Old and New Economies clash in auto industry marketplace
By Rachel Konrad
Staff Writer, CNET News.com
November 15, 2000, 4:00 a.m. PT
DETROIT--From the moment it came off the drawing board, automobile executives seized on the idea.
This is one estimate of how automakers might distribute the costs of producing a typical $25,000 vehicle. Covisint is expected to cut the total cost per car by at least 10 percent.
* Includes dealer profit, white-collar wages, purchase of non-automotive parts and services such as printer paper and janitorial services, all national, state and local taxes and operating profit.
Source: Automotive Consulting Group
Tired of being ridiculed as corporate Luddites at the dawn of the digital
era, leaders of the U.S. auto industry saw an opportunity to harness the
power of the Internet and create an online company that Wall Street would value as a technology player. In one bold stroke, the creation of a massive
online business exchange would let the Big Three automakers--General
Motors, Ford Motor and DaimlerChrysler--catch up with the rest of the world.
The system that has become known as Covisint--standing for Cooperation,
Vision and Integration--could do better than even the score: Founders
envisioned it as an Internet leader, a gigantic eBay-like bidding and
purchasing system for every business that sells products to the sprawling car industry, from paper to petroleum.
Or so they thought. Covisint has taken on the characteristics of a curse
ever since it was created, having experienced nearly every kind of problem
imaginable. Widely viewed as the ultimate test of all business-to-business
exchanges because of the automobile market's size and complexity, the
experiment is providing both inspiration and a harsh view of reality for
the many other industries venturing into online marketplaces.
Challenges: Detroit reinvents the wheel
At first, it made perfect sense: a central bazaar that simplified
transactions for thousands of companies. But barely a few weeks after it
was created, Covisint became mired in internecine politics, foreign
opposition, federal scrutiny and sniping from within its own ranks.
Technology: Wiring a brick-and-mortar world
Few argue that an online exchange to streamline transactions is an unworthy
goal. In a business that has been historically slow to accept change,
however, a venture as complicated as Covisint may be as adoptable as
electricity in the Stone Age.
Culture: Fear of the unknown may be the worst
Dealing with threats is a way of life in the U.S. auto industry, from angry
work forces to international competition or cross-town rivals--and technology is no different. Overcoming this bunker mentality may be one of Covisint's biggest challenges.
Go to: Challenges: Detroit reinvents the wheel
AutoXchange: Ford Motor's online exchange, managed by Oracle, will
be folded into Covisint.
TradeXchange: General Motors' online exchange, managed by Commerce
One, will be folded into Covisint.
Business-to-business (B2B) e-commerce: Electronic purchasing and
selling takes place between different companies typically through email or
Collaborative sensing: Software is being developed at Sun
Microsystems, Xerox and other technology companies that allows "smart"
machines to collect and analyze data to predict, for example, when your car
should be tuned.
Covisint: The automotive marketplace founded by GM, Ford,
DaimlerChrysler, Oracle and Commerce One. The name stands for Cooperation,
Vision and Integration.
Forward auction: This process enables a company to sell unwanted or
overstocked merchandise. The company lists the item and suggests a starting
prospective buyers increase their bids. The highest bidder generally gets
Reverse auction: The process lets an equipment manufacturer or large
supplier solicit bids from competing suppliers online. Bidders lower their
prices to win contracts.
Horizontal industry: This consists of a group of businesses that
caters to a broad number of customers in a variety of industries. The horizontal B2B
industry may include Oracle, Ford, chemical conglomerates, rubber
producers, hanging-file-folder makers and others who use B2B technology.
Vertical industry: This diversified group of businesses produces
goods and services toward the same end. The vertical B2B industry may
include Oracle, Commerce One, Ariba, VerticalNet and other companies that
help build and maintain online marketplaces.