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Automakers expected FTC's probe of online exchange

Detroit automakers are not concerned that the Federal Trade Commission may break up a vast online trade exchange, a senior Ford Motor executive says.

Detroit automakers are not concerned that the Federal Trade Commission may break up a vast online trade exchange that aims to link major automakers and their suppliers, a senior Ford Motor executive said today.

"People say, 'Did you anticipate that the FTC would get into your pants on this one?'" James Gouin, chief financial officer for Ford's ConsumerConnect online division, asked today at the Chase H&Q Technology Conference in San Francisco. "The answer is, absolutely. Anytime three behemoths like Ford, GM and DaimlerChrysler get together, you should expect it."

AutoXchange connects the world's top automakers and their 30,000 suppliers in a virtual marketplace with annual transactions valued at more than $300 billion. The FTC is investigating whether AutoXchange, which hopes to become a publicly traded company governed by executives from the automakers and suppliers, will make it easy for automakers and top suppliers to collude on prices and squeeze smaller suppliers out of business.

The FTC is also looking into a new venture involving Sears, database software maker Oracle and French retailer Carrefour to build an online marketplace serving the retail industry.

But AutoXchange has the potential to dwarf the retail exchange--or any other. Ford buys roughly $86 billion worth of material each year, from steel to rubber bands. Gouin estimates that 36 percent of Ford's total material purchases will be conducted directly through AutoXchange.

According to Ford research, the average purchase order for an equipment manufacturer in the automobile industry is $75,000.

The cost savings associated with an online exchange are equally large: It costs roughly $150 to process the paperwork involved in a single purchase order. The cost of the same transaction online is $5 to $15.

The cost savings Will B2B's magic last?have compelled automakers outside of Detroit to join the exchange. Toyota was an early participant, and RenaultNissan joined in April.

AutoXchange is headquartered in Southfield, Mich., and has a staff of about 200 people and numerous independent consultants. The automakers and top suppliers are in the process of recruiting a senior management team, which will spread jurisdiction across three geographic areas: the Americas, Europe and Asia.

The board of directors will consist of representatives from the automakers, suppliers, technology partners and independent business experts from other industries. A global supplier advisory council will represent suppliers in the three regions.