Custom orders

Web ties suppliers, factories, dealers

Billions pumped into speeding auto order to delivery system

By David Welch / The Detroit News

    DETROIT — They may be old-line industrial giants, but General Motors Corp. and Ford Motor Co. are racing to become fast-moving electronic businesses that use cyberspace to link their suppliers, technology centers, assembly plants, dealers and customers into a seamless web.

    Taking advantage of good times, both automakers are pouring billions of dollars into online purchasing networks that could eventually — once connected with dealer Internet sites — change how cars and trucks are ordered, distributed and sold.

    By linking dealers and online buying sites with suppliers and manufacturing plants, the automakers hope to reduce the time it takes for consumers to custom-order a vehicle and have it delivered promptly.

    Mark Hogan, president of e-GM, the automaker’s recently formed electronic business unit, says the winner will be the company that can offer shoppers within days the exact vehicle they want, painted the right color and equipped with specific options.

    The stakes are huge. The automakers say they can strip tens of billions of dollars out of the distribution system annually with their vast electronic systems largely by reducing vehicle inventories and overhead costs.

    And that is why Ford and GM announced in Las Vegas late last year that they are taking the first steps to set up electronic systems to improve their order-to-delivery systems.

    Ford signed a deal with software company Oracle Corp. to set up TradeXchange, an online parts purchasing system. GM formed a venture with CommerceOne to launch a similar purchasing system called AutoXchange. The systems should help their suppliers buy parts quicker and cheaper.

    Both automakers are further working to get customer purchase information collected from their online sources so they can better know what to build.

    Once dealers are connected to the manufacturing systems, the lead time between ordering vehicles and delivery at the dealership will be drastically reduced, says Brian Kelley, president of Ford’s e-commerce unit.

    If the system works, “you can configure and order a vehicle online and get it presumably at the price you want,” says GM’s Hogan. “The value of the Internet is that the customer is in charge.”

    The way the system works now, customers browse huge lots packed with sets of cars that the automakers have built to keep their plants running at profitable levels. If the buyer doesn’t find an exact match, he goes to another dealer or accepts a different car. If vehicles don’t sell, the automakers move them with rebates and cut-rate financing.

    Dealers carry about 60 days of inventory, says Robert Rewey, Ford’s Group Vice President of sales, marketing and service. “You really don’t need more than 30 days,” Rewey says.

    Carrying huge inventories is expensive. About 30 percent of a vehicle’s sticker price comes after the vehicles leaves the assembly line, and the automakers are trying to cut that to get an edge over their competitors, says Dave Nathanson, director of retail automotive operations for PricewaterhouseCoopers in Detroit.

    Even though the technology is evolving quickly, there are huge challenges facing the industry. The automakers must design their vehicles so they are far less complex, Rewey says. That’s not easy for vehicles like full-size pickup trucks, which are sold with many different engine options, trim levels and towing and hauling packages.

    To make the system work, “our plants will have to become more flexible,” says GM President Rick Wagoner.