E-BUSINESS – GM Proves E-Business Matters

In November 2001, the North American sales force for eGM?a group created with much fanfare in 1999 to push e-business projects and processes throughout General Motors?was dismantled and rolled back into GM’s traditional business units. Then in February 2002, eGM President Mark Hogan was reassigned to a newly created post in GM’s design and development group; what remained of eGM was put under the purview of GM North America President Gary Cowger.

Industry skeptics say the dismantling of eGM is one indication that the automotive giant is retreating from its e-business ambitions, putting aside its dotcom dalliance, and returning to the real world of plastic and rubber and steel. “When they formed eGM, it looked like the Internet was the wave of the future,” says Paul Eisenstein, publisher of The Car Connection (www.thecarconnection.com), an automotive industry e-zine. “Every company thought if it got into online retailing it was going to make money.” Then the Internet bubble burst. The situation at GM isn’t an isolated one, Eisenstein says; other auto companies along with GM are redefining their e-business strategies.

However, GM executives, including CEO Rick Wagoner and CIO Ralph Szygenda, say the changes at eGM are not indicative of a wholesale retreat from e-business. “The intent from the beginning was to create a separate function for two to three years to drive [e-business capabilities] across GM,” says Szygenda. Contrary to what critics claim, Wagoner and Szygenda say eGM’s dismantling is a sign of success, asserting that e-business has become an integral part of the company’s fabric.

By putting a positive spin on eGM, are Wagoner and Szygenda engaging in a bit of revisionist history? Even if that’s the case, it doesn’t matter. The dispute over eGM is meaningless, essentially a tempest in the auto industry’s largest teapot. Regardless of eGM’s fate, GM’s e-business initiatives have succeeded in changing how the company makes business decisions.

In Need of an Overhaul

Headquartered in Detroit, GM has long needed a change in fortune. Consider this famous fact: GM’s share of the U.S. auto market dropped from 50 percent in the 1960s to a low of around 27 percent in 2000. Last year was the first year in a long time that GM’s market share rose, however slightly (to 28 percent, according to automotive publisher Wards Communications). Meanwhile, GM is often hamstrung by its own size, which makes decision making and change slow; by vehicle designs that critics frequently characterize as uninspired; and by high labor costs and other overhead. On top of that, the North American auto market, which accounted for roughly $107 billion of GM’s $141 billion in revenues last year, is expected to decline by as much as 10 percent in 2002.

Skeptics say those are the kinds of problems that e-business will not solve. “The alleged benefits of the digital age fail to address the two real problems in the industry: overcapacity and real manufacturing bottlenecks,” says Scott Hill, an analyst covering automotive stocks for Sanford C. Bernstein in New York City. E-business is not the only action GM has taken to revive its fortune. GM’s zero percent financing in 2001 and ongoing layoffs to reduce costs are two examples. The company also lured Bob Lutz (who helped Chrysler create buzz cars such as the Viper and PT Cruiser) out of retirement to refresh GM’s indifferent car designs, and in early 2002 it announced a complete restructuring of the design organization. The other OEMs (original equipment manufacturers, as the Big Three are known) have problems of their own?quality concerns in Ford’s case and leftover merger issues in DaimlerChrysler’s.

In the face of these changes, e-business leadership remains a centerpiece of Wagoner’s list of strategic priorities. The approach, in GM’s catchphrase, is “launch and learn,” a philosophy that Wagoner describes thus: “Let’s get out, take on projects and trials in different places around the world, and see what works.” A look at the company’s vast portfolio of e-business projects shows that GM is committed to continuing with that approach.

What’s on GM’s Plate

GM’s key e-business projects divide into two categories: Consumer and dealer links concerned with selling cars, and supplier links concerned with designing and manufacturing cars. By interconnecting more closely with those constituencies, GM aims to drive costs and time out of the value chain?all the way from vehicle design to post-sale care and, crucially, the demand as well.

For Consumers and Dealers: Online sales strike a chord among consumers in Brazil; U.S. dealers flock to web-based auctions.

General Motors Acceptance Corp. (GMAC) BuyPower. GMAC is GM’s finance arm. BuyPower is a consumer website that provides data on all GM models. Users can get details on the cost of options, such as tinted windows, and save such information in a personalized folder. The site also points potential buyers to nearby GM dealers, indicating the cars those dealers currently have in inventory. Since September 2001, BuyPower has delivered an average of more than 2,000 leads to dealers per day. According to data from J.D. Power and Associates, 20 percent of dealer leads generated through BuyPower convert into sales. That compares with slightly less than 13 percent of leads generated through the top independent site, Autobytel.com.

Retail.com/AutoCentric. This pilot, run in the Washington, D.C., area in 2001, was aimed at generating more leads for GM dealers, using the BuyPower “locate to order” model but presenting information about cars from multiple OEMs, not just GM. GM’s motivation lay in the discovery that there is little overlap (about 4 percent) between BuyPower users and those using manufacturer-independent sites such as Autobytel.com. The plan was to create a joint venture called AutoCentric in which GM and its dealers would each hold 50 percent equity stakes. GM formed a partnership to use Autobytel.com’s functionality as the engine underlying the effort, which was internally dubbed Retail.com. The pilot, initially scheduled to run 90 days, was extended by several months, but GM ultimately pulled the plug with the admission that “the business model just doesn’t work right now.” Dealers reported that AutoCentric didn’t result in a rise in qualified leads, and the appeal of the equity stake idea went down the drain with dotcom share deflation.

