GM Retools for E-Commerce That Goes Beyond Cars

DETROIT (04/18/2000) - General Motors Corp. wants to be more than your car company. Much more.

Think real-time stock quotes, talking e-mail messages and video games - all delivered at the dashboard.

Think satellite-based radio services, online car financing and home mortgages.

Think of a multibillion-dollar online trading exchange that reaches beyond carmakers and parts suppliers to hundreds of thousands of other businesses around the globe.

These are just a few of the strategic businesses in which GM is making huge information technology investments. The goal is nothing short of transforming the auto giant into a leading provider of Internet-based information services whose recurring revenue potential rivals the $176.6 billion GM piled up last year making and selling 8.5 million cars and trucks.

"Clearly, services will become a larger part of our revenues, and the services dictate how you build and support vehicles," said Ralph Szygenda, the auto giant's CIO and architect of its Internet strategy.

"If we don't take those [services] revenues, someone else will," he added.

Virtually all of GM's electronic business initiatives center on leveraging two extremely potent forces:leading-edge Internet technologies and the automaker's gargantuan presence in both consumer and supplier markets.

TradeXchange, the company's joint online marketplace initiative with Ford Motor Co. and DaimlerChrysler AG, is a prime example.

So far, GM has invested $600 million in the exchange, through which it plans to purchase all of the materials it uses in manufacturing - about $87 billion annually - from 30,000 suppliers.

But that's just the beginning. GM is also opening up the exchange to parts buyers at companies in other industries, including Sony Corp. and IBM.

Eventually, it will also include GM's 7,000 North American dealerships, which, among other things, will be able to buy their cleaning and office supplies plus host online auctions of used cars through the exchange.

GM is also looking to integrate goods and services of other online exchanges in related industries, such as those of E-Steel Corp. and MetalSite LP in the metals industry, plus offer outsourced software services for logistics, transportation planning and supply-chain management, all of which would generate additional and recurring revenue.

A total of 150 people from the automakers and their technology partners, Oracle Corp. and Commerce One Inc., are working full time on TradeXchange, which the partners plan to spin off as a separate company by year's end.

"The exchange will be much more than a purchasing exchange," said Harold Kutner, GM's group vice president of worldwide purchasing.

It will also serve as a critical information portal where GM's suppliers retrieve real-time plant production schedules, inventory data plus never-before-available data about the exact makes and models of cars that consumers are eyeing on dozens of GM and non-GM Web sites.

This is a key element in transitioning GM's suppliers to a "sense and respond" mode of inventory replenishment, which will bring GM a big step closer to its ultimate goal of electronically executing the entire order-to-delivery process by 2003. If GM succeeds, Goldman, Sachs & Co. predicts, it will shave $3,700 from the cost of every car it produces.

Other analysts say that figure is too high.

"A Web-based infrastructure that integrates activities is important [because] now, manufacturing makes, engineering designs and purchasing works with suppliers," said Hiro Mori, an analyst at Automotive Consulting Group Inc. in Ann Arbor, Michigan.

"If they improve efficiencies between functional groups, it's going to have a big effect on costs. Not $3,700, but significant savings," he said.

GM's Szygenda said he agrees with that. "The company that links design, procurement and sales - and puts it all together electronically - wins."

Overall, Szygenda estimates that GM has invested about $1.6 billion in its various electronic-business initiatives, which in turn have reduced the company's annual IT budget by about $800 million each year since 1996. (The reductions have come from retiring legacy applications and streamlining business processes and systems.) The company's 2000 IT budget is $3.2 billion.

Once it makes and sells a car, GM will extend its revenue-earning power by delivering Internet-based services through its OnStar system to drivers of Web-ready cars.

"This fall, GM will be the first carmaker to offer Internet connectivity in the vehicle," said Mark Hogan, head of GM's e-GM unit, which functions as the company's headquarters for all consumer-oriented electronic-business initiatives.

From there, Hogan envisions services including customized stock reports, MP3 music downloads and individually programmed satellite radio services, and not just to drivers of top-of-the-line models or the 1 million OnStar subscribers GM will have signed up by year's end. By the end of next year, Internet connectivity will be standard on GM's midsize models as well.

Hands-Free Deal

In addition, GM has a deal with Bell Atlantic Corp. to provide hands-free, voice-activated Internet service to cars anywhere in the U.S. The automaker also is in the process of forging partnerships with various content providers, said Chet Huber, general manager, of GM's OnStar unit.

"GM has supported us in making this business as big as we can as fast as we can," Huber said. That includes selling the OnStar technology to competing carmakers - another key ingredient in GM's electronic-business strategy.

Because of its OnStar technology, Huber estimated that GM now has about an 18- to 24-month lead in Internet connectivity over other automakers.

"But as GM rolls these vehicles out, other manufacturers will do the same," he noted. It makes sense for GM to take advantage of its lead by selling the technology, then collecting subscription revenue on an ongoing basis, said Huber.

By the fourth quarter of this year, Huber said, he expects to be signing up 5,000 new OnStar subscribers per day.

"Through OnStar, GM has the potential to be the country's largest reseller of cellular services," he said.

Yet some auto analysts aren't as optimistic about ongoing electronic-services revenue.

"I'm skeptical. I'm not at all optimistic about investing in telematics like OnStar and e-mail and cell phones and safety things," said Saul Rubin, a financial analyst at Warburg Dillon Read LLC in New York.

One reason: "There's a good chance that these extra services will become like other types of components that automakers have to offer to become competitive - and not something that gains extra revenue," Rubin said.

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