e-GM sputters with mixed reviews of its first year

Celebrating the first anniversary of the 150-person unit today, Hogan proclaimed success on many fronts. But he also lamented the considerable obstacles facing e-GM, which focuses on business-to-consumer e-commerce.

The biggest problem for e-GM, Hogan said, has been trying to integrate the unit's dot-com speed with the rest of GM, known for its hidebound bureaucracy and aversion to risk.

"We've been working hard on the culture piece. We want everyone in the company to be thinking about what the Internet can do to make us a more effective company," Hogan said this morning in a Webcast with journalists. "We underestimated the importance of the training and integration piece with the traditional business. It's the No. 1 challenge."

Other automakers face similar challenges, and virtually all old-economy companies are struggling to stay relevant in the digital age. But industry experts say the world's largest manufacturing company has an especially formidable task in transforming the lumbering giant into a new-economy powerhouse. On the business-to-business side of e-commerce, GM has turned to Covisint. An online exchange that links thousands of suppliers and most major automakers, Covisint handles GM's online transaction with vendors and other businesses.

Although automotive analysts praise GM for its fledgling e-commerce efforts, they say that e-GM has so far been ineffectual in driving new sales and making the broader organization more nimble.

Scott Crompton, a vice president of SeraNova, said e-GM's well-intentioned promise to behave more like a swift-footed start-up hasn't spread to GM overall.

"They haven't changed in 11 years I've worked for them," said Crompton, who started working with GM as a consultant for information technology strategy and implementation. At SeraNova, he is helping to build a Web site for e-GM that allows car shoppers to configure accessory packages online.

"e-GM has a lot of good ideas. Some of the smartest people in the world work there," Crompton said. "But the organizational inertia can really slow things down. Now their business-to-consumer vision is getting a little behind the times."

Outside pressures
However, e-GM cannot take all of the blame for the automaker's e-commerce shortcomings.

GM faces mounting pressure from its 7,700 dealers nationwide, who vigorously oppose any efforts to sell cars directly to consumers online.

A majority of states have enacted laws that prevent automakers from selling vehicles online, and dealers' considerable lobbying strength seems to be growing. A U.S. District Court judge ruled last week that Ford, which tried to sell used cars online through its FordPreowned.com site, could not sell vehicles over the Internet in Texas--one of the nation's top automotive markets.

Union workers and GM's own manufacturing processes also seem to be working against the automaker's e-commerce efforts. Assembly line workers oppose technology that could help GM build the exact cars that customers order, instead of the easier method of building identical batches of vehicles that GM's marketing executives believe customers will order.

Hogan has firsthand experience with the unions' unwillingness to change. The former manufacturing executive gained a hated reputation as an iconoclast when he advocated a modular assembly initiative in the late 1990s that would have reduced the number of workers in assembly plants and improved efficiency.

United Auto Workers president Stephen Yokich recommended that GM fire Hogan or "put a muzzle on him" in 1998, after Hogan gave a peppy speech about potential cost savings. The plan was put on a backburner, partly to keep peace with the union. Shortly thereafter, GM executives tapped Hogan to run the e-commerce unit.

Even if GM's historically combative union workers allowed it, manufacturing experts say they doubt GM could pull off build-to-order vehicles on a mass scale or that customers would be willing to wait several days or weeks for their cars to arrive from assembly lines in the Midwest or Mexico to their local dealer.

"Build-to-order is a joke," said Southfield, Mich.-based automotive analyst Jim Hall of AutoPacific. "Purchasing of automobiles is not something people want to put off for even five days...Having custom cars would require a serious bellwether change on the part of customers in America."

End of the line?
Does that mean that e-GM's burgeoning efforts are doomed? Should Hogan and e-GM, which plans to open an office in San Francisco this fall to learn more about Silicon Valley business ethics and attract talent, stay home and bow out of the new economy?

No way, Hogan said.

Although bombarded with hurdles, he said, the unit has already realized some early success. During this morning's Webcast, GM chief operating officer Rick Wagoner called e-GM one of the company's "top priorities for the year" and said Hogan has done a "great job."

Hogan boasted that e-GM has helped boost the visibility of GM's most important Web site, GMBuyPower.com. The site gets more than 1.2 million monthly visitors, up from 200,000 per month in March 1999.

Banner advertisements placed strategically on reviews of competing vehicles and other online advertising strategies have resulted in more than 20,000 conquest sales from March 1999 to March 2000, Hogan said. A conquest sale is made when a customer switches from one carmaker to another, such as a Honda owner who buys a Saturn.

Incremental traffic to BuyPower and other GM Web sites through alliances with America Online, NetZero, Kelley Blue Book and other sites has increased total traffic up to 400 percent. Hogan also announced today new alliances with CollegeClub.com, which gets 1.5 million visitors per month, and ClubMom, which has 1 million members.

e-GM may also have laid the groundwork for far-reaching changes throughout GM. e-GM workers and those at Onstar, GM's mobile roadside assistance program, have compensation packages more heavily weighted toward stock options and other merit-based rewards than do other GM employees.

And e-GM, though it may not be operating on the storied "Internet time" of Silicon Valley, is operating much more swiftly than the rest of the company, Hogan said. It forged a deal with AOL in January in roughly six weeks.

"In the old GM, we would have never been able to do that," Hogan said.

Automotive analyst Efraim Levy of New York-based S&P Equity Group said he was skeptical about e-GM but has seen some benefits. Levy noted that no division within GM, which was founded in 1908 and has more than 388,000 employees and 30,000 suppliers around the world, could possibly hope to be as streamlined as a dot-com.

"I have not noticed any reduction in bureaucracy during the last 12 months. However, I do believe that senior management is intent on increasing speed to market," Levy said. "While some streamlining of the bureaucracy is likely, operating as a low-overhead Silicon Valley start-up on a corporation-wide basis will not happen, nor should it. Unlike many start-ups, GM is profitable."