Direct Sales Over the Internet. GM piloted this process in Brazil with a new car model called the Celta. Nearly 70 percent of the model’s 112,000 sales (by year-end 2001) were consummated online. Consumers can purchase a Celta either by accessing the Web from home or by using kiosks at Chevrolet dealerships throughout Brazil. Buyers can also customize their Celta via the Web. The dealer serves only as a drop-off point for the preordered vehicles.

According to GM, Brazil is a price-sensitive market where more than 60 percent of all auto sales are economy models and more than 65 percent of new car buyers have Internet access. Maryann Keller, author of two books about GM and the former president of Priceline.com’s automotive services group, entirely dismisses the Celta’s success as a tax dodge for consumers who benefited from a quirky legal loophole (online purchasers skipped a tax normally levied on the factory-to-dealer leg in a conventional buy). GM says that loophole has since been closed and attributes the price advantage of the online purchase?about $700 less than the showroom sticker price?to efficiencies built in to the supply chain. The Celta’s manufacturing process was designed from the beginning to reflect Internet demand rather than just to crank out cars and push them into showrooms and parking lots.

OnStar. GM’s satellite-based service can track vehicles and unlock car doors from outer space. Launched in 1996, OnStar was put under the eGM umbrella and now has 2 million subscribers, although it is not yet profitable, according to published reports. The cost to subscribers ranges from $17 to $70 per month, depending on the level of service. On a practical note, OnStar provides GM with something OEMs have never had: frequent contact with customers. GM hopes that will prove to be a platform for delivering more services, as it already has in the case of location-based weather and traffic updates, which were added based on user feedback.

The GM Owner Center. Launched in January 2002, this free online service stores maintenance records and manuals for current GM owners, and also provides service reminders and vehicle-value-estimation tools. The site had 14,000 registered members one week after the official launch, which covered only certain GM models. Support for other GM brands is being rolled out in the first half of 2002.

DealerWorld. This online portal includes applications such as the just-launched VIN (vehicle ID number) Lookup, which allows dealers to simplify the formerly cumbersome process of determining what incentives a buyer qualifies for on a given model. GM also recently rolled out a package of services and tools that includes templates for the dealers’ own websites, which provide a consistent look-and-feel and reduce dealers’ burden of site maintenance.

GMAC SmartAuction. This Web-based system allows all GM dealers to bid for leased vehicles that were returned to the dealer and are now owned by GMAC. This process is cheaper and faster than live auctions (shaving 30 to 45 days off the normal selling time) and also reduces the likelihood of damage to autos because transportation to an actual auction site is eliminated. GM has sold more than 188,000 cars that way since launching SmartAuction in early 2000.

For Suppliers: Streamlined purchases, faster product designs

Covisint. This purchasing exchange, formed by the troika of DaimlerChrysler, Ford and GM, is the most-publicized of GM’s links to its suppliers?but it is likely not the most valuable one. GM reports that it has conducted more than 600 auctions on the site thus far. In 2001, the company did roughly $100 billion in auctions on the site, achieving a reduction of 3 percent in its per-transaction costs for those deals, according to published reports. Because GM’s major competitors also use the site, it’s natural to assume that Covisint is, competitively, a wash. That’s not necessarily the case, says Kevin Prouty, research director of AMR Research in Boston, whose clients include the three major OEMs. Prouty says Covisint may provide an advantage to whichever OEMs use it correctly.

It’s one thing to put materials like staplers out for bid. It’s another to toss out a long-standing power-train supplier for a cheaper bid only to spend time making sure that power train is up to snuff. That is a process that Prouty describes as “commoditizing relationships” with suppliers?a mistake he says American OEMs have a history of making.

Instead, Covisint, if used correctly, has the potential to accomplish the opposite by building closer relationships with suppliers, according to Prouty. Companies can simply use the exchange infrastructure to execute deals more efficiently. Will GM do this? “It remains to be seen how they’re going to use it,” says John Waraniak, who handles Covisint for Johnson Controls, an $18 billion automotive supplier based in Milwaukee. “You want to reduce the cost and complexity but complement the relationship.”

GM SupplyPower. This customizable, secure Web portal provides suppliers with relevant GM news, guidelines and specifications, and contact information. SupplyPower covers a lot of ground, including materials, manufacturing, logistics, purchasing and finance, and it helps reduce the personnel and time required to exchange information with suppliers.

Shared “Virtual Factory” Tools. Massive visualization tools allow GM to determine the cost and effect of various changes to factories, factory floor configurations and tooling. They simulate everything from the rate at which material can be unloaded from trucks with a given dock configuration to the likely traffic patterns on roads surrounding the shop.

