US: Car Suppliers Skeptical of Online Exchange - Study
In a survey of 19 top suppliers, investment firm Merrill Lynch found most companies do not feel fully informed about the exchange, and have major concerns about turning over confidential cost information to automakers.
"There is a lack of clarity on the details and implementation challenges that exist as the (automakers) business-to-business strategies are rolled out," Merrill Lynch said in the study.
Although the majority think the exchange, expected to create the world's largest virtual market, will help the auto industry overall, they expect the biggest winners to be companies that provide the technology to make it run, and consumers.
General Motors Corp, Ford Motor Co. and DaimlerChrysler announced Feb. 25 they would combine their $240 billion in annual spending on supplies through a single Internet portal. Technology firms involved in the deal included Commerce One Inc. and Oracle Corp.
The automakers also plan for the new exchange to be an open Internet marketplace for suppliers themselves, who spend a combined $500 billion a year, as well as other automakers. A definitive agreement was expected within 30 days of the announcement, but that has not yet occurred. The exchange is undergoing a review by U.S. Federal Trade Commission. It does not have a name or chief executive.
In addition to lowering costs on everything from axles to paper clips, GM, Ford and DaimlerChrysler said the exchange could potentially generate billions of dollars in transaction fees for the owners. The three companies plan to have equal ownership stakes in the venture -- now referred to as Newco -- which would eventually be spun off into a public company.
But Merrill Lynch analysts said how much potential a spin-off has is uncertain.
"The prospects for a highly profitable IPO of Newco is becoming clouded," the report said.
Merrill Lynch analyst John Casesa said although the exchange will help cut costs and better integrate suppliers into vehicle development, it will not fundamentally alter the auto industry as it struggles with large issues such as production overcapacity.
"By themselves these developments do not represent a sea change in either the auto industry's structure or its return outlook," he said.
Among other survey findings:
--Suppliers believe Ford has the best understanding of business-to-business electronic commerce issues of the three automakers;
--Most suppliers do not expect the exchange to improve their own profit margins;
--Nearly all the suppliers expect to join the Big Three exchange;
--More than half said they expected to start their own Internet trade exchange.