Ford (NYSE:F) and General Motors (NYSE:GM), two of the big three U.S. automakers, have announced separate but similar initiatives to broaden the supply side of their businesses by establishing links with their suppliers over the Internet.
Ford will enter a joint venture with Oracle Corporation, the database software maker, creating a link between the number two U.S. automaker and 30,000 suppliers. General Motors’ system, which is similar to Ford’s, will conduct much of the company’s $85 to $95 billion (US$) purchasing on the Internet.
Ford’s deal with Oracle calls for the creation of a new business, AutoXchange, which will facilitate the $80 billion in business Ford conducts with its suppliers and the $300 billion in purchases it creates. The two companies will own AutoXchange jointly, with Ford as the majority partner.
AutoXchange will become operational in the first quarter of next year.
Presumably, all parties involved in these ventures will benefit by the power of increased e-commerce. Oracle, poised to become an industry giant, will provide the software, implementation and support, as well as host and manage AutoXchange.
The deal is similar to another supplier network that Oracle established in July, serving more than 250 companies. However, this deal, according to Oracle chief operating officer Ray Lane, has the potential to generate more than $1 billion in sales for Oracle.
According to Lane, that eventuality may result in the company being taken public. “This is a very, very good fit between Ford and Oracle because we both have major brand awareness,” he said. “We both have procurement leadership.”
For its part, Ford expects the new deal to facilitate significant reductions in its purchasing costs, increase its operating efficiency and allow it to get its cars and trucks to consumers faster. Ford chief executive Jac Nasser said that it is realistic to expect that, in time, the savings could reach billions of dollars.
“It will help Ford reduce costs,” said Richard Hilgert, an analyst with Fahnestock & Co. “You’ll see the company better able to manage its inventory and supply chain. It’ll give Ford a competitive advantage if they can pull it off.” The deal comes on the heels of Ford’s September joint venture with Microsoft Corp. that allows consumers to choose and locate the vehicle of their choice at the MSN Carpoint Web site. Ford appears to be making efforts to make its business more consumer-oriented and faster in bringing cars to the market.
As for GM, the new announcement comes shortly after it disclosed its intention to sell used cars on the Internet by establishing its first buying center in Houston, Texas.
Driving Into Next Century
In a separate announcement yesterday, GM said that it will begin providing drivers the ability to check e-mail, monitor the weather and keep tabs on the latest news without ever leaving their car.
President Rick Wagoner proclaimed that GM’s new OnStar Internet service “will help redefine what personal transportation is all about in the next millennium.” Noting that Americans spend more than 500 million hours per week in their vehicles, Wagoner said that GM’s new Internet-access cars are designed to make that time more fun and more productive. “There aren’t many toys more compelling to smart kids today than the Internet,” he argued.
GM warned of its plans for an Internet car back in August, when it launched its new e-GM division to tackle the Internet’s myriad marketing possibilities and build “a base of experience, knowledge and expertise in the field of information technology,” Wagoner said. The service is slated to hit the market first in some Cadillac models next year.
The OnStar service has already been in operation in some GM cars, primarily as an emergency alert service. Users must sign up for a service contract to activate the service.
With the addition of Internet access, Wagoner predicts that the number of OnStar subscribers will grow to more than 1 million within the next 18 months.