Auto exchange raises questions

By Staff -- Industrial Distribution, 8/1/2000

Detroit-The news that the Federal Trade Commission is investigating the business nooks and financial crannies of Covisint need not raise alarm, two of the Big Three automakers say.

"It's not unusual," said Fara Warner, Ford Motor Co.'s communications manager. "They're also interested in the online exchange. Is it price fixing? Is it a monopoly? These are traditional questions asked of any venture. The Internet adds another layer of interest.''

"People seem to think of [Covisint] as something odd and unusual," Warner added. "Think of it as a bazaar. There are lots of ways into it, with lots of people buying and selling. We're taking that idea, and putting it online makes it a lot faster and more efficient."

Covisint is a B2B online exchange jointly hosted by GM, Ford, DaimlerChrysler and Renaud/Nissan. It will be set up to speed sales transactions between sellers and buyers. Transactions on Covisint will happen in real time on a secure Internet site. The FTC began studying the proposed project in April.

The platform differs from the traditional business model of a customer placing an order to the distributor, who in turn is responsible for having the ordered item in stock from the manufacturer, ready to be shipped. That model wasn't meeting Ford's or its end users' business needs.

"No matter how much we did just in time, there was still a four-day lag time on a purchase order," Warner said.

Will an online model be the only way buying and selling will occur throughout supply chains across the world?

Not necessarily, according to Warner.

"The Internet doesn't change the way we look at distributors and suppliers. We would always have to abide by the same rules as offline," she said.

Factories must be fully operational, financially stable and making quality parts before a CEO, COO or any other company official can get a foot in the door of an automotive procurement decision-maker.

That does not mean commerce guidelines will be skirted under this new business model, however. GM spokesman David Barnas says the automaker does not believe the forming or operations of Covisint will raise "any insurmountable antitrust concerns."

"The combined exchange will be a global system that will be open to all manufacturers and suppliers. The independent exchange will include many safeguards to insure it will not be used by OEMs or suppliers in ways that are anti-competitive," Barnas said.

"For instance, we are not consolidating our buy for vehicle components, as some reports have indicated. In fact, we see this as being highly beneficial to the entire industry and to consumers."

Concerns of collusion raised by some reports can be cast aside, added Warner.

"Does the Internet make it easier and if it did, would we?" Warner asked, hitting published concerns of price fixing right on the head. "No, we wouldn't."

Nor will an automaker lose sight of its individual, economic goals, she said of Ford.

"Just because we're partners in the exchange, doesn't mean we're not competitive," said Warner.

Covisint is expected to launch this fall, pending the outcome of the FTC's examination. The purpose of the FTC is to work for consumer protection and a competitive marketplace.