Big Three Clear Major Hurdle with FTC

After two rounds of inquiries by the U.S. Federal Trade Commission (FTC), the Big Three's online auto industry exchange this week won tentative approval to open its virtual doors. Gaining that green light will allow the Southfield, Mich., exchange, called Covisint, to seek a permanent location, hire a CEO and gear up to launch by year's end.

However, analysts noted, the start-up must still tackle infrastructure integration issues with participating suppliers and additional regulatory concerns abroad.

The FTC's investigation focused on antitrust concerns and the underlying technology infrastructure that Covisint plans to implement. The probe is being closed for now, but the commission noted that it could reopen the matter in the future.

FTC Chairman Robert Pitofsky said in a statement that Covisint is in such an early stage of development that FTC members "cannot say [the] venture will not cause competitive concerns." If it appears to do so, the FTC will reopen the case.

General Motors Corp., Ford Motor Co. and DaimlerChrysler AG have invested $200 million in Covisint since its launch in February. Renault SA and Nissan Motor Co. have signed on to join the exchange as nonowner participants. Together, the five automakers could potentially process up to $300 billion in annual purchases of items such as office supplies and engine parts through Covisint.

Dan Garretson, an analyst at Forrester Research Inc. in Cambridge, Mass., said the FTC's approval should eliminate mounting concerns that online industry exchanges aimed at trimming procurement transaction costs are anticompetitive.

"This was the first and biggest exchange to get FTC approval," said Garretson. "But the FTC found that Covisint was about efficiency and not about collusion."

Covisint still needs to devise an interim plan to assist suppliers as they transition from electronic data interchange (EDI) to Internet-based systems, Garretson said.

According to a recent Forrester survey of 30 large automotive suppliers, 74% of their sales were conducted using EDI, 25% of sales were handled by other means such as by phone and less than 1% used Internet technologies. By 2004, those suppliers anticipate shifting to 68% of sales conducted over the Internet, 21% using EDI systems and the remaining 11% handled off-line.

In a separate development, Dearborn, Mich.-based Visteon Corp. this week announced that it plans to participate in the Covisint exchange. Visteon is the world's second-largest automotive supplier, with a revenue of $19.4 billion last year.

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