Auto Suppliers Mull Starting Their Own Exchanges

FRAMINGHAM (06/23/2000) - Even as the Big Three automakers seek federal approval to create an online trade exchange, seven giant suppliers of automobile components want to study the costs and the feasibility of creating separate exchanges of their own.

The suppliers are Dana Corp., Delphi Automotive Systems Corp., Eaton Corp., Motorola Inc., TRW Inc., The Timken Co. and Valeo SA, whose combined total revenues exceeded $100 billion last year.

Officials at the parts makers this week said that they have commissioned consulting firm Ernst & Young International in New York to identify the technology issues facing the automakers' exchange.

The aim of the study, they said, is to help the parts makers determine the costs of joining the automakers' exchange vs. creating their own online trading systems, which they could use to do business with the automakers or other businesses.

Covisint - the company created to manage the exchange formed in February by DaimlerChrysler AG, Ford Motor Co. and General Motors Corp. - can't begin operation until it receives clearance from the U.S. Federal Trade Commission (FTC), which is looking into possible antitrust issues. Other big automakers such as Nissan Motor Co. and Renault SA have since signed up to participate in the exchange as well.

Another challenge facing Covisint is the need to merge the trading systems the automakers use with its new infrastructure and scale the new systems to handle up to $750 billion per year in transactions, the amount of business that it eventually expects to process.

"When all the dust settles, the big question is, Will (Covisint) take costs out?" said Gary Corrigan, vice president of communications at Dana, a Toledo, Ohio-based maker of piston rings and drive shafts. "We're working with tight margins and cannot do this just because it's trendy."

Troy, Michigan-based Delphi, the world's largest parts maker, this month committed to joining Covisint. But Delphi also is piloting its own supplier portal and evaluating the costs of scrapping its existing electronic data interchange (EDI) infrastructure, said Rick Radecki, director of e-business at Delphi.

Approximately 40% of Delphi's suppliers use EDI, Radecki noted, and he estimated that the top 10% might be better off sticking with that technology because of the costs of switching to Web-based systems.

Several of the parts makers questioned whether Covisint will force them to abandon their EDI systems and move to Web-based systems for transacting business online. Covisint officials said they don't yet know if that will happen.

Covisint filed antitrust-related documents with the FTC last week. By law, the agency must respond to the company within 30 days. Brian Kelley, Ford's president of e-commerce, said on Monday that he expects the online exchange to receive the FTC's approval and open for business by year's end.

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