How Low Can You Go?

Online reverse auctions are supposed to drive greater efficiency; instead, they're causing a sense of dread. Some auto suppliers refuse to participate in electronic sales because they think they're unfair, says Neil DeKoker, managing director of the Original Equipment Suppliers Assn. (OESA).

At question is whether reverse auctions are being held primarily as a tool to drive down price for incumbent suppliers. The answer appears to be yes, according to OESA.

DeKoker says his group surveyed 70 suppliers in late January and found they had been involved in 400 reverse auctions as sellers during the previous year.

Of that number, only 60 — 15% — resulted in contracts awarded to any of the participants, which DeKoker finds alarming. “If a quote is being given for new business, it traditionally results in business for someone,” he says. “A job is either re-sourced, or new business is awarded.”

OESA's research shows this isn't happening. Instead, DeKoker says the buyers conducting the auctions — generally auto makers — are merely market testing to see how low a price can go. “It deteriorates (profit) margins and it creates distrust in e-business,” DeKoker says.

He wants a code of conduct that says reverse auctions would only be used if a company plans to resource existing business or source new business. Plus, the buyer must announce the auction results so there is closure for the participants.

Covisint LLC spokesman Dan Jankowski says the auto industry's private exchange already has 10 pages of rules governing the reverse auctions it manages. He says auctions conducted by Covisint are resulting in contracts. He doubts an auto maker would go to the expense of conducting an auction just to test for price. “In this economy, people don't have the ability to just burn through dollars,” Jankowski says.