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“The time must be ripe for a product”

Axel Strotbek, Member of the Board of Management for Finance and Organization at AUDI AG, meets Professor Franz Josef Radermacher. A renowned mathematician, economist and polymath, Radermacher advances the case for a worldwide socio-ecological market economy. From the rear seat of the new Audi A8, they discuss entrepreneurial and ecological responsibility.

INTERVIEW/ANDREAS MOLITOR
PHOTOS/ENNO KAPITZA

Axel Strotbek: Are you sitting comfortably, Mr. Radermacher?

Franz Josef Radermacher: Perfectly. There is ample space in this car even for people who are much taller than me. But we’re not here to talk about comfortable seats, safety or working conditions for passengers. We want to discuss responsibility. What’s the fuel consumption of one of these cars?

S: When it comes to efficiency, we’ve achieved something of a quantum leap with the new A8. With the 258 kW (350 hp) eight-cylinder diesel engine, this car averages 7.6 liters per 100 kilometers. For the sixcylinder diesel version with quattro drive, we have improved the average figure to 6.6 liters. Not that long ago, many manufacturers of compact cars would have been proud to achieve such levels of fuel economy with their cars. And in the premium category, such figures were truly wishful thinking.

R: I don’t doubt that this progress in fuel economy is the impressive result of an outstanding feat of engineering. But without public pressure on industry, and carmakers in particular, to face up to their environmental responsibilities in helping to combat climate change, such progress probably would not have been achieved up to this day.

S: But such expectations of us are nothing new. Audi engineers first combined diesel direct injection, featuring fully electronic control, with turbocharging in a production model back at the end of the 1980s, redefining the benchmark for fuel economy. Lightweight construction appeared on the scene a short time afterwards, and in 2001 Audi unveiled the A2 – the first five-door car in the premium segment to achieve fuel consumption of three liters per 100 kilometers. We have never flagged in our efforts to use resources efficiently. Advances in engine technology alone have enabled us to realize fuel savings of around 15 percent since 2006. That’s a huge leap. And we are still on the job. Hybrid technology and electric drive play a major role at Audi. They will provide the answers to future mobility. Along with the Audi e-tron (see page 92), the purely electric high-performance sports car that we unveiled at last year’s Frankfurt Motor Show, we will be promoting electrification in other vehicle segments, too. The same applies to future developments in hybrid technology. For example, we are currently working all-out on full-hybrid versions of the Audi Q5 and A8.

R: Such innovations mean you are taking decisive action and embracing corporate responsibility in a manner that is appropriate for a company from the car industry. What you are doing is looking for a better technological solution that translates less input into more output. You are doing what is necessary in this area. But let’s not fool ourselves: Technological innovation alone will not solve the world’s problems.

S: But is that solely the responsibility of carmakers?

R: No, of course not. We shouldn’t confuse the various levels of responsibility. It is primarily up to politicians, states and governments worldwide to provide a futureproof framework within which natural resources are used wisely and the climate is protected. Such pacts cannot be conjured up by a car manufacturer, let alone a single manager. The car manufacturer can at most help everyone understand why such pacts are necessary. Anything else would be overstepping the mark. You can only be responsible for something you are actually in a position to influence. The public debate often overlooks that fact. However, companies often forget that they are also obliged to initiate public activities for a better regulatory framework.

S: Thinking it through, if Audi were to decide unilaterally only to build three-liter cars from now on …

R: … it would go bankrupt within a few years. If the general conditions are not right, an individual manufacturer cannot afford to opt out and act as if those conditions did not exist. It has to operate in accordance with the market conditions and at most can test out how much room for maneuver it has. In mathematical economics, we call that a prisoner’s dilemma. In such a situation, it is neither wise nor responsible to do what you actually consider to be sensible. In order to safeguard its very existence, a company may even have to act in a way that is at odds with its own convictions.

S: That reminds me of an example from our own corporate history. In the late 1980s we unveiled a vehicle with hybrid drive. It was 15 years ahead of its time, as there simply wasn’t a market for such a concept. Ten years later we then launched the A2, our three-liter car. And we discovered yet again that not enough customers were prepared to pay the necessary premium for this efficiency innovation and technically pioneering product. We learned from the experience that the time must be ripe for every product – the customer calls the shots.

R: I agree entirely. If you weaken your company’s position, you undermine its ability to dictate the rules that all the others follow and to spearhead the appropriate initiatives. Only winners can push for the rules to be changed. Let me illustrate my point like this: If a Formula One racing team whose cars always come last kicks up a big fuss about a circuit being too dangerous, who is going to listen to them? On the other hand, if the best racing team voices the same concerns and pushes for safety improvements to a circuit on which its cars have always won up to now, its arguments will sound a whole lot more convincing. That’s what you’d call a dual strategy.

