Electronic Business - how the Internet is affecting the automotive industry

Automotive Industries, July, 2000

Few industries have more to gain from the aggressive and innovative use of electronic business capabilities. According to findings by Goldman Sachs Investment Research, online direct sales alone could save an average of $800 dollars per car for a U.S. retailer and an additional $250 per vehicle for a U.S. manufacturer. And that's just the tip of the e-Iceberg: Additional savings resulting from streamlined procurement, improved supply chain integration, accelerated design processes, and improved build-to-order capabilities bring the total estimated per-vehicle savings to $3,650 per vehicle(1).

Given this awesome potential -- combined with the mandates for supplier e-Capabilities that are emerging from several leading assemblers -- it is not surprising that 62 percent of respondents believe their business has changed due to increased involvement with the Internet, and that 59 percent expect additional change in the near future. However, it is surprising that only 54 percent of this year's respondents have developed an e-Business strategy (Figure 5.1).

[Figures 5.1 ILLUSTRATION OMITTED]

To some degree, respondents may feel that the e-Business capabilities they use most are not fundamentally strategic. In other words, they might not believe that heavy use of electronic communications to manage financial relationships and procure raw materials warrants a formal strategy. However, as shown in Figure 5.2, variations in activity levels (current and planned) are actually quite small, indicating that respondents are involved in a wide variety of e-Business activities, but without the entitywide focus that might be abetted by the presence of a strategic plan.

[Figure 5.2 ILLUSTRATION OMITTED]

It should be noted, however, that larger companies -- i.e., those with the most complicated and elaborate e-Business operations -- are far more likely to have developed an e-Business strategy. Among companies with revenues exceeding $1B, 68 percent have an e-Business strategic plan. Among smaller companies (revenues below $1B), those with strategic plans number less than half. Given their greater complexity, lower flexibility, and more bifurcated departmental requirements, it follows that formal strategies should be more prevalent in larger companies.

Also significant is the high percentage of e-Business strategic plans among systems suppliers (70 percent have a plan) and vehicle assemblers (65 percent have a plan). At the low end, only 43 percent of parts suppliers have developed a strategic plan.

Web and Flow

Nearly 25 percent of respondents (almost exclusively companies with revenues of less than $500M) do not have a site on the World Wide Web. But even among those that do, nearly 80 percent indicate that the site's predominant function is to inform, i.e., to post one-way static information for accessing and viewing (Figure 5.3). Another 15 percent have added the ability to interact, i.e., enabling two or more parties to exchange information or collaborate. The small remainder is accorded to the 7 percent that transact (electronically execute orders and payments for goods and services) and/or deliver (transfer information-based goods and services to customers directly over the Internet).

[Figure 5.3 ILLUSTRATION OMITTED]

Low levels of e-Sophistication have much to do with the complexity of modifying current legacy environments to interact via the Web. Currently, many smaller companies are waiting for application vendors to deliver promised interfaces, even as many of the larger ones move into "transact" and "deliver" capabilities. Smaller companies also are more likely to be waiting for the "dust to settle," since their size stiffens the penalties associated with a misfocused investment. The logical conclusion is that size does matter: Companies with revenues of less than $500M were less than half as likely to have "transact" and "deliver" capabilities as those with revenues exceeding $500M. Across the different segments, aftermarket suppliers, distributors, and assemblers were roughly four times as likely to have "transact" and "deliver" capabilities as all other categories combined (15 percent vs. 4 percent). In the near future, however, look for more sophisticated capabilities among all supplier types -- particularly Tier 2 and 3 companies that figure out how to leverage the Net's "ready to use" infrastructure to surmount economy-of-scale barriers.

It should be noted that positioning Web sites solely as consumer-information forums is not synonymous with low levels of e-Sophistication. Generally, the big players in the industry don't seek information about each other from Web sites; and their inter-organizational transactions often run smoothly using special applications on extranets (ENX/ANX). Conversely, systems companies and assemblers often benefit from their Net-enabled -- inform-level -- ability to review supplier and subcontractor capabilities and assess requirements. Similarly, rudimentary e-Procurement -- e.g., of MRO items -- requires little more than basic inform capabilities and e-Mail.