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Commentary: Will the big automakers make Covisint work?

The Internet exchange formed by the three largest U.S. automakers appears to be benefiting from the novelty factor in getting a relatively fast and painless FTC review.

Covisint, the business-to-business Internet exchange formed by the three largest U.S. automakers, appears to be benefiting from the novelty factor in getting a relatively fast and painless review from the FTC.

META Group believes that for the next 6 months to 12 months regulators will be inclined to allow the formation of large, cooperative online buying marketplaces.

See news story:
FTC green-lights Big Three Net exchange

Although many observers view the formation of such buying groups as a threat to suppliers, the biggest question is whether General Motors, Ford, and DaimlerChrysler can make this exchange work--not just for the year following the announcement, but for an extended period of time. The good news is that Covisint appears to have the technical side of the equation worked out.

However, several major business questions leave the success of this implicit buying group in doubt. The immediate question is just how much competitive advantage these companies currently gain over each other with buying practices. None of them is likely to share processes that give them significant business advantage. The lawsuit that GM recently won against Volkswagen focused on exactly this area. The courts agreed that GM had achieved significant competitive advantage through its superior supply chain management and that Volkswagen, in hiring a key executive in this area from GM, was attempting to steal those methods.

Even if they do agree to combine their supply chains, at least for the two-thirds of supplies that are basically commodity items, this will expose their internal buying procedures to scrutiny from their other competitors--particularly in Asia. One big fear is that the competition can then identify all the places where Covisint is inefficient.

Furthermore, these inefficiencies can grow over time. Buying marketplaces always have problems adapting to changing conditions. As new suppliers, new best practices, new markets and new technologies emerge, the question will be whether Covisint can evolve or whether the competitors will slowly leave it behind, leaving the partners at a competitive disadvantage within a few years.

META Group analysts Peter Burris, David Cearley, Val Sribar, David Yockelson, and William Zachmann contributed to this article.

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