Joint Product Design. In 1998, GM’s design-to-production cycle took three years. Competitors required two at that point, according to Kirk Gutmann, GM’s product development information officer. Today GM has cut its cycle to a year and a half. Gutmann says the competition is still faster by a few months, but the playing field is more level.

The dramatic reduction of the design cycle started with GM getting its internal systems in order, a process that involved standardizing on a single system (Unigraphics), a single product data management system (I-Man) and a single data model for all of GM’s 14 design engineering centers. After getting the ball rolling on intra-GM collaboration, Gutmann’s group started working toward achieving closer links in the design process. Co-designing a given automotive part helps ensure that the supplier can meet the specifications for that part and also begin the retooling and production process earlier. GM shares both design tools and data files with suppliers, and partially or fully underwrites the cost of software licenses for select suppliers.

It’s going to take some time for true co-design to pervade the auto industry supply chain; a 2001 research study by the Center for Automotive Research found only 12 percent of the respondents were in joint product design with other suppliers. Meanwhile, the competition won’t stand still. DaimlerChrysler, for example, has formed a B2B infrastructure group dubbed E-Connect and recently boasted time reductions of 60 percent to 90 percent in certain steps of its design process. Nevertheless, GM has made great progress in this area.

No small irony: A retiring GM lifer recently commented to Wagoner, “If you keep it up, you’ll be able to make cars as fast as we did in the 1950s,” when vehicle complexity and regulatory requirements were simpler and the cycle took one year.

The Big Picture

With GM forging so many e-business connections, the fate of eGM is a moot point. In fact, GM’s B2C efforts are far less important than the B2B work. And the approach to e-business projects reflects a fundamental change in GM’s thinking, which should prevail regardless of eGM’s future.

On the B2B issue, GM’s supplier-oriented initiatives are more crucial precisely because of the dire need for a refresh of its auto lineup. “The reason their U.S. market share dropped was because they weren’t bringing out cars people really wanted to buy,” says Keller. It’s an open question whether GM’s upcoming designs will reverse the trend, although Lutz helped overcome similar criticisms when he took the helm at Chrysler in 1986, and author Keller says Lutz has already started to make an impact by accelerating certain promising forthcoming models while nixing others. GM’s internal revamp and collaboration with suppliers have put GM back into the race.

Still more significant is the change of GM’s mind-set. “You need a different attitude than when you’re developing a car and you have to meet safety standards, where you can’t afford not to be right,” says Wagoner, when asked what GM has learned from its e-business ventures. “[In e-business] we’d like to be right every time, but the cost would be that we’d be slow, expensive and probably last-to-market in a lot of areas.”

By running limited pilot versions of e-business projects, GM experiments in a cost-effective manner. Asked about how his group determines the right amount of resources to allocate to each project, Szygenda says his team holds sometimes-heated priority-setting discussions, but he ultimately boils it down to “gambling.” Ask GM executives about the goals they set prior to launching various initiatives, and the answers are uniformly nonspecific. That’s true even in a clear success like the Celta, of which GM’s Hogan will only say, “I guess we might have hoped for 50 percent of those sales to happen online, so we’ve been pleasantly surprised.” That attitude reflects a significant shift of mind-set for a traditionally slow industrial giant in a traditionally slow industry.

Expect GM to continue to invest in e-business. The IS group has delivered the lineup of e-business initiatives without breaking the bank, partly because of the small-pilot approach and partly because the IS budget prior to 1996 was so bloated that Szygenda’s group has been able to pay for all the company’s e-business plans while still cutting the yearly IS budget by $600 million to $700 million, to just over $3 billion today. Furthermore, GM holds equity stakes in 38 Internet-based and software businesses?stakes gained without spending a dime, by providing those vendors with product development guidance and one of the world’s biggest customers. (That contrasts with Ford, which bought its way into Internet equity via a $50 million purchase of Internet Capital Group stock in 1999?stock Ford later dumped for less than $1 million.) In all, GM’s e-business work benefits greatly from continuity of leadership. Szygenda has been the CIO of GM for six years. Ford, on the other hand, has had three CIOs during the same period.

By paying for initiatives without crippling company finances, GM is taking a smart approach to e-business. The company takes acceptable risk, runs pilots, learns and pulls the plug when necessary. Critics say GM is too ponderous to act quickly, but regardless of the fate of AutoCentric or eGM itself, GM has entirely defied those critics with its e-business efforts.

In the end, though, e-business won’t amount to more than a small hill of beans if GM can’t significantly raise its share of the market. E-business can’t do that?at least not directly.

No matter how impressive GM’s approach is to e-business, market share ultimately remains in the hands of the design group. Until GM puts compelling vehicles on the market, all the digitization in the world won’t turn consumers’ heads. However, e-business links and process reengineering are steadily chipping away at the time required to get those new designs from the drawing board to the showroom. So Szygenda’s organization?with all the pain and sweat and the occasional missteps that come with the territory for e-business?is making GM’s core business activities faster, cheaper and more effective.

That’s what IT is supposed to do.