Leading auto suppliers are questioning the value of Covisint - the web-based purchasing exchange set up by Ford Motor Co., General Motors and DaimlerChrysler - after learning they will not be offered stakes in the venture.
'Where's the value? Where's the business model? We are still waiting for that,' said an executive with a Tier 1 supplier that will use Covisint.
Select suppliers have advised Covisint planners on how to operate the exchange, but they have little evidence it will improve supplier profitability, said the executive, who asked to remain anonymous.
Having a few suppliers with an ownership stake would have ensured that concerns of both automakers and suppliers are addressed adequately, said Michael Heidingsfelder, a partner with Roland Berger Strategy Consultants in Troy, Michigan, USA. Without equity, Heidingsfelder fears some companies may not use Covisint to conduct business with their own suppliers.
Covisint is expected to be the world's largest Internet marketplace, handling up to $750 billion in annual purchases by automakers and suppliers.
Planners say companies using Covisint will save money by reducing the cost of purchasing parts and supplies, quicker product development and more efficient communication between suppliers and automakers. But some suppliers fear it could drive down their prices and margins.
Equity partners Ford Motor Co., General Motors, DaimlerChrysler, Renault SA and Nissan Motor Corp. considered an ownership stake for some suppliers but settled on profit sharing.
The Tier 1 executive said profit sharing would be in the form of a discount on the fees Covisint will charge suppliers for transactions. But discounts will be offered only after Covisint meets its minimum profitability level.
'So there are a lot of loopholes and qualifications in it,' the executive said.
Neil De Koker, managing director of the Original Equipment Suppliers Association in Michigan, asked for a small equity stake for the organization that represents 235 suppliers and global automotive sales of $270 billion. De Koker holds out hope for a stake.
Freudenberg-NOK of Plymouth, Michigan - the latest supplier to announce it will use Covisint - has helped since last May to develop Covisint, said Sallianne Williams, company vice president of automotive e-commerce.
Williams, who said Covisint is listening to suppliers, sees benefits from using the exchange in product development and supply-chain collaboration.
For example, if Freudenberg-NOK gets an engineering change from an automaker through Covisint on an engine mount, the information can be sent instantly to engineers throughout Freudenberg-NOK's own supply chain, she said. That will reduce the time it takes to make the change.