Covisint,New Name for OE Exchange and other news
17 May 2000
First Conference Newsletter...Out with the Newco, in with the ... "Covisint" Automakers have chosen a coined word as the name for the massive eCommerce exchange known as NewCo. The new name is "Covisint," with the emphasis on the first syllable and the C pronounced as K. The name was revealed in Detroit in a news teleconference May 17 that involved about 20 reporters and executives of the exchange. In an attempt to protect the new exchange name from homonym-type infringement or confusion, the company also registered a large number of variant spellings. Covisint was coined by an unnamed employee of NewCo, and was not one of the suggestions brought forward by consulting companies hired to come up with names. The name is meant to suggest cooperative concepts, vision and integration, the company said. The exchange is being developed by DaimlerChrysler, Ford and GM with technology partners Oracle Corp. and Commerce One Inc. In April, Covisint announced that Renault and Nissan would participate, bringing to $380 billion the estimated "spend" which might form the exchange's transaction flow. Volkswagen has chosen not to participate in Covisint, instead establishing a separate European exchange within its company and using IBM as a technology partner. Covisint must obtain U.S. Federal Trade Commission and European Union regulatory approval before formally beginning operations, and is working from a temporary headquarters in Southfield, Michigan. The governmental reviews are not expected to be completed until fall. Toyota will participate in largest exchange, but not as equity player Toyota Motor Co. officials announced May 17 that they would participate in eCommerce on Covisint, the mega-exchange owned by the Big Three and technology partners. But Toyota, until its announcement the largest non-exchange-aligned player in the auto industry, will not hold equity in the exchange. "Toyota is not interested in attaining capital gains," said Tadaaki Jagawa, Toyota vice president, of the company's participation. Toyota views the exchange as a U.S. business initiative, with limited effects in Japan. Covisint had already estimated its exchange would carry about $380 billion in automotive purchasing before Toyota's decision was made. The Toyota announcement did not exclude that company's participation on any other eCommerce exchange. Nissan and Renault announced in April that they would join the Covisint exchange as minority equity partners. Improvement? The hallmark of a failed initiative comes when the massive benefits, the huge changes and the wonderful new products promised begin to boil down to a vague statement that "process was improved" and "we all learned valuable lessons." Automotive eCommerce and eBusiness aren't quite there -- yet. But already, the process and lesson voices seem to be tuning up, and automotive suppliers are understandably tensing their jaw muscles just in case they're about to take one on the chin again. If the suppliers don't hear something firm from the OEMs soon about exactly what a massive eBusiness exchange will require and deliver, their tension will grow to tooth-cracking intensity. They've already seen expensive and haphazard process "advances" come down the pike as requirements of doing business with OEM customers. Take computer-aided design and manufacturing. The system was to ease design, get rid of multiple iterations of drawings, speed data flow and reduce errors. It did, but at an enormous cost. Maintain a separate CAD/CAM workforce, separate hardware, separate site licenses, training programs and staff for each of the Big Three? Would any sane supplier intentionally choose that expensive, cumbersome process for themselves? EDI; QS 9000; ANX; the initiatives arrive as exciting, top-down announcements of opportunity, and they gradually fade as expensive costs of doing business. Something in the tone of the industry right now says that suppliers are feeling lost and dubious about eBusiness. They don't know where the "verticals" and their authority start and stop. They don't know whether it's a hardware or software investment. (They think it's one or the other). They focus on the fear of what an online auction could do to their margins, and when they ask where their advantages are, it's hard to prove any gain. Estimates for overall industry improvements associated with eBusiness seem to keep going up and up, with research surveys appearing to feed off one another in the race to produce a yet-more-improbable figure late in this decade. Yet, at the same time, suppliers are told by enthusiasts that predictions beyond a year, two years, are worthless in the e-age. The suppliers know all too well that the industry hasn't been through a complete purchasing cycle for new vehicle development using eCommerce so far. Nobody has even been through a fully-implemented, reportable fiscal year of automotive supply chain eCommerce. They also hear statements like this, from the chairman of a new automotive dot-com: "The race to space and where is the opportunity is very, very important. You may not be able to implement, execute and continue on with consensus management. Consensus management says the opportunity and decision-making falls to the lowest common