WSJ(4/17): E-Commerce Report: Industry By Industry: Getting Into Gear: Car
Companies Have Big Plans For E-commerce
By Joseph B. White
The auto giants General Motors Corp., Ford Motor Co. and DaimlerChrysler AG
put e-commerce on the map last year. Now, they face the real challenge:
getting their ambitious Internet plans off the drawing board and onto the
road.
What these Old Economy titans can or can't do with the Internet during the
next several years will be a critical test for the New Economy. Probably
nothing this side of a moon walk will be more complex than bringing to
reality the vision auto makers and their e-commerce partners have outlined
for wiring car factories and dealers. The three archrivals, and other auto
makers likely to join a new online-purchasing exchange, have proposed
building a technology infrastructure within their factories capable of
handling at least half a trillion dollars in purchasing a year. And then
they likely will have to create an equally robust network to link dealers
and consumers to those wired facilities.
The end result in this vision: A consumer will order a car online, and the
network will broadcast the order to the factory and to all the suppliers
whose parts are required to assemble the car.
The obstacles to all this aren't just technical. Auto makers are talking a
lot about transforming their businesses to become more like Dell Computer
Co., which allows customers to order online computers on spec and receive
their customized PC a few days later from a factory that uses the Internet
to relay parts orders to suppliers.
But the auto industry today is a long way from this "build-to-order" ideal.
For all the talk of saving billions by using the Internet to get customers
special-ordered vehicles within a few days, many new-car dealers still say
the best way to sell is to have two months' worth of vehicles sitting on
asphalt, waiting for shoppers to buy on the spot. Car makers still get paid
for shipping vehicles to dealers, whether they get sold quickly or not. And
the Big Three have guaranteed their factory workers against layoffs in a
series of labor contracts, including four-year agreements reached last fall.
That means there's strong incentive to keep making even slow-selling models
rather than pay employees for doing nothing.
Cultural Change
Even a fake build-to-order system, which would allow consumers to browse
vehicles stashed at some central parking lot for one that matches their
needs, will require substantial new investments in technology and hardware.
Then it will take even more substantial investments in cultural
transformation to overcome the objections many in the current
auto-manufacturing and retailing system have to opening their businesses to
the free-wheeling ways of the Net.
Which is why Mark Hoffman, chairman of Commerce One Inc., an e-commerce
company, says that now comes the "heavy lifting" in the effort his company
has undertaken to get the auto industry's wired future off the ground.
Commerce One is one of the main players constructing the auto makers' online
supplier marketplace.
When auto executives look at their business in light of the Net, they see
what goes on between the factory and suppliers as one world, and what goes
on between consumers, dealers and the factory as another. At the center is
the auto makers' holy grail: bridging those two worlds so a customer can
order a vehicle customized to his or her taste and have it delivered within
a few days.
Today's buying experience is very different, though. Sure, you can walk into
any Chevrolet dealer and ask to order a black Chevy Suburban with white
leather seats. But that doesn't mean the dealer can get it for you anytime
soon from GM's factories, or easily find one at another dealer.
That's because GM has a strict allocation system, especially for hot models
like the Suburban. If your neighborhood dealer doesn't have a Suburban
coming under that system, he can't place your order in GM's current ordering
system, known to dealers by the unfortunate acronym VOMS, for Vehicle Order
Management System.
VOMS, which GM got up and running only last year amid considerable glitches,
isn't an Internet ordering system. Instead, the system tells dealers what
vehicles GM's central planning department intends to ship them, based on
GM's production schedules and analysis of historic sales trends. The system
won't accept special orders from dealers who haven't sold the vehicles
sitting on their lots. So if a dealer has 20 Suburbans, but not one in the
color a customer wants, that's too bad.
