The Auto Industry & the Internet: Better Late Than Never

Columns From: 5/1/2000 Automotive Design & Production


 Within the global automotive industry, change is a slow process. Product changes are referenced in model years and vehicle manufacturing plants churn out hundreds of thousands of units. Compare that to the computer and Internet industries. In the computer industry, product changes are measured in months, and computer hardware is manufactured in millions of units. The evolving Internet is even more frantic. Technology changes are measured in days, hundreds of millions of web pages exist and that figure grows exponentially as time goes on.

What impact has the Internet had on the monolithic, slow-footed automotive industry? Equate it to the huge meteor that slammed into the Earth and wiped out the dinosaurs…it's a global impact event. Everything has changed. The problem is that some companies are still failing to see this revolution and adapt to the new environment.

During some recent research, Providata Automotive discovered that several large Tier I and II suppliers are just now setting up Internet websites. Why would companies wait so long to develop these capabilities? As with any new technological innovation, the automotive industry is reluctant to change and accept new ideas. Instead of embracing the Internet and the new opportunities it presents, several automotive companies chose to ignore the biggest change in our society since the invention of the automobile itself.

Remember the humble beginnings of air bags and navigation systems? Air bag systems were ready for use in the mid-1970's, yet only after pressure from Washington were they installed in vehicles beginning in the mid to late 1980's. Navigation systems have been available since the early 1990's and are just now being installed in vehicles.

Automakers have recognized these technology avoidance trends as lost opportunities. Many vehicle manufacturers have realigned their internal structures, sales models and supplier interaction to become fully Internet web-enabled. Learning from past mistakes, the automakers are seeking out ways of leveraging their economies of scale and translating that to revenue.

An excellent example of this new trend is General Motors' OnStar system which provides automatic notification of air bag deployment, emergency notification services, remote door unlocking, theft protection and accident assistance. A more-feature packed premium package is also available. GM is making this system available in all GM vehicles within the near future. Why is this product significant?

After missing out on the late 1980's cell phone trend, automakers were not going to let another revenue generating product elude them, particularly within their own vehicles. This captive audience for GM equals more than 8 million new vehicle purchases a year. If you multiply that figure by the monthly service charges for OnStar, that equates to hundreds of millions of dollars in additional revenue per year.

Last month, DaimlerChrysler, Ford and GM announced an ambitious plan to combine the $240-billion purchasing power of all three companies into one entity. This new supplier interface exchange has many suppliers frightened and unsure of the future ahead.

Suppliers should embrace this new opportunity. Within these new exchange systems, opportunities exist for lower costs, increased efficiency and an improved interface with key customers. Suppliers should develop integration teams comprised of IT, sales, marketing, purchasing, logistics, engineering, and human resource members to tackle this new challenge. By developing a successful integration team, suppliers can address each issue involved with the new supplier exchanges and proactively approach the vehicle manufacturers with supplier qualification and, most importantly,competitive bids.

In the future, when we look back upon the year 2000, we will acknowledge a key turning point in not only the automotive industry but also the global economy. The Internet will be recognized as the pivotal factor that rejoined the automotive industry to the rest of the world. By integrating supply chains, coordinating global parts deliveries, and realizing large economies of scale, successful vehicle manufacturers and suppliers will enjoy a renaissance in profitability and efficiency.