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Automakers, parts suppliers spar over Net marketplaces

Battle lines are being drawn between automotive parts suppliers and huge auto manufacturers, as both groups try to establish themselves in the business-to-business exchange market.

    Battle lines are being drawn between automotive parts suppliers and huge auto manufacturers, as both groups try to establish themselves in the business-to-business exchange market, analysts say.

    In a case that analysts say illustrates the power struggle, trucking auto supply company Meritor Automotive last week backed out of FleetWorks.com's parts trading exchange.

    Driving this power struggle is suppliers' concern that major auto manufacturers will use the exchanges to dictate which pricing models and purchasing practices suppliers must use.

    Parts suppliers need to be included in automotive online exchanges, said Bill Lloyd, director of purchasing at Delphi Automotive Systems, an auto parts supplier. "Suppliers have to take the initiative, because no matter what the car companies do we still have to communicate and do business with our suppliers."

    Suppliers' desire to build their own exchanges is a direct response to big automakers' business-to-business plans, said Kevin Prouty, an analyst at AMR Research.

    Auto supply companies like TRW, Meritor Automotive, Delphi Automotive Systems, Eaton, Motorola and others sell individual auto parts and equipment to major automakers such as Ford Motor Company, General Motors and Volkswagen. Equipment can include anything from door handles and bumpers to electronic components.

    Traditionally, transactions between the manufacturer and the supplier took place via phone, fax and mail. But over the past three months, a number of automotive giants have launched online exchanges to link their suppliers, aiming to save money by cutting the paperwork and time needed for hundreds of thousands of transactions. Automakers also use the sites to hold auctions for equipment and supplies, and hope suppliers will use the sites to broker better deals on their own purchases.

    Automotive suppliers are not interested in letting their manufacturing customers ride the business-to-business exchange wave alone. The suppliers are reviewing plans to launch their own exchanges, hoping to level the playing field.

    However, manufacturers are already grumbling about suppliers heading into the online exchange market. Meritor's motion to back out of Fleetwork's.com's part trading exchange is just one example of companies being pressured by truck manufacturers who want to be able to buy their parts directly and include the suppliers in their own exchanges.

    "Meritor's actions are a microcosm of the whole auto industry. Manufacturers are worried suppliers are going to set up their own exchanges and try and go around automaker exchanges and between the supply and distribution channel," said Prouty. "Manufacturers also believe it might be (too early in) the game for suppliers to be setting up exchanges because they are just getting theirs off the ground."

    But suppliers might not be able to afford to wait, as pressures in the industry increase. A recent wave of auto exchanges formed by U.S., European and Japanese auto manufacturers could put the squeeze on parts suppliers, especially those selling to two or more exchanges.

    "If suppliers are part of two exchanges, they'll have to deal with two different technology standards," said Rob Leathern, an analyst at Jupiter Communications. "They'll have to manage all of these different relationships. They'll have to put systems in place that will enable them to work with both. It will be interesting to see what happens on the supplier side."

    With a slew Will B2B's magic last?of auto exchanges to contend with, suppliers will not only lose the luxury of a single marketplace for dealing with their customers, but may also struggle with technology interaction, business partnership management and new pricing models.

    "In order for suppliers to exchange information with manufacturers, there needs to be standards in place so their systems can work together," said Leathern. "It's essential that companies come together and establish these standards, but there isn't anything like that going on now. It will be a challenge, because suppliers have thousands of lower tier suppliers that work along with the manufacturers."

    Over the past six months, the auto industry has been hit by a wave of announcements by auto manufacturers rushing to establish their own online exchanges. Last week, BMW said it is teaming with business-to-business software maker Ariba to build its own exchange. The German carmaker said it will use the Internet to solicit proposals from parts suppliers and to conduct online buying auctions. It will also use the site for listing goods and services.

    BMW follows Volkswagen, Europe's largest carmaker, in establishing its own online purchasing system rather than joining the auction site planned by General Motors, Ford Motor and DaimlerChrysler. Toyota also said it will build its own exchange to handle transactions with its replacement parts suppliers.

    As competition intensifies and the number of exchanges grows, AMR Research expects shakeouts in all trading exchanges. The market will also become further fragmented as suppliers make their own efforts in the business-to-business space.

    "I don't think it's realistic to think the car manufacturers can do it all alone," said Lloyd. "It will take suppliers like us to take the responsibility to make it work for all sides. We have to work with our customers to make sure something is set up where we can work with them as well as our suppliers."