Perspectives: The Big Three Online Adventure

The Big Three recently announced that it intended to create a joint online trade exchange.

The Big Three recently announced that it intended to create a joint online trade exchange. This has been in the works for quite some time, and I have been trying to keep up on it. However, much of what I have read has confused me, left me with unanswered questions and left me wondering just where everyone (suppliers, consumers, dealers) related to the automotive industry will end up when it all "shakes out."

According the latest article I read, "Trade Exchanges: Instruments of Destruction or Powerful Profit Tools?" by Lance Ealey, Senior Automotive Expert with McKinsey and Company, a leading management consulting company, this online trade exchange would include "everything from catalog sales to online reverse auctions."

The Big Three and their preferred (exactly who is this?) suppliers believe the online venture will reduce part costs 20% or more, accelerate order processing and enable OEMs to build custom order cars in three to 10 days.

According to Mr. Ealey, access to this data will be critical for suppliers of near commodity products, such as fasteners and molded parts. These suppliers will likely feel the first impact of online auctions. However, there is concern among suppliers about the repercussions of the joint online trade exchange.

Some suppliers worry that an online venture will place too much emphasis on price. Others are concerned that relationships they have worked long and hard to establish with other automotive suppliers and the OEMs could be damaged or even obliterated by an electronic venture. The real concern, according to the article, is how the billions of dollars saved will be divided among the participants.

The article does not offer any concrete steps as to how to deal with supplier concerns. It suggests maintaining an activity-based cost accounting system; maintaining active safeguards to ensure no confidential data leak out of the system; and suggests suppliers consider investing in an online trade exchange so they more fully understand the dynamics of buying and selling online.

I can see how parts of the Big Three online "adventure" will function, but I am not sure I fully comprehend the workings and impact of the big picture.

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