Big Three Automakers Form Joint Internet Venture

Big Three auto manufacturers General Motors Corp., Ford Motor Co. and DaimlerChrysler stunned the automotive and e-commerce worlds Friday by agreeing to form a single online business-to-business (B2B) trading network.

The companies said that the as yet unnamed trading network will be a separate company, have a new URL, and may be accompanied by an IPO.

GM and Ford, which have approximately $87 and $80 billion (US$) in yearly supply purchases respectively, launched separate online supply operations within weeks of one another last year. DaimlerChrysler, which also reports $80 billion in annual supply expenditures, had not yet announced its own online procurement network prior to Friday’s announcement.

“As we continued to build our separate exchange sites, we quickly realized traditional, individual stand-alone models weren’t the winning strategy for us, our industry, our suppliers and, ultimately, our customers,” GM President G. Richard Wagoner, Jr. said in a statement.

“We’ve historically been competitors,” said Brian Kelley, vice president of Ford’s e-commerce operations. “And we’ll still be competitors, but we’ll create an independent company that can go off and help our suppliers, our dealers, our customers and each of us.”

Monumental Day

As part of the agreement, Ford will swap half of its stake in Oracle Corp. for half of GM’s stake in Commerce One, Inc., GM’s technology partner in its TradeXchange. The combined exchange will use Commerce One’s electronic procurement software and database technology from Oracle.

The new venture will be offered to all auto manufacturers worldwide that want to participate. Once the marketplace is fully operational, the firms may open it to companies from industries other than automobile manufacturers.

“This is really a monumental day,” said Harold Kutner, group vice president in charge of GM’s worldwide purchasing. “We’re going to create the world’s biggest, fastest, largest exchange for transacting business that the Internet or probably other businesses have ever seen.”

The new venture will be equally owned by the Big Three automakers. Additionally, DaimlerChrysler will most likely bring its own technology partner into the mix in the foreseeable future.

The new exchange will link more than 30,000 suppliers, representing hundreds of thousands of online transactions annually.

The new online supply exchange is expected to be operational within 30 days, once the formal agreement is signed by all three parties.

Redefining How Industry Competes

The new alliance among the fiercely competitive automakers may be a sign that the Internet will fundamentally change the landscape of industrial competition in the United States. Until now, the companies were not only fully separate entities, but also fully private about their business with suppliers.

Friday’s announcement is yet another signal that even traditional, conservative brick-and-mortar companies have begun to see the distinct advantages of considering the new business models that the Internet has spawned. Unlikely partnerships and unprecedented cooperative ventures are not as unheard of online as they are elsewhere.

How Will Wall Street and the Feds React?

Both GM and Ford had previously looked to their online supply operations as a vehicle to attract more attention from Wall Street. The idea that the new company may have an IPO may be even more attractive to Wall Street.

The big question is how the U.S. government will view the joint venture. Will the Feds take kindly to an alliance of this magnitude in one of the most powerful industries in the United States?

Right now, it is anybody’s guess, but before everyone signs on the dotted line, the deal is likely to come under intense scrutiny from the appropriate arms of the government.

2 Comments

  • The name chosen for the new enterprise is

    COVISIENT, I think. Since the web site will be

    for procurement purposes, by the auto makers, I

    believe better name for the site could be:

    buytogether. It will be easier to locate by the

    suppliers, SMEs and general public.

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