Remaking The Automakers

Early in August, Mark T. Hogan stepped into the web portal wars to integrate General Motor Corp.'s global Internet activities into a new competitive e-business model. His responsibilities: Use the Internet to "touch" car buyers, gauge their preferences, and capture the consumer data that promise to remake the company. If he does it right, business historians looking at the last decade of the 20th century will hail him as the man who led the reinvention of GM and confirmed the industry's new e-business competitive model. Recently elected a group vice president of GM, Hogan is the first leader of e-GM, a new unit created to coordinate and manage the global proliferation of the company's Internet activity. His top priority: "to connect very personally with our customers." He calls it the next frontier for all automakers -- connecting with customers, not just in a sales process but through the entire ownership experience. "We believe that e-GM is well suited to do that." Customer enthusiasm for Web-initiated car buying is ready. One example: "I will never buy a car any other way," says Jack Kline of Dublin, Ohio. "Very competitive price, absolutely no hassle, and the dealer delivers it 100 miles to our front door the very next day. I can't thank autobytel.com enough!" Hogan intends to have e-GM grow equally satisfied customers via the automaker's Web pages. But one challenge is the rapidly proliferating competitive environment. New Web intermediaries are rapidly joining the likes of Irvine, Calif.-based autobytel.com to offer their services to a sophisticated car-buying public. Adding to the competitive buzz are organizations such as E*Trade Group Inc., eBay Inc., priceline.com Inc., and CarPoint -- with new entries appearing almost daily. (An e-GM global study found more than 500.) Another challenge is the relative youth of any automaker's Web efforts. GM, for example, inaugurated its online car-shopping service (www.gmbuypower.com) this year while autobytel.com started its operations in 1995. BuyPower, which GM labels the first manufacturer's shopping site in the automotive business, attracted more than 650,000 hits in June. Hogan initially will focus on integrating GM's more than 100 unconnected Web sites and related initiatives that have mushroomed throughout its global operation. (Total hits for all GM Web sites in June: almost 4 million.) He says the very existence of the e-GM unit indicates that the corporation believes significant revenue enhancements are possible. (Some estimates go as high as $5 billion in the next five years.) "In addition to connecting better with existing customers, we hope to leverage e-GM to reach people who don't shop us," says Hogan. "For example, we don't get our fair share of the 20-somethings market, and while part of that [problem] may be product-driven, it's also due to our inability to link with them properly. We know that [Generation Xers] get most of their information either through the Web or through radio. They don't go to traditional media sources -- TV and newsprint -- that baby boomers and pre-boomers relied on. What we've noticed is that 40% of prospective buyers go to the Internet for some sort of information before they make their purchase." Analyst George Colony, founder and president of Forrester Research Inc., Cambridge, Mass., says about a third of U.S. households are online, with 13% transacting every month. In 1998, he says, 2 million consumers researched new-car purchases on the Internet. Forrester believes that the Internet economy will roll out in two periods. "The first will be the threshold period where capital, public policy, and business leaders become aligned," Colony says. Then he sees a period of hypergrowth from 2000 to 2009. He predicts a worldwide Internet economy of $3.2 TRILLION in sales by 2003. "In that year there will be approximately 16 million cars sold in the U.S., and half will be influenced by the Internet." Colony also expects 500,000 cars actually will be purchased online in 2003, a prediction apparently based on novel sales models and/or repeal of existing state laws prohibiting direct OEM-to-consumer sales. Car buyers visiting a typical car site can access automotive information -- including specifications, vehicle reviews, manufacturer incentives, and dealer invoice price -- or go directly into the car-buying process. With autobytel.com, once the new or preowned vehicle of choice is determined, a consumer submits a purchase request and an optional finance or lease application. New-vehicle buyers are able to configure