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GM, Ford in B-2-B Web pact
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February 25, 2000: 12:14 p.m. ET
DaimlerChrysler also joining move to tie suppliers with carmakers on Web
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - The Big Three automakers became e-commerce teammates Friday, when General Motors Corp. and Ford Motor Co. combined their efforts to link with suppliers online and brought DaimlerChrysler AG into the new venture as well.
The agreement will create a business-to-business e-commerce site that dwarfs anything that has ever been tried previously. The three automakers combined buy almost $250 billion a year from their suppliers, and their intention is to transact all that business through the exchange.
In addition, the companies will push their suppliers, which have purchases that are about double the $250 billion figure, to use the site to purchase their own supplies. They will also seek to bring other major automakers around the globe into the exchange.
The automakers did not say when they will start to use the new exchange. The discussions on the deal's details are expected to be completed within 30 days, and previous efforts by Ford and GM and their technology partners should allow a relatively quick startup after that. But the process of moving most of the purchases online could take years to accomplish.
Pressure to combine efforts
Officials with the automakers said the combination should help everyone's efforts to cut procurement costs and squeeze savings from supply chain management.
Brian Kelley, president of Ford's global e-commerce unit, said in an interview on CNNfn Friday that the savings will be significant, perhaps between 5 to 15 percent of the value of the purchases, or between $4 billion to $12 billion a year for each of the Big Three.
Until Friday Ford and General Motors had been pursuing competing B-2-B efforts, but suppliers' concerns about having to deal with competing systems and the desire to attract other automakers caused them to join forces.
"We're doing this because supply base has said we don't want a separate exchange for Ford and a separate exchange for GM, and a separate exchange for DaimlerChrysler," said Kelley.
The combination will bring more resources to the effort and will help to cut costs, said Harold Kutner, group vice president of GM worldwide purchasing, in a joint CNNfn interview with Kelley and a DaimlerChrysler official. (245KB WAV) (245KB AIFF)
Both technology partners to participate
Many of the details of the change, including the name of the new combined exchange, are not yet decided. Kutner said plans to combine efforts came together within the last 10 days.
But, both Oracle Corp. (ORCL: Research, Estimates) and Commerce One Inc. (CMRC: Research, Estimates), the technology partners picked by Ford and GM respectively when they announced their original plans on Nov. 2, will have a role in the combined site.
GM had warrants worth a 20 percent equity stake in Commerce One, and it will split that stake with Ford as part of the agreement. The Big Three partners will have equal stakes in the new site, and the two technology providers may have equity stakes as well. New automakers that agree to join the effort will also win equity stakes based upon the level of their purchases.
The new exchange will be run as a separate business with management to be chosen at some point in the future. The partners anticipate spinning off the effort through an initial public offering at some point.
"We'll do an IPO when we have operating results," Brian Kelley. "We don't believe it'll be a long time off."
Other partners still sought
The companies will continue to woo other auto manufacturers around the globe to join the effort and offer them equity shares in return for their participation. Kelley told CNNfn that Renault and Nissan will participate in the effort, although details of that participation are not yet determined.
The reluctance of other automakers such as DaimlerChrysler to choose a Ford-only site or a GM-only site to partner with is a major reason for the combination, according to David Cole, director of the office for the study of automotive transportation at the University of Michigan.
Cole said the combination is good news for the auto industry.
"I think they'll make mistakes. It's almost a given that there will be things that don't come off as planned," he said. "But this combination puts a lot more horsepower behind executing this."
Shares of both Commerce One and Oracle rose sharply Friday. Commerce One stock climbed 28-1/4, or 15.8 percent, to 207-1/4, although that was slightly down from a high of 211 earlier in the day. Oracle shares rose 6-11/16, or 10.8 percent, to 68-5/8.
Shares of auto stocks were up more modestly. GM (GM: Research, Estimates) rose 1-13/16, or 2.4 percent, to 77-1/16, while Ford (F: Research, Estimates) climbed up 1-1/2, or 3.5 percent, to 44. The American depositary shares of DaimlerChrysler (DCX: Research, Estimates) gained 2-15/16, or 4.7 percent, to 64-7/8. 
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