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Investigation of auto marketplace scares off some players

An ongoing government inquiry into the business-to-business Internet purchasing exchange launched by the Big Three U.S. automakers has had a chilling effect on auto-supply companies.

An ongoing government inquiry into the business-to-business Internet purchasing exchange launched by the Big Three U.S. automakers has had a chilling effect on auto-supply companies.

Analysts and an auto-parts supply company tell CNET News.com that most suppliers interested in the new exchange are putting their plans on hold to avoid getting caught up in any possible legal problems.

When Ford, General Motors and DaimlerChrysler unveiled an online partnership in February, it was touted as the largest Internet business ever created. The marketplace, called Newco, would create a single automotive-parts exchange for the companies' thousands of suppliers and dealers.

But the exchange has come under scrutiny by the Federal Trade Commission, which also is looking into a new venture involving Sears, database software maker Oracle and French retailer Carrefour to build an online marketplace serving the retail industry.

"We're waiting for the car companies to get through this FTC issue," said Bill Lloyd, director of purchasing at Delphi Automotive Systems, a major auto-parts supplier. Lloyd said that Delphi, which plans to do business through the online marketplace being built by Ford, GM and DaimlerChrysler, is waiting until the government makes a decision on the venture.

The car companies "are trying to do a lot all at once. They've got a lot on their plate right now," Lloyd said.

Industry analysts and government officials are debating whether the FTC should establish some form of oversight of business-to-business marketplaces.

Those in favor of regulation argue that the expected size of the market requires that some guidelines be established to prevent collusion or other anti-competitive practices. Any oversight legislation is likely to meet with resistance from the technology industry, however, which has vociferously opposed government regulation.

Such a move also could be difficult to achieve in an election year, when the high-tech industry is driving economic growth.

The FTC will hold a workshop next month in Washington, D.C., to address antitrust and competition issues related to business-to-business exchanges and marketplaces, a representative for the commission said. It is open to the public but geared toward suppliers, manufacturers, lawyers and business partners tied to the business-to-business market.

GM spokesman David Barnas said the automakers aren't commenting on the government inquiry, although they are cooperating fully with regulators.

Analysts say government scrutiny is just one obstacle facing automakers as they prepare to launch the marketplace.

A recent Merrill Lynch survey of 19 suppliers found that most suppliers do not feel fully informed about the exchange and have major concerns about turning over confidential cost information to automakers.

According to the study, there is a lack of clarity on the details and implementation challenges that exist as the automakers' business-to-business strategies are launched. Though a majority of suppliers think the exchange will help the auto industry overall, they expect the biggest winners to be consumers and the companies making the technology to build and run the exchange.

The suppliers' growing concerns about the auto exchange could be a major headache for the Big Three, which planned to make the exchange a separate company and to set an initial public offering by June.

But analysts said the potential for a public spinoff is unclear. In fact, the Merrill Lynch report said "the prospects for a highly profitable IPO of Newco is becoming uncertain."

"I've always said that the only thing that could slow down the momentum and excitement around the exchange is the FTC," said Kevin Prouty, an analyst with AMR Research. "The majority of suppliers share Delphi's concerns about getting tied up in any legal issues that come out of the FTC inquiry."

In addition, some of the biggest supply companies are considering their own plans for a separate business-to-business initiative, Prouty said.

The suppliers, including TRW, Motorola, Dana, Delphi and Valeo, hope to level the playing field while giving companies a chance to conduct business-to-business transactions without being dependent on the automakers' exchange.

"There is a group of suppliers who are very forward-looking and want to get things under way on the business-to-business front," with or without the major auto exchange, Prouty said.

However, the Big Three automakers are confident they can put the doubts to rest.

"Since the exchange was announced eight weeks ago, the automakers have not had the chance to really portray the value proposition of the exchange," Barnas said. "They are working to communicate the benefits to suppliers and the whole supply chain, which are to reduce inventory and cut costs."