`A Real Challenge'
GM executives are working to change that, as are their rivals at other
companies. But it isn't as simple as just letting any dealer order any
vehicle anytime. "Our commitment is to work toward order to delivery," says
Mike Jackson, executive director of sales support for GM's North American
sales and marketing operations. "It's a real challenge right now. It's
literally a work in progress."
Many longtime GM dealers with a big investment in brick-and-mortar
operations are opposed to altering the company's allocation system in ways
that might allow upstart dealers to use the Internet to order more
hot-selling vehicles in addition to the ones on their storefront lots. The
dealers' main concern is that a rival in another franchise territory will
use the Internet to lure customers from their territories.
In other industries, using the Internet to reduce or bypass heavy capital
investments is the whole allure of e-commerce. But auto makers such as GM
are reluctant to change their current systems and hurt current
brick-and-mortar dealers. At GM, the policy is to give dealers "the
capability to support customers after the purchase," says spokesman Terry
Sullivan.
Step back a few more paces from the ordering process and a diagram of the
existing new-vehicle retailing system looks like a plate of spaghetti and
meatballs, with myriad incompatible and closed communications systems
linking dealers to factories, dot-com car brokers to dealers, consumers to
lenders, and so on.
The retail side of the new-vehicle business "is still a mess," says Lloyd
"Buzz" Waterhouse, president and chief operating officer of Reynolds &
Reynolds Inc., a longtime supplier of data systems to car dealers. "It's not
unusual for a chain of four stores to have as many as 15 communications
interfaces."
Online car-selling executives like Mark Lorimer, chief executive of
Autobytel.com Inc. in Irvine, Calif., says that it costs about $1,270 to
sell the average car, and that his online shopping system could slash that
to as little as $150 to $300 a car by eliminating salespeople and
advertising. But others in the industry argue that such estimates are far
too rosy.
Mr. Waterhouse, who recently moved to Reynolds from International Business
Machines Corp., is rapidly remaking Reynolds into a provider of Web-commerce
technology. The Dayton, Ohio, company is in discussions with auto makers
about how it could help set up an Internet-based network linking dealers,
manufacturers and other players in the world of auto retailing.
The Bottom Line
Mr. Waterhouse contends that by replacing the hodgepodge of closed data
systems with an open, Internet-enabled pipeline, the industry could save as
much as $40 billion upfront in reduced inventory costs, order-processing
costs and the like. An additional $12 billion a year in continuing operating
savings could be realized by slashing inventories of unsold vehicles,
reducing stockpiles of spare parts and replacing paper shuffling with
electronic documents. To make his case, Mr. Waterhouse points to a diagram
of the current system showing the tangle of lines between dealers, car
auction houses, banks, insurers, dot-com brokers and, lest we forget, the
Department of Motor Vehicles.
"The system needs to be opened up," he says.
When it comes to auto suppliers, the issues are equally complex. For one
thing, many auto-supply-company executives are skeptical that the auto
makers will reap the huge savings they have projected by merging their parts
purchasing online into a single megamarket.
The companies have told suppliers that joining the exchange will save them
money, let them buy everything from staples to stamping presses
electronically and, most important, give them an insider's view of auto
makers' product plans so they can rejigger their own supply chains to match.
A major feature of the proposed supplier exchange is online auctions. GM and
Ford already have run pilot auctions, taking bids over the Internet from
suppliers competing to sell tires and used factory machinery, among other
things.
Auto makers haven't put out firm figures on how much they will save by
putting their suppliers online, although they clearly hope to save billions
each year. Auto-industry executives and analysts have said that if the
industry could use build-to-order and real-time communications with
suppliers to cut inventories of vehicles and parts in half, the savings in
freed-up working capital could be huge -- as much as $20 billion at GM
alone.
But many executives at automotive suppliers say that while the Internet
megamart may be good for purchasing "commodities" like steel or chemicals or
toilet paper for the factory restrooms, components like axles or seats or
dashboards can't be ordered like paper clips.
(END) DOW JONES NEWS 04-17-00
12:21 AM
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