denominator. Who's the dumbest wino in the room? Let 'em go. I'm going to create this new business entity I'm launching outside the traditional structure of the business." Suppliers look at this, and listen to those statements, and they do not see a wise community implementing change. They see a pool full of self-devouring sharks. Is it any wonder they stand at the side and wait, rather than dive in? If NewCo and its ilk want suppliers to do more than fear them, the exchanges need to start delivering real working information at a simple, basic level about what will be imposed on suppliers -- not a concept sales pitch or a network diagram showing clouds labeled "best practice" or "best of breed." And for all of our sanity, don't try to pretend that a cost push down the supply chain, if it comes, improves anybody's day at the bottom. NewCo Will Stay Near Detroit Not Worried About Competitor Exchanges, says Miles Alice Miles, president of Ford B2B ConsumerConnect, together with Peter Weiss of DaimlerChrysler's e-Extended Enterprise and Alan Turfe of GM's TradeXchange, is co-CEO of the NewCo exchange being brought forward by the Big Three automakers. The three leaders have said that each speaks the same message, and each speaks for the NewCo enterprise. Ms. Miles was traveling in late April, but agreed to be interviewed by electronic mail; her answers appear verbatim, the questions are edited for conciseness. NewCo continues to bring itself together as a business. Is it correct to say NewCo staff consists of executives "on loan for permanent reassignment" from the Big Three automakers and the two major software/firmware providers? How is it possible to build this major new company without 'corporate culture conflicts? "The current operating team of NewCo is made up of people from the five partners as well as specialists we have brought in. We are moving forward with adding supplier personnel as well as new hires. As far as Corporate Culture clash -- we are learning to act as a new and independent company and move the decisions forward in that light." Since NewCo announced itself, several other B2B trade portals have been floated in automotive and automotive-related markets. Can all of these, and NewCo, work without eating up each other's operating advantages? Will too many exchanges dilute the fundamental economic estimates? "I don't think we should be surprised that other exchanges and efforts are coming forward -- as we learn about the ways to apply the Internet to B2B this should be expected. The efforts that will thrive in the long run will be those that offer a compelling value proposition and can learn to partner well. I am sure we will see some of that as move forward. This is not unlike the move we see in B2C where it was just estimated that 25,000 of 30,000 sites will shut down and only those with a solid plan will survive." NewCo has at least temporarily based itself in Southfield, Michigan. What advantages, short of location near the Automotive Industry Action Group and the major automaker offices, are there to Southfield? Will it stay there? "We set up NewCo in Southfield as it allowed us to quickly get the team set up outside of the OEM facilities. We are looking at long-term options for locations but believe a Detroit-area location of some type will be required." The recent stock market waves certainly left a lot of B2C ventures in peril, and some highly-touted dot-coms found themselves more than a little worried about the "fundamentals" they had staked themselves to. Was there any worry at NewCo, or for NewCo's eventual Initial Public Offering? "NewCo's primary concern is getting up and running and launching our product. The IPO will be done when the time is right and all factors, including market conditions will be considered." Has there been any outreach to lower-tier suppliers yet to formulate answers to their concerns yet over participation, pricing and the like? "We are working with larger suppliers first but are developing plans to connect with the suppliers you mention." Has any firm information been developed yet about percentage fees for NewCo transactions? How will NewCo be dealing with multiple-exchange purchases; simple fee-splitting, or an increasing percentage charge to the buyer, or the seller? "The revenue/pricing model is being reworked on a NewCo basis and we expect to finalize in the next 30 days." What has been the biggest discussion and decision challenge been for the NewCo effort so far? "Some surprises have been thatwe have been able to quickly form teams and get our thoughts organized between the partners. The biggest challenge is on the people and communication side -- we are moving fast and it is easy to leave people behind. So, communication - both internal and external - is a bigger requirement than I expected." Ford Tries Build-to-Order, Online Sales in Canada Pilot Most sales will come from dealer inventory, company expects Executive eyes in Dearborn will be watching Ottawa and Hamilton, Ontario, to see how a Ford of Canada pilot program to sell cars over the Internet in near-direct form works out. The pilot, announced May 12, will also test an early form of build-to-order type sales. The pilot project involves 24 auto dealers in a two-city area with a population of about 1.5 million. Ford of Canada