S: Definitely! “Vorsprung durch Technik” is our brand essence and our commitment. Audi aims to lead the way, including when it comes to fuel economy. But any brand – let alone a premium brand – cannot position itself simply on the strength of fuel economy. It is vitally important for Audi to live out the elements which define it as a brand – the things that its customers identify with, feel at ease with, and associate with the brand. If I might take up your Formula One analogy, Mr. Radermacher, sportiness is indisputably one of our brand values. Cars must appeal to reason, but they must also excite people. And I agree entirely with you that a company enjoying a run of success is infinitely better placed to influence and change the rules of the game than one that is constantly playing catch-up. My job is about ensuring that Audi remains a leading player. That, for me, is one of the core responsibilities of a manager.

R: Yes, that often gets overlooked in the present difficult financial and economic climate, with so many people pointing accusingly at managers and saying they are to blame for not fulfilling their responsibilities properly. From a psychological viewpoint, such a reaction is understandable, but it doesn’t help to solve the problem. Managers cannot change the rules on their own. We currently do not have the right control mechanisms for that, nor the right incentives for management. How can a manager opt out of the system? One level higher up, the same applies to companies: They can only opt out by sacrificing the very basis of their existence. In my view, apart from a few spectacular exceptions, for example in the financial sector, most managers have met their responsibilities competently within the existing system, playing by the rules of the game.

S: The crisis of the past 18 months has raised many questions, including for me personally. The topic of sustainability has acquired an entirely new relevance. But I believe the rules of the game, particularly in the financial system, have still only been adjusted and reformed to a very limited extent. We have not yet reached the point where we can say with any certainty that we won’t see a repeat of such excesses.

R: No, we’re definitely not there yet. And there may yet be a “sting in the tail.” But at least we are seeing a shift in perspective, a fundamentally different way of looking at things. Just think back ten years. Then, many regarded the shareholder value principle as the only school of thought meriting any serious consideration. It was part of a misguided philosophy and misguided faith in the markets that led us headlong into the global economic crisis. The crisis now has to bring us back to sustainable stances and attitudes, to an ordoliberal view of a social market economy with a strong ecological emphasis. It can restore a clear sense of direction for the players. For companies, that means focusing on their stakeholders: their customers, their employees, their owners and, for example, their manufacturing locations. If we’re talking about responsibility, this is a much broader context than merely satisfying the interests of shareholders.

S: These questions are nothing fundamentally new for us at Audi, and indeed for the entire VW Group. We have never focused exclusively on the shareholders or on return on investment. It is of course important that lenders can expect and achieve a satisfactory return. But we should naturally also place our customers, our employees, and the local communities at our production sites at the very center of everything we do.

R: It is also my impression from many years of involvement in the automotive industry that car manufacturers have not been driven primarily by short-term returns. This appears to me to stem from the very nature of the products they make. An automobile is a long-life product. The value of such a company depends not on its current market capitalization, but on its cars and brand name. A manufacturer that builds great cars knows very well that its cars are the embodiment of its real value added. It assumes responsibility for that product and establishes a brand value. That takes decades to accomplish – and decades more to consolidate. In such a context, any short-term focus on market capitalization or returns …

S: … is pointless. I think such considerations are part of our responsibilities in the running of an automotive manufacturer. I personally have to ask myself every day whether the decisions we are making – e.g. on development projects and new products – can be reconciled with the goals and values we have set ourselves, such as the requirement of sustainability. After all, we don’t just want to be a success today and tomorrow, but in the longer term, too. That is why I repeatedly have to scrutinize how sustainable our decisions are.

R: I was recently asked whether I could imagine ever taking up a post like yours, and what I would tackle in my first week.

S: And what did you reply?

R: I said I didn’t think I would manage to accomplish very much of use or that would make much difference in one week. It would be presumptuous of me to be able to, want to, or have to make significant changes in such a short time, in a field of which I only have a limited understanding. If I were ever to take on such a role, I would first need plenty of time to learn about it and understand it. Looking back over the financial crisis, many managers remark today that they were continually deciding on matters and dealing with products that they didn’t understand. That is truly frightening. You can only account for something that you understand, and therefore you cannot make a responsible decision for something that you do not understand. What you must do instead is admit when you don’t understand something, and keep on asking questions until you fully understand it. I think that this is a key aspect of exercising responsibility.

Economics graduate and business journalist Andreas Molitor works for DIE ZEIT, Berliner Zeitung and GEO, among others.