E-Lectrifying the Auto Industry - Brief Article

Latin Trade, June, 2000 by Mary A. Dempsey

Old economy patriarchs motor into the new economy arena.

At www.fiat.com.br, Internet-linked Brazilians open a computer screen, pick a sleek car model and color--maybe a Marea Turbo in Amazon Green--then hem and haw over options. Reinforced seating? Click. Passenger air bag? Click. Antilock brakes? Click.

Computer wizardry and a few keyboard strokes sculpt their dream machines. More keyboard tapping and they see financing options and calculations, which include both sale and lease prices.

Fiat may look like its found an exceptional e-parking spot with its virtual vehicle website, but the other automakers aren't far behind. As they tout the inevitability of Internet car purchases in Latin America, auto manufacturers predict that, one day, online transactions will spawn real life cars without the inconvenience of ever stepping inside a showroom.

THE REALITY? IT WON'T HAPPEN ANYTIME SOON, AND IT CERTAINLY WON'T delete dealerships. But there are more important digital detours awaiting car and truck makers, especially in the business-to-business realm. The e-world trials and tribulations of motor vehicle companies will almost certainly foreshadow how the online frenzy will affect the region's entire manufacturing sector.

"The Internet will totally change the way that we as a company have worked," says John Ochs, a Ford spokesman specializing in electronic commerce. "Using this technology, we'll build cars faster and get them to the customers faster."

The auto companies and other Latin America-based manufacturers, which account for 17% of the Gross Domestic Product in Brazil, 19.2% in Mexico and 12% in Argentina, are fostering e-business on two tiers. The top tier sees entrenched companies embracing the digital world as an opportunity to optimize procurement and production. At the second level, they're turning to the Internet to court consumers. The biggest advances have been--and will continue to be--made at the first tier.

The automobile industry is depending on the web to streamline business-to-business operations. In March, General Motors, Ford and DaimlerChrysler unveiled a joint Internet venture to handle more than US$240 billion a year in raw material, parts and supply purchases. GM's Japanese partners, Isuzu, Subaru and Suzuki, as well as Ford's Japana, are expected to climb aboard the global network. Any qualified supplier willing to pay a user fee can also tap into the system.

In revenue terms, the initiative could result in the world's largest Internet company.

Under the plan, automakers post their parts and supply orders on the Internet site. Suppliers around the globe world respond with bids. And suppliers of the suppliers react to grab their share of the action, too.

"Let's say Ford needs 10,000 doorknobs' Ochs explains. "We throw it up on the Internet today. Maybe a big supplier based in Latin America builds those doorknobs. Immediately, he throws up an order on the site to his next-tier supplier."

Multinational auto supplier Delphi has been weaving electronic business into its systems for some time, formalizing the process with the January unveiling of an in-house Office of E-commerce. "We see the Internet as changing fundamentally the way the auto industry operates," says Delphi spokesman Peter Rowe.

He notes that web-enabled engineering lets Delphi move blueprints and drawings from its tech center in Ciudad Juarez, Mexico, to its facility in Rio de Janeiro, Brazil, and then on to Asia The process goes on 24 hours a day, seven days a week.

"It keeps the product development moving smoothly," he says. "In the old days, you used to have to print out the drawings and ship the documents from one place to another."

Delphi not only uses e-business to monitor the needs of the automakers, but it satisfies its own needs online. "We've done a number of electronic auctions where suppliers all over the world have been able to participate in real time," Rowe says, explaining that where a traditional industry auction might have taken weeks, its electronic version takes only hours. Prequalified suppliers sign on to the auction site at a specified hour and the bidding begins.

For the manufacturing sector, the technology is the easy part of the scenario. The difficult part is installation of appropriate business processes. "You can have all the portals in the world but if you don't have the systems to provide the service, they're useless," Rowe says.

The automakers have been lobbying for technological integration along their supplier chains for years; General Motors in November launched its GM Trade-X-Change offering a virtual marketplace for instantaneous supplier transactions. On the supplier side, the multinationals have been riding the same wave, working with their suppliers via Internet sites and digital procurement systems. For the biggest players, the e-commerce push simply takes the system to a higher, faster, more sophisticated level.

In recognition of the importance of e-business, suppliers are shifting their corporate organization to add e-commerce divisions, much as Delphi did. U.S.-based TRW an auto-industry supplier with a strong presence in Latin America--especially the Mexican market--recently created a vice-presidency of electronic business. Although TRW also works in the aerospace and information systems markets, the new post was designed to focus on the automotive industry.