is making its Focus and Taurus car and Windstar minivan models available in the pilot project. If buyers can't find the car they want in existing dealer inventory or factory production, an order for the vehicle they desire can be forwarded to Ford's assembly plants -- as long as a dealer authorizes release of the order, said Ford spokespeople. Jeff Liedel, director of technology for Ford Motor Company's Consumer e-Business group, said the main thrust of the project is to test the consumer reaction to online vehicle buying. "Certainly, the manufacturing side is interested. But this pilot is targeted at getting the consumer experience exactly right, and if the consumer doesn't find exactly what they want in inventory, how we can satisfy that demand," Liedel said. "We are comfortable that, with the amount of inventory that's at the dealership, that the majority of them will be purchased out of dealer stock," he said. The pilot, using Ford's BuyerConnection website, will let buyers choose a Ford vehicle and equip it with options in a step-by-step process. As selections are made, two prices will be displayed on the screen: One is the manufacturer's suggested price, or MSRP, and the other will be what Ford terms an "e-price." The e-price will be a no-haggle price lower than the MSRP, reflecting what dealers are willing to offer in the way of discounts. Ford's BuyerConnection site will review and refresh e-prices every couple of days to make sure the e-price is close to what buyers could otherwise negotiate face-to-face with dealers. When a customer finishes specifying options, colors and equipment, Ford's system will search inventories at dealers and on plant lots, and jobs currently being built on the assembly line, to see if an exact or a close match is already available. When a car is found, the customer can click on an "order" button to place a $250 (Canadian) deposit to hold the vehicle. If no car can be found that is a close enough match, the customer's selections will automatically fill out an assembly order which goes to both Ford's plant and to the dealer closest to the customer. If the dealer authorizes "release" of the build order, Ford will make that car. Buyers are not required to go to the car dealership to make the purchase. Though they will still need to sign an actual purchase agreement to finalize the sale, the buyer can choose to have a dealer representative bring the agreement to them at home or work for the signature. If a potential buyer wants to test drive a car, the dealers are authorized to bring the car to the buyer. The system also allows buyers to track the status of their vehicle from the moment the initial order is placed to delivery at the dealership. Ford of Canada spokeswoman Lauren More said the pilot will limit who can place orders based on their postal code. The vehicles chosen for the pilot, though, are Ford's highest-volume makes. The Focus, in particular, is favored by younger, Internet-savvy buyers with a taste for European styling, and represents one of Ford's hottest marketing brands to date. More said the pilot project area was chosen because Ottawa, in particular, has a concentration of technology-savvy buyers. "The dealers in this area have been used for pilot projects in the past. Their readiness to try this out, to kind of take on the challenge of doing business in this economy, is a key factor," she said. More said Ford of Canada hasn't made any predictions about how many customers will likely use the BuyerConnection site, purchase cars over the Internet or require build-to-order vehicles. She said a survey taken two years ago by Ford found less than 3 percent of potential Canadian buyers said they would make an electronic car purchase; that number is now up to 13 percent in Ford's most recent surveys, she said. "To go from one or two percent to 13 percent in a couple of years, who knows how this could increase over the next two years?" More said. John Ochs, Ford media spokesman for electronic commerce, said the company expects the pilot will allow for much better data analysis of true consumer demand for vehicles. "It's a great inventory management tool for us, bottom line," Ochs said. "So many consumers will go to a dealer's lot and buy what's there, even though it's not exactly what they wanted, just because it's there." Ochs said if consumers are able to pinpoint their actual selection, Ford will be able to find out which packages and equipment options buyers really want. Some industry marketing analysts have estimated that more than 20 percent of the vehicles in dealer inventories are incorrect for consumer demand, leading to rebates and incentives which cut into potential profitability just to move the cars off dealer lots. In Dearborn, the Canadian pilot project is certain to be reviewed by Ford president Jac Nasser, who has made electronic commerce and communications a key to the company's growth and planning. But more important attention will come from nuts-and-bolts management, including Brian P. Kelley, president of Ford's ConsumerConnect operations, James A. Yost, chief information officer and in charge of process leadership, and Bobby Gaunt, Ford of Canada president and CEO. All are Ford Motor Company vice presidents, in addition to their operating responsibilities, and have