Ford, GM Almost Ready To Shut Own Exchanges

Both will shift transactions to Covisint

General Motors Corp. and Ford Motor Co. are set to pull the plug on TradeXchange and AutoXchange, their respective online procurement marketplaces, in favor of Covisint, the massive automotive marketplace they founded with DaimlerChrysler AG.

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Automakers Plan Parts Portal

The Big Three automakers are at it again, teaming up this time on a business-to-business parts portal.

GM, Ford and DaimlerChrysler last week announced the joint venture. Skokie, Ill.-based Bell & Howell Co. will build the unnamed Web site.

The automakers said the repair parts portal will initially launch in the U.S. and Canada and allow dealers to sell manufacturers' repair parts to collision shops and others. Each of the four companies has a 25% equity stake in the new venture, which is slated to open early next year.

Like Covisint, the other B2B venture launched by the Big Three in February, this one is aimed at reducing supply-chain costs, streamlining transaction times and improving the flow of information.

Kevin Prouty, an analyst at AMR Research, said the portal looks like a step in the right direction for auto dealers. "This is really a shot at trying to make the dealers happier in how they work with the automakers," he said, adding that there are few dealers that work exclusively with one automaker.

The portal will compete with already-launched online parts exchanges, such as Tokyo-based Toyota Motor Corp.'s I-Star and Dayton, Ohio-based start-up ChoiceParts LLC's site. It also isn't likely to gain easy acceptance among dealers, Prouty said, predicting that the automakers will have to "convince dealers to use it."

The portal will use CollisionLink, an online system developed by Bell & Howell, to provide cost estimates on parts and to process orders.
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The shutdowns are no surprise, but they signal to suppliers that the automakers won't return to their partisan online turf, analysts said Covisint faces a long, rough road ahead.

It's important that the automakers show continued commitment to Covisint because "nobody believes that it's off the ground yet," said Laurie Orlov, an analyst at Forrester Research Inc. in Cambridge, Mass. "Among suppliers, it's not looming as having short-term importance."

If Southfield, Mich.-based Covisint gains wide support, it could handle billions of dollars annually in a wide range of procurements, from office supplies to core materials. The exchange began taking basic orders in October, but it still has some arduous technology tasks to tackle, such as getting suppliers and systems connected online.

"The biggest challenge now is getting the legacy and back-office systems of the supply base connected to it," said Harold Kutner, group vice president of worldwide purchasing at GM, in Detroit. "The worst thing we could do is have a product out there that frustrates the supplier community."

And that type of integration work doesn't come cheap. Covisint's founders have anted up more than $200 million thus far.

Kevin Prouty, an analyst at AMR Research Inc. in Boston, estimated that it will cost an additional $150 million to $200 million before the start-up turns a profit. "Any e-business endeavor has the potential to be a learning mistake or a market changer," he said. "Covisint is not a short-term return. If the automakers cut discretionary spending, will they have the heart to keep Covisint running past next year?"

GM and Dearborn, Mich.-based Ford have already incurred the costs of developing and operating their own exchanges, which became lame ducks after the Big Three announced Covisint last February. DaimlerChrysler didn't have an independent exchange in operation.

Susan DeSandre, a former vice president at AutoXchange and now on loan to Covisint as vice president of operations, said Ford is migrating its customers off of AutoXchange.

Ford plans to have its operations shut down by mid-January; GM plans to shutter its exchange by year's end.

The shutdowns would have come sooner, but antitrust investigations in the U.S. and Germany meant that for seven months, Covisint was unable to incorporate, conduct transactions or hire a CEO. Those probes also ate up additional funding.

Kutner said Covisint will legally incorporate, officially start hiring its staff, now on loan from its founders, and name a CEO by year's end.

"It was expensive," said Kutner. "We spent a lot of money with this FTC thing and had all these people on the payroll developing product, and we couldn't do anything."

With their private exchanges now defunct, GM and Ford must demonstrate to suppliers that there's only one road ahead.

"There was not that much going through the independent exchanges," said Carl Lenz, an analyst at Gartner Group Inc. "But now, the suppliers are assured that they will only have to deal with one exchange."

Copyright © 2000 IDG Communications, Inc.

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