their vehicles, ascertain estimated dealer invoice and manufacturer's-suggested-retail-price pricing, and even shop for aftermarket products available from their autobytel.com dealer. Consumers also can comparison-shop for insurance by accessing quote information from leading insurance companies. Purchase requests are sent to the local affiliated dealer who responds with a no-haggle price within 24 hours and arranges delivery. Mark Lorimer, autobytel.com's president and CEO, estimates his organization was responsible for about $4.5 billion worth of delivery through his associated dealers in the first half of 1999. Adding synergistic appeal to the e-GM portfolio is GM's OnStar, a satellite-based vehicle safety and security feature that soon will bring Web connectivity to GM cars. Now available on 31 of the company's models, OnStar's subscriber base has reached 75,000 in just two and a half years. Ronald L. Zarrella, president of GM's North American operations, predicts that will grow to more than a million subscribers by the end of next year. OnStar will provide the Internet connectivity for the "Web Car" that GM will be showing this fall. "Studies reveal our customers spend anywhere from 30 minutes to three hours in their vehicle each day, and we think an Internet connection would make that time more productive and their lives easier," adds Hogan. GM expects to market vehicles with the Internet capability before the end of next year. The marketing implications of e-GM are more than facilitating consumer access to transportation solutions. One implication involves the way GM will redirect its advertising spending -- currently running at $2 billion a year. Today only a fraction of that goes to the Internet. "I'd have to say that we'll probably be directing more of our media purchasing toward the Web -- not just banner advertising, but the development of information access through the Internet." However, what also interests Hogan's e-GM -- and the rest of the automotive industry including suppliers -- extends far beyond the ways the Internet enables sales. With the wealth of customer information that e-GM makes available, the auto company suddenly has the tools to reinvent itself via an e-business model. The results could be more profound than those derived from Henry Ford's contribution to mass production, says Lloyd (Buzz) Waterhouse, president and COO of Reynolds & Reynolds Co., Dayton. Reynolds & Reynolds administers dealer relations for Microsoft Corp.'s CarPoint online car-buying service. The Internet has become the catalyst for an information-technology revolution directed toward e-business, observes Nick Galambos, vice president at A.T. Kearney & Co., Detroit. "The early signs that e-business is a CEO agenda item is implicit in the appearance of a new category of key information-technology enablers such as Ralph Szygenda, GM's CIO; Sue J. Unger, senior vice president and CIO, DaimlerChrysler; and Jim Yost, the new CIO at Ford." All three are deeply involved in pulling together central customer data warehouses that will do far more than support the online marketing efforts. By putting this focus on the car buyer, Hogan's e-GM efforts will demonstrate that the goal of optimizing production efficiency is no longer good enough as a competitive strategy. Neither is a total obsession over what the competition is doing. Instead, Hogan is concerned with understanding the customer and with engaging GM's 15,000 global dealers and its suppliers to meet customer transportation needs. Forrester's Colony categorizes Hogan's challenges:

• Harmonizing -- not destroying -- marketing channels. "Many consumers want to buy cars directly from GM, but there's a very large dealer network in place." He believes the Internet sites, the local dealers, and GM must be brought together into one single online buying experience.
• The brand issue. "GM has to capture the online branding early in the life of [the] online consumer. There is one demographic that is now watching less TV than PC, and that is boys at age 15, and that's where GM has to hit."
• GM's car-building process. "Forrester estimates that if GM can astutely use the Internet for the back-end [manufacturing] processes, cost reductions could be as high as 10%."
• Executive leadership. "In working with many types of companies, we find that the major factor governing the success of an e-commerce commitment is the leadership of top executives." (One role model could be General Electric Co. Chairman and CEO Jack Welch, who recently announced e-commerce as the company's No. 1 priority.)