significant clout. Liedel said the Canadian pilot project is a stand-alone effort without any pre-set determination of when, or even if, it might be extended to all Canadian buyers, let alone across the border in the American market. "We're still sort of analyzing how that would, or if it would, play in the U.S. markets. There's a whole bunch of things we're going to have to take into consideration if we're going to launch in any market," he said. Canadian auto franchise laws differ significantly from those in the U.S., where Ford has already run afoul of dealers over company-owned stores. A Texas court has held that the auto company violates that state's franchise laws if it sets prices for cars. The case came up after Ford began offering off-lease used cars over the Internet there. A spokesman for the National Auto Dealers' Association (NADA) said that news of the Canadian pilot project had taken that industry group by surprise, and that a response would not be available until leadership had been able to research the project. The spokesman said franchise laws prohibiting manufacturer-direct sales were moving forward in several American states, and that this summer would be a "busy season" for such legislation. Arizona laws have stymied Internet-brokered sales in that state; Michigan, home to the world's largest automakers, has just sent proposed franchise-protection legislation to its full State Senate, a key step to eventual lawmaking. Canadian Automobile Dealers Association (CADA) representatives were unavailable for comment, but Liedel said the pilot project was undertaken with full support from all Ford dealers serving the Ottawa/Carleton and Hamilton/Niagara markets. "Many people jump to the conclusion that the dealers will be nervous, but it doesn't take very long to explain to them that we will never be able to UPS you a vehicle. (United Parcel Service is a package freight expediter). We can't have you mail it back to us for service. They (dealers) are a key part of that equation. I don't think it took that long to explain that; it was a very short discussion," Liedel said. Ford has not set a time limit or a vehicle sales limit for the Canadian pilot project. Ochs said the company would give the project: "As long as it takes. We're testing a concept here." Cost-reduction potential drives e-Commerce, says NewCo's Weiss Open standards needed to create "community" Open standards for the supply chain are needed to bring ultimate cost-reduction to the auto industry through electronic commerce, says Peter Weiss, co-CEO of the DaimlerChrysler/Ford/GM exchange still operating under the name of NewCo. Weiss spoke at The University of Michigan's "Moving @ eSpeed" conference held May 3 in Dearborn, Michigan. The conference was organized by U-M's Office for the Study of Automotive Transportation (OSAT) and was co-sponsored by Deloitte Consulting, Deloitte & Touche and IBM. Addressing more than 300 automotive suppliers gathered at the Dearborn Inn, next door to Ford's advanced engineering campus and vehicle centers, the DaimlerChrysler project director for e-Extended Enterprise and co-CEO of NewCo said the electronic exchange would be many things to many people. Suppliers may be a buyer one moment, a seller the next, he said. The NewCo exchange may allow some suppliers to set up their own portal presence running on NewCo's real estate but appearing as a separate, distinct entity to users. The overall aim is to cut transaction costs, improve quality and efficiency and create a community of global trading partners, Weiss said. "There's lots of cost potential out there and everybody is trying to go into this initiative with full force," he said. Weiss cited examples from non-automotive eCommerce, declaring that Boeing was able to reduce its product development cycle time by 50 percent, Cisco Systems reduced annual process costs by $450 million and VISA cut its process time and costs by 50 percent by moving to electronic, B2B systems and processes. He said automakers stand to gain immediately by reducing the cushioning inventory of components, modules and finished vehicles which currently smoothes over data-sharing problems in the supply chain and between manufacturers and dealers. "Driving down the inventory through all the tiers is a significant opportunity for us. You should be easily able to work into 33 percent savings on inventory," Weiss said of business to business electronic commerce. But in order to gain those advantages, the industry needs supply chain open standards: "Standards that we all agree on what do we want to exchange here," Weiss said. Included in those are common standards for the registration process, security model, supplier database, catalog format, load process and maintenance and for web-based documents such as purchase orders, he said. Weiss said the emerging NewCo exchange will support ANX (advanced network exchange, formerly automotive network exchange, secure virtual private Internet access), EDI (electronic data interchange) and XML (extensible markup language). "We are not throwing out things that have not been there before," he said. Computer-aided design and manufacturing (CAD/CAM) interchange will remain independent of the NewCo standardization efforts, Weiss said. "What we are trying to do right now