A New Way to Do Business

The contracts have been signed. The press conferences have been held. The auto industry is taking a great leap forward into the electronic age.

If the first century of the automobile was devoted to selling the concept of affordable personal transportation, the next century begins with an eagerness to rethink the enormously complex process of manufacturing and selling these highly engineered machines.

The auto industry is famous for its stodgy, plodding approach to change, but now it appears that automakers and suppliers alike are willing to abandon conventional wisdom in favor of a better way, much like they did in embracing lean manufacturing in the 1980s and early '90s. "Thinking outside the box" already is the hackneyed catchphrase of 21st century industry.

So it should come as no great surprise that the world's two largest automakers announce their forays into electronic commerce, that lightning-fast method of buying and selling goods that has sprung forth with the age of the Internet.

In our new interconnected "global village," it's possible to buy anything, anywhere, anytime, often with the customer playing a greater role in determining price. Why should buying a car or selling car parts be any different?

On the same day in early November, General Motors Corp. and Ford Motor Co. announce their respective software partners - Commerce One and Oracle Corp., respectively - to assist in the e-commerce plunge.

Ford and Oracle create AutoXchange, an online network to coordinate $80 billion in annual purchases from more than 30,000 suppliers. Oracle will provide the software and manage the AutoXchange.

GM and Commerce One will launch GM MarketSite, a "virtual marketplace" for business-to-business interaction that follows the company's retail-oriented e-GM unit created in August. It will operate in conjunction with GM SupplyPower, a new Internet portal for GM's 30,000 suppliers.

GM MarketSite participants will be able to conduct business through an on-line catalog, a bid-quote process, or an on-line auction. GM says it considers MarketSite a portal for e-commerce, and that suppliers should both buy and sell goods through the site. The company says it will not dictate prices or buy and resell products through GM MarketSite, and that participation will be purely optional.

The networks are supposed to slash purchasing costs, automate purchasing, improve efficiency, reduce inventory for suppliers and dealers and, eventually, extend to warranty and design collaboration. Both networks are expected to be operational in the first quarter of 2000.

Not that electronic communication was foreign to either automaker. Each had embraced the digital age with computer-aided design and engineering and had launched a host of Internet sites for car buyers (featuring mostly product information) or private networks for its manufacturing facilities and suppliers.

But the systems were largely disconnected. Now GM and Ford are attempting to unite them all under a single electronic umbrella that allows everyone to talk to each other.

What this represents is truly revolutionary: A continuous link that extends from the car buyer to the automaker, to the producer of the car seats, to the supplier of the leather for the seats, to the supplier of the chemicals to treat the leather, perhaps even to the farmer who raises the cattle.

In concept, a consumer would order a vehicle with certain features, and those specifications would instantly filter out through GM, its manufacturing plants and its suppliers to meet those requests quickly and efficiently. The goal: delivery of a custom-ordered vehicle in five to 10 days, rather than the weeks or months that it takes today.

Surely it is a tall order to fill, but a necessary one for automakers to remain relevant in the dot-com age of instant consumer gratification.

The move into e-commerce is fraught with danger, as evidenced by recent reports that Hershey Foods Corp. had so many problems with its new computer system that it struggled to fill orders, with Halloween just around the corner, impacting earnings. In the auto industry, the logistical challenges, especially with just-in-time assembly, will be enormous.

Cynics may question whether Ford and GM can successfully convert their massive operations to e-commerce. Joan Harbin, however, is not one of them.

"I was on the Ford Web site a few days ago and configured an Explorer I'm interested in," Ms. Harbin says. "I was impressed. They had brought in some expertise, no doubt. They're trying to get me to buy a car, and their system had a wonderful configure feature. It was a pleasant place to decide whether to buy. The retail cost was listed, and it was updated instantly. If I added a moon roof, the price went up $395."

Ms. Harbin is the kind of person automakers need to influence through Internet retailing. She is vice president of NetVendor Systems Inc. of Atlanta, GA, an e-commerce company that has targeted automotive with a number of portals to link suppliers with customers and to help suppliers liquidate surplus inventory.

While she sees automakers taking some bold steps regarding e-commerce, she also raises some good questions: Are they able to attract the bright minds from Silicon Valley necessary to make the whole thing work? Will automakers cannibalize their own dealers by marketing directly to consumers? Do they have the entrepreneurial spirit?

"That can be difficult for large companies," Ms. Harbin says. "It's a land grab right now, and you have to be entrepreneurial to pull it off. It depends on who you attract to your company and how out-of-the-box your thinking is. "

Mark Hogan, who heads e-GM, said recently that e-GM is having no problem attracting top-notch people, and that GM's hiring from the Harvard business school this year will triple or quadruple.

But it's not just Ford and GM playing the e-commerce game.

DaimlerChrysler AG will use Exchange Applications Inc.'s Valex software to build personalized customer communication links. The first trial is the Chrysler PT Cruiser, which launches in spring.

Toyota Motor Sales Inc. expands into e-commerce with plans to sell auto service and repair manuals, and other products later, on the Internet. Toyota has retained Modem Media.Poppe Tyson of San Francisco through the year 2000 to redesign its online purchasing and communications.

"E-commerce is simply the wave of the future, and it's going to take hold so quickly that we'll look back in a few years and marvel at how far it's gone," says Gary Quick, a Ford executive on loan to the Automotive Industry Action Group. "Every trend line that talks about e-commerce shoots straight up."

Mr. Quick is helping the AIAG roll out its Automotive Network eXchange, a private Internet for suppliers and automakers to transmit product information and conduct business quickly, at low cost and in a secure environment.

After a year in production, the ANX has 250 trading partners and another 180 going through the registration process.

While some observers may see Ford and GM's initiatives threatening the ANX, Mr. Quick says the ANX would remain the primary communications channel through which Ford and GM's systems would operate. At Ford's press conference, executives made it clear that AutoXchange would "take full advantage" of the ANX.

Purchasing executives for GM, Ford and DaimlerChrysler also issued a letter in August encouraging suppliers to link into the ANX.

The GM and Ford initiatives mean the potential for more than 30,000 trading partners joining the ANX, assuming that most of the suppliers work for both Ford and GM. Such an influx would not be a problem, as the telecommunication companies running ANX have plenty of capacity, Mr. Quick says.

Some have complained that linking into the ANX is expensive because it has required a dedicated phone line for 24-hour access - at a cost of more than $1,500. In response, the AIAG in early 2000 is introducing a dial-up service that will be offered for suppliers who need limited access and low bandwidth. Any company registered with a laptop and a modem would have access.

"With dial-up service, we think ambitiously we could have between 3,000 and 4,000 subscribers by the end of 2000," Mr. Quick says.

Helping the cause is the fact that Toyota and Nissan Motor Co. Ltd. in North America are now registered for the ANX, and discussions are ongoing about the possibility of extending the ANX to Europe, Japan, Korea and Australia.

At GM, the future of e-commerce could be profound. It costs the company about $100 every time it issues a purchase order and about the same to fulfill one. GM issues hundreds of thousands of them every year.

"If you can do all this on-line and not pass paper around, you can radically reduce cost, make it faster. That's the kind of value we're talking about adding," says G. Richard Wagoner Jr., GM president and chief operating officer.

"I think for a certain category of buyers, a vast array of Internet services will be a key factor in deciding on purchase," he says. "I think this stuff (e-commerce) moves slower than you expect over the next two years and faster than you expect over the next 10 years. Eventually the thing catches and goes."