"The influence of e-GM will be felt across the car-making process," says Hogan. "With the Internet, we'll go away from the traditional concept clinics where customers physically visit a location to provide feedback from ideas in the prototype stage. That process will become an interactive Internet experience, drastically simplifying and speeding the gathering of customer reactions." DaimlerChrysler AG used the technique to get customer feedback on the upcoming PT Cruiser. "By accelerating customer response and lowering research costs, it changes the scope of your overall marketing effort," says Thomas Peyton, DaimlerChrysler senior manager for interactive strategy and new media. "To further shorten time to market, product design will be developing vehicle configurations that will be more adaptable to customer needs," says Hogan. "Utilizing modules or subsystems, we'll have greater freedom to more quickly configure vehicles that are better suited to specific tastes. In addition, a lot of the electronics will be 'plug and play.' Adding that kind of flexibility will allow us to take the finished inventory out of the showrooms and enable us to pursue custom orders. In addition to inventory savings, we'll be able to better personalize vehicles. "Overall, the Internet's impact in product design is to 'lubricate' or accelerate communication between the customer's tastes and the ability of the corporation to produce a vehicle to meet those objectives. Within the next three to four years we'll be able to [routinely] build a vehicle from a customer order and deliver it within three days." He says it is already being demonstrated with certain Cadillac models at GM's Hamtramck, Mich., plant. "We know that customization and rapid order fulfillment are two key attributes that the winning auto manufacturers must have, and GM certainly intends to be one of the leaders, if not the leader." Hogan also sees the potential for significant in-process-inventory savings in manufacturing. "Instead of five to 10 days of in-process inventory, we think we can reduce that to hours -- literally. We will reduce our 20-hour assembly time per vehicle perhaps by half." "With e-business acting as a catalyst, the automakers are transitioning from factories in search of dealers to factories determined to satisfy consumers," says Daron Gifford, director of the automotive practice at Deloitte Consulting, Detroit. "The old model of building to stock and then worrying about selling them is finally in decline. The emerging model is consumer-driven." Gifford also contends that emerging trends such as modular manufacturing should be interpreted as a response to the increased business velocity that the Internet makes possible. "While today's popular explanation for the modular concept may stress its labor-savings potential, that's only the short-term benefit," he explains. "Ultimately where modular production has the highest value-added is in getting cars to customers faster. If you think about modules conceptually, you'll understand from a vehicle-assembly perspective that it is a lot faster to put a 12-piece puzzle together than one containing 1,000 pieces. From a time-to-the-consumer standpoint, I think that's where modular assembly has the real advantage." As the auto companies refine Web strategies that integrate them with consumers and dealers, they are working to leverage their gains via the supply chain. GM is not alone in that endeavor. At Ford Motor Co., Dearborn, Mich., Bob Bykowicz, e-business strategy manager, is working with product development, materials and logistics, customer service, and purchasing to link, in effect, customers to suppliers. "One goal is to link customer warranty information with suppliers to facilitate future product improvements," says Bykowicz. "We expect organizational changes from our efforts to link customers to suppliers. If the ultimate objective is to be consumer-oriented and get them their car quickly, then you've got to make fundamental changes in the way you do business. We need a build-to-order process, a build-to-order mentality, and the only way that we can do that is to hook the consumer to suppliers and hook suppliers to each other. That's the only way to move information fast enough to support a build-to-order scenario. "At Ford, you're going to see integration between e-business with the supply chain and e-commerce on the consumer end. We're integrating not only the functions within the supply chain, but across [all] commerce within the company, linking the consumer all the way to the multiple tiers of the supply base. The first person who gets there with the best system will have a competitive advantage in the marketplace." The goals enumerated by Bykowicz fit an emerging concept called "collaborative commerce" -- c-commerce -- by the GartnerGroup Inc., Stamford, Conn. Analyst Bruce Bond explains: "The problem with current ERP [enterprise-resource-planning] and supply-chain applications is that they're focused on supporting transactions and optimization within the single enterprise or, at best, within the enterprise and its more traditional strategic trading partners." He says c-commerce applications will move beyond that level of support to enable multiple enterprises to work together online with a dynamic trading community. "Their relationships would be far more fluid and opportunistic. Collaborative commerce initially will be a competitive differentiator, but going forward it will be a requirement for doing business." Vendors such as IBM Corp., i2 Technologies Inc., Microsoft Corp., Oracle Corp., and SAP AG are developing c-commerce strategies and software applications, says Bond. Some c-commerce examples already facilitate auto design. One is digital mock-up technology, which enables a real-time, 3-D design session to be invoked across a project Web site between a manufacturer and the manufacturer's suppliers. Bond predicts that c-commerce network applications will replace Web-enabled but static supply-chain applications as the dominant business-application model by 2002. Where does it fit best? "Look for it first in industries dominated by a small number of large enterprises. The presence of dominant players facilitates the standards-making process that c-commerce requires. Automotive is a leading candidate." Bond says e-GM and similar automotive initiatives will find that c-commerce modifies the conventional model of competition. "For example, your ability to compete is no longer solely a function of the product or service that's being provided. Competitiveness also will be determined by your ability and willingness to share accurate and timely information throughout the supply chain. "With the advent of the Internet, people began to understand they could share information. C-commerce raises the bar to the next step -- optimal sharing of information. It requires a new level of business intimacy that some may find uncomfortable. And you can't just think about what you're doing internally -- you have to think about what you're doing externally."