is trying to create a community, to create an exchange, that allows the various tiers with the OEMs to participate collaboratively using their own tools, using their own forms." Weiss presented the NewCo exchange as being in the middle, a creature as much of suppliers as it is of the OEMs who have funded and are creating it. He likened NewCo to being the on and off ramp of a freeway system for eBusiness. "You had the supply chain the historic way, where the customer was driving requirements down the chain, and the chain turned around, and every supplier put their own little chain together," Weiss said of the historic way suppliers have done business within the automotive hierarchy. Now, he said, suppliers should begin to see: "A supplier community where everybody plays a part, trying to work towards one goal, customer-centric and customer fulfillment." Analyst calls auto industry surprisingly strong for eCommerce Experience, profitability may out-compete brash dot-coms, says Caldwell To high-tech companies, the auto industry is something to shudder about. It's slow; it's capital-intensive; it's saddled with a multi-year product development cycle and it (gasp!) owns machinery, bricks and mortar. What a dinosaur! But it's a dinosaur with a future, believes Lisa Caldwell, eBusiness Technology and Framework Leader Principal for Deloitte Consulting. Caldwell thinks new economy companies have a lot to crow about, but haven't taken into account the power, size and scale that old economy leaders like Ford, GM and DaimlerChrysler can throw into the balance when it comes to actually implementing eCommerce and eBusiness. "What I want to propose is that the old economy is actually in the best position to become the new economy," she said in her presentation at the May 3 "Moving @eSpeed" conference held by The University of Michigan's Office for the Study of Automotive Transportation (OSAT). "The size and scale the automotive industry brings to the marketplace gives them some real leverage," Caldwell said. "We are actually in a better position to take advantage of what Wall Street values than some of the new dot-com companies." Among the key advantages, she said, the auto industry has already made its investments in bricks and mortar, and now has the opportunity to improve existing, profitable operations by changing the way it uses its information and management assets. "Most of us tended to be inside-out kind of companies. We were fairly company-centric," she said of old-line automotive companies. But if automakers can use electronic commerce to turn themselves to a customer-centered outlook, the industry has a reach and a relationship which consumers will value highly. And the customer "spend" is only a small portion of the available, emerging e-economy, Caldwell said. She cited Forrester research which pins the automotive business-to-consumer market at about $15 billion in 2003, but estimates automotive business-to-business at $150 billion. And the industry's willingness to try to seize the advantage emerged when the Big Three announced their NewCo initiative in February. "This was a very interesting announcement and really rocked Wall Street. It also surprised a lot of other industries," Caldwell said. She said the one day change in market capitalization of automakers following the NewCo announcement reached almost $30 billion, showing that investors believe in the value eCommerce could bring automakers. But the car companies need to change their cultures as rapidly as they adopt new business methods, grabbing the best examples the dot-com world has to offer, in order to make the most of new circumstances. Among them, car companies need to move to lower-analysis, faster-decision models. "Dot-coms do enough analysis to be directionally correct, make a decision and move. They can adjust if they find it's the wrong direction," Caldwell said. She also noted that the market has rewarded collaborative companies, rather than authoritarian and isolated companies. "Companies in this space don't go it alone, and where we see it going is much more of a value network, a true kieretsu, a community," she said. Caldwell urged automakers to move fundamentally to more flexible, customer-driven "pull" ways of doing business and away from inventory-creating "push" methods in place today. She also warned that automakers and suppliers are already proliferating eBusiness initiatives without truly examining their role in the emerging business -- many of the initiatives in conflict with one another. "Understanding the direction and rationalizing the initiatives and the resources to support that is critical," Caldwell said. Disclaimer - First Conferences and its agents used their best efforts in collecting and preparing the information published herein. However, First Conferences does not assume, and hereby disclaims, any and all liability for any loss or damage caused by errors, whether such errors resulted from negligence, accident, or other causes. To subscribe for the ecommerce Automotive newsletter email: ecommerceautomotive-subscribe-request@peach.ease.lsoft.com To unsubscribe, please send an email to: ecommerceautomotive-signoff-request@peach.ease.lsoft.com with the word "unsubscribe" in the subject line. 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