carbon emitting vehicles, whereby the corporation's ability to demonstrate a vehicle close to production readiness – the Chevrolet Volt – allowed those funds to be released. The vehicle was in this advanced state of development as a result of GM management's belated realisation that more energy efficient products could help the bottom line [118]. Hence the momentum behind any detectable transformation in this automobility case appears to owe rather a lot to the traditional incumbents (or some of them) facing unusually challenging circumstances and responding with unusually dramatic strategies. The niche actors, however, remain firmly imprisoned within their niches and are frequently being tied into the established incumbents. 4.6. The cultural status of the car as a constraint to change This account of transition failure in the automotive industry has largely been in terms of manufacturers and regulators, strategies and policies, with consideration of consumers, early adopters, and related ideas rather neglected. In part the neglect is inevitable because so few cars have made it to market that understanding consumer reaction is inevitably difficult. Interestingly, some early evidence from electric vehicle trials suggests that consumers are not necessarily following the typical ‘early adopter’ mentality. That is, consumers found that the constraints of electric vehicle use were not particularly onerous on a day-to-day basis, but were still reluctant to purchase cars because they were waiting for the technology to improve [122]. Social and consumer expectations are inevitably informed by experience with conventional cars, and hence behavioural patterns have been constructed around those expectations — that an electric vehicle may fail to meet. 5. Conclusions This paper has advanced two propositions. First, that the automotive mobility system exhibits profound regime stability. Second, that the dominant economic actors (the vehicle manufactures) are a crucial factor in maintaining regime stability. With respect to the stability of the regime, the paper has illustrated numerous attempts by mainstream incumbents and others to break away from the existing regime — to the point where it could be argued that transition is genuinely under way. Yet, these attempts remain marginal to the industry at large, and in the case of the mainstream incumbents could at best be interpreted as the sort of ambidextrous quality advocated by Tushmann and O'Reilly [53]. The penetration of electric vehicles remains small in all significant markets, despite many such markets offering significant subsidies to consumers on the new car price. Analysts such as Roland Berger [1] expect only a few percent market share by 2020 at best. The experiments and socio-technical niches are interesting and provocative, but cannot be said to constitute a fundamental shift in the transport socio-technical regime. With respect to the role of the dominant actors maintaining the existing regime there is an element of ambiguity. The existing vehicle manufacturers remain so dominant in the contemporary scene that it is difficult to envisage a transition without them, but of course they also have a considerable vested interest in the repression of change. These large corporate entities have the knowledge and skills in terms of vehicle integration, the relationships, the brands and the manufacturing infrastructure to bring alternative vehicles to market. As a result, power at a fundamental level remains with them. Over the years, particularly since the first ‘oil shock’ of the 1970s, alternatives to this regime have been sought. In broad terms, none of these alternatives have been successful in challenging the overwhelming dominance of the entrenched paradigm. It is the case that at a global level there has been some change in terms of the leading vehicle manufacturers and brands, with new entrants from South Korea, China and India for example displacing (and sometimes acquiring) vehicle manufacturers from Europe, Japan and North America. Yet again this sort of change has not had any impact on the fundamental principles of the industry, on the technical definition of the car, or on the way in which personal mobility is achieved. The examples of Nissan, GM and others discussed above are evidence that a degree of change is under way, but thus far in a rather marginal way and without the market success that these vehicle manufacturers had hoped for.

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The theoretical framework of transitions tends towards an analysis of progressive and unidirectional change. On the other hand, maybe it is not systemic change or transformation that we are witnessing, but systemic disintegration around technology fragmentation. There may not be a coherent transition, because there will not be one best way in the future but multiple and semi-conflicting pathways articulated around diverse and often spatially-specific interests. The strategy for the mainstream vehicle manufacturers and much of the associated industry, as well as government policy, is to make alternative technology vehicles as much like existing petrol and diesel vehicles as possible, including in terms of retail price. The nearer to this target that the industry gets, the more it is able to incorporate radical technologies without radical shifts in the business model or, by extension, much change in the role of the car in society. Change is of course measured over time, and it might be that our perspectives in respect of time need to be calibrated in order for us to talk sensibly about whether radical or incremental change is underway, or indeed to declare that no change has happened [89,123]. The automotive industry has comparatively long-term characteristics in respect of e.g. the durability of manufacturing investments or the typical product cycle. Moreover, while the pressures for change on the industry are difficult to deny, it would appear that the short-term solution is preferable to the perceived short-term political and economic cost of allowing the existing system to collapse. The alternative has to be constructed, and that is a process that takes a considerable amount of time; economic rescue of the prevailing orthodoxy can be enacted almost immediately and the results are visible very quickly. Under these circumstances, no matter what the long-term benefits of creating benign transition rather than continued path dependency in the automotive industry, the political expedient is to buttress the existing system and thereby maintain it. Acknowledgements This paper was made possible by funding from the ESRC Centre for Business Relationships, Accountability, Sustainability and Society; and from the European Union INTERREG IVb project ENEVATE. The funding sources had no direct input into the writing of this paper. The authors would like to thank the anonymous reviewers for their valuable help with this paper. References [1] Roland Berger, Automotive landscape 2025: opportunities and challenges aheadCopy obtained from, http://www.rolandberger.com/expertise/industries/ automotive/2011-02-28-rbsc-pub-Automotive_landscape_2025.html. 24th March 2011. [2] P. Wells, The Automotive Industry in an Era of Eco-Austerity, Edward Elgar, Cheltenham, UK, 2010. [3] F.W. 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A Policy Pract. 46 (1) (2012) 140–153. [123] D.A. Levinthal, The slow pace of rapid technological change: gradualism and punctuation in technological change, Ind. Corp. Chang. 7 (1998) 217–247. Dr Peter Wells is a Reader at Cardiff University, and co-director of the Centre for Automotive Industry Research. His particular interests include sustainable mobility, business models and the structure of the global automotive industry; road traffic deaths and injuries; and the future of electric vehicles. Dr Paul Nieuwenhuis is a Lecturer at Cardiff University, and co-director of the Centre for Automotive Industry Research. His particular interests include the history of the automotive industry; government regulation and environmental issues; and individual automobility.