DETROIT (Mar. 10, 2000)—Ford Motor Co. used five tire makers as guinea pigs in its first online auction with suppliers, and at least one participant is worried the process may devalue its carefully cultivated brand.
Ford´s first attempt to buy production parts from suppliers in an online auction was conducted in early February on the company´s new "auto-xchange" Web site.
"We would hope that the online bidding process does not lead to a purely lowest-price scenario that doesn´t take into account the value of our brands," said Michael Fanning, a spokesman for Michelin North America Inc.
"We will not sacrifice profitability in order to gain market share."
The online tire auction was the first part of a major shift in parts purchasing. Internet auctions promise speed and efficiency—and further pressure on supplier margins.
Ford said it saved money by conducting the bidding online. But it declined to say how much.
Mr. Fanning said his company´s Michelin, BFGoodrich and Uniroyal brands enjoy tremendous brand equity through investments in technology, manufacturing and marketing.
Ford would not reveal the participating bidders nor the production parts it wanted to buy online. But Automotive News, a sister publication of Tire Business, learned that five tire makers—Michelin, Goodyear, Continental General Tire Inc., Bridgestone/Firestone Inc. and Hankook Tire America Corp.—bid on three separate part numbers or contracts to provide Ford with three sizes of tires for a future truck.
What once took weeks, even months, now is "a real-time event there on a (computer) screen for a matter of hours," said Donald Botka, vice president of Ford account management at Continental General Tire Inc.
30 minutes to counter
Tire makers and others familiar with the recent online auction said it began with Ford setting the starting point at just under $100 million.
It was a reverse auction, so the tire makers submitted bids in descending amounts, ultimately settling on $78 million for all three part numbers. After a bid was made, the other participants had up to 30 minutes to counter.
Each tire maker could see the other bids for the individual contracts and a conglomerate total for each bidder. But they had no idea who was submitting the bids.
Each bidder already knew the volumes and specifications of the three individual part numbers.
Sources familiar with the auction said Michelin and Continental General were the winning bidders.
Ford´s first online auction for production parts hit at least one snag. What was supposed to take 90 minutes took about 10 hours.
"I thought it was professionally done," Continental´s Mr. Botka said. "Ford is still working out some of the bugs. There are some refinements that they recognize that need to be made. Because it was
new, I think it was tolerable."
The online auction gives the bidders "a real strong feeling of where the market trends are, where the pricing really is," Mr. Botka said. "You pretty much know the outcome of the process when you walk off."
More price pressures
It is a fact of life that the automakers are seeking to lower their costs, said Michelin´s Mr. Fanning.
"We see a paradigm shift in the automotive industry as technology becomes a pervasive driver for change," he said. "We see online auctions as just one example of this trend."
The original equipment tire business always has been intensely competitive, said Saul Ludwig, an analyst with McDonald Investments Inc. in Cleveland.
"It is not a high-profit segment for the tire manufacturers, and it´s hard to imagine that prices will be driven down lower relative to manufacturer´s cost than they are today," he said.
E-commerce is becoming more pervasive in the automotive industry, and tire manufacturers will have to adapt, Mr. Ludwig said.
Some of the bidders said it is too early to say whether the online auctions represent any advantage for them. Clearly, Ford saves time in an online auction.
Ford was to have held another online auction in kate February, also for tires for a future platform.
Ford´s new auto-xchange was developed in partnership with software maker Oracle Corp. and Cisco Systems Inc., a leading supplier of Internet hardware.