Auto Industry On-line M2M "Who's on first"
20 April 2000
EDITORIAL
Nobody who survived childhood games can fail to recognize what's
happening between automakers right now when it comes to establishing e-
commerce exchanges.
It's called "choosing up sides," and it transcends the more civilized
aspects of society to reach deep into the primitive heart of eat-or-be-
eaten tribal culture.
This wasn't supposed to happen in the auto industry, but all technology
has an odd way of twisting the broad, bright and shining path predicted
by its early observers and creating a much-less-obvious route. Few
people thought the internal combustion engine would kill off direct
steam propulsion, for instance. Many thought the advent of the airplane
would end warfare because national boundaries would disappear.
Within the past six months, analysts were happily contemplating a
rational rush to a single electronic trading standard for automakers,
one in which each automaker could sit under its own vine and harvest
the fruits of its own online purchasing exchange, keeping track of its
own supplier community.
Then came NewCo, or, as it's more recently been called, Mega-exchange.
To say that analysts were surprised with Ford, GM and DaimlerChrysler's
decision to bury the hatchet -- and not in each others' backs -- in
order to blend procurement into one overwhelming new company is to
understate the concept of surprise.
But the analysts gulped, and began to applaud sporadically, as they
realized the exciting possibility of a single way for any supplier to
do one-stop business with a standard form, a standard purchase order
and perhaps even a single-survey approach to e-business approval.
That's the sunny side of dealing with a giant like NewCo. The down
side? Taking a wait-and-see attitude about what that giant might do in
terms of shaking value out of the supply chain has been the industry
equivalent of popping an anti-depressant pill.
And now comes Volkswagen to set up its own side. It would be appealing
to think that VW's gesture puts it in the underdog, "David" position to
deal with Goliath, but for two factors.
-- One, in the Bible story, David killed Goliath -- a fate which few
want to befall NewCo and its supporters.
-- Two, what VW has done means every global supplier now must be
prepared for working at least two systems. They also face the decision
of their customers. Prior to the VW announcement, automakers were
either going to be in NewCo's camp, or not. After the VW announcement?
Well, the day after VW's announcement, Nissan and Renault aligned with
NewCo. It's got to look pretty lonely -- even overwhelming -- for BMW,
recently whacked by its Land Rover problems, and Honda, delicately
balanced between being big enough and small enough at the same time to
survive as an independent. For Toyota, how long can its Toyota
Production System give it advantages to compete with e-commerce
procurement on the part of its competitors?
Automakers are going to tumble into alignment with some exchange, or
create a third, fourth or fifth exchange system, each adding complexity
if not cost to supplier participation. Even if the exchanges agree with
each other for inter-operability, each will need its modest middle-man
percentage per transaction. If the exchanges split fees, the automaker-
owners will need to re-balance their estimated revenue projections.
It's unknown territory.
And now suppliers face the realization that they are going to be e-
commerce connected, want it or not, and that the sides to be chosen
will both -- or all, depending on whether another exchange is floated -
- be working to shake money out of the supply chain.
Both of the exchanges expect the suppliers to line up as customers
ready to do business at this point. It's not a comfy situation, because
what each exchange wants is information transparency -- rather like the
school bully who protects you, but wants to look through your pockets
for the privilege.
According to a University of Michigan Office for the Study of
Automotive Transportation observer, tire manufacturers recently got a
chance to live through an electronic reverse-auction process that
slashed millions of dollars below what analysts thought the "strike"
price would be -- it ended in the mid-$70 millions rather than at the
expected $80 million floor -- and that apportioned business in such a
way that one supplier saw most of its capacity taken up by just one
vehicle platform. If the OSAT analyst is correct, that company got the
business at a razor-thin margin, and have given away any flexibility
against downturns or slow sales offered by a balance of customers.
Ouch!
So it's easy to conceive that suppliers are not happy spectators as
they watch NewCo and VW come up to the scratch mark for automotive e-
commerce. Both entities want to own the same advantages. There could be
some significant, unintended consequences.
And it might be hard to figure out just who comes out the winner.
Tim Moran, Editor