DETROIT - Ford has held the auto industry's first online auction for production parts. Five tire manufacturers bid on three separate contracts for a future truck platform.
Although some suppliers are worried that auctions will depress prices, the head of Europe's suppliers association said members would have to live with the new technology.
Ford saved about $14 million by using its new online AutoXchange, rather than the traditional method of sending suppliers requests for quotes with a deadline.
Two of the five tire manufacturers landed the contracts worth a total of $78 million.
What used to take weeks, even months - negotiations by mail and in meetings - now becomes 'a real time event there on a screen for a matter of hours,' said Donald Botka, vice president of Ford account management at Continental General Tire Inc., sources say won one of the contracts.
The five tire manufacturers were bidding on contracts to provide Ford with three different sizes of tires for the future truck. Submitting bids were Michelin North America Inc., Goodyear, Continental General, Bridgestone/Firestone Inc. and Hankook Tire America Corp.
'Ford is the first to do it,' said Ralf Bergner, managing director of CLEPA, the European suppliers association. 'We will live with it.
'For simple components, it's not really a concern,' he said. 'I can't see subsystems and complex systems going to auction. You make such detailed specifications that result only after long months of discussion.'
The Ford bidding process - called a reverse auction - was held in early February and was supposed to take about 90 minutes. Instead, it took about 10 hours.
'Ford is still working out some of the bugs,' Botka said. 'There are some refinements that they recognize that need to be made. Because it was new, I think it was tolerable.'
Tire manufacturers and others familiar with this online auction said that it was set up so that an additional 30-minute period was added after a bid was made to allow the other bidders to respond.
Ford started the bidding at just under $100 million for the three contracts. It is called a reverse auction because the tire makers then began bidding down. Each bidder already knew the volumes and specifications of the three individual contracts.
'From there, it was just left open to the marketplace - how much are you willing to go to get this business,' Botka said.
Some tire manufacturers say it is too early to say if online auctions will be advantageous to the suppliers as well as to Ford.
'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 Michelin spokesman. 'We will not sacrifice profitability in order to gain market share.'
It is a reality of modern business that the automakers are seeking to lower their costs, Fanning said.
'We see a paradigm shift in the automotive industry as technology becomes a pervasive driver for change,' Fanning said. 'We see on-line auctions as just one example of this trend.'
The original equipment tire business has always been intensely competitive, said Saul Ludwig, an analyst with McDonald Investments Inc. in Cleveland, Ohio, USA.
'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,' Ludwig said.
Ford seems to be pleased with the way in which the online auction worked, said Botka, of Continental General.
'I thought it was professionally done,' Botka said.
Ford was scheduled to hold another online auction on Friday, February 25, also for tires for a future platform.