Can Covisint Climb out of a Ditch?

Detroit's e-exchange has a new boss--and a renewed plan

In February, 2000, the Big Three auto makers announced they would merge their e-commerce activities to create the world's largest online exchange. Its startup team crowed about the $600 billion in purchasing between carmakers and their suppliers that the site would soon tap into. The efficiencies of this electronic marketplace would save the industry billions on parts and materials costs. And that, in turn, would shave up to $3,000 off the price of a new car. Wall Street pundits piled in with their own predictions: The site, later dubbed Covisint, would soon blossom into a profitable enterprise, and its imminent IPO would raise as much as $10 billion.

To put it tactfully, Covisint hasn't lived up to all the hype. It took the site's startup team three months to come up with a name, and an additional 12 to find a chief executive. Even now, there are no clear technical standards governing advanced activities on the site. And the business plan is a moving target. Other than the founding partners, many auto makers are keeping their distance. Parts and materials suppliers are also acting shy. Snipes Michael J. Suman, group vice-president for marketing and e-commerce at Johnson Controls Inc.: "We're not feeling any pressure to use Covisint."

Such are the challenges that greeted Kevin English on May 1, when he began work as Covisint's first permanent CEO. Formerly the head of Inc., a now struggling financial Web site, English knows how hard it is to sell ideas that smack of dot-com idealism. English's e-commerce credentials ring true, but industry insiders are skeptical. "I don't know what the advantage is of having a dot-com background. You need to understand the auto industry," says market analyst John Fontanella of AMR Research.

Still, English is committed to putting Covisint's original vision on a fast track. The site won't just auction off low-tech staples such as tires and office supplies like other exchanges. It aims to be a one-stop auto industry supermart, offering everything from collaborative design tools to software for inventory management and logistics planning. "It will take time," he concedes. "Covisint is a sophisticated technology company that requires a lot of heavy lifting."

AMBITIOUS. Many of the services English is now promoting were part of Covisint's original business plan. But as the company struggled on many fronts, these services never made it to market. If English can deliver on this renewed vision for Covisint, its proprietary software will enable the industry to design and develop vehicles and parts collaboratively, with partners sharing information through Covisint's secure data environment.

Covisint executives--and its fans inside and outside the auto sector--believe that the exchange may yet prove revolutionary. Much as Microsoft's Windows environment galvanized personal computing, Covisint will set one standard for software systems used by suppliers and auto makers. In addition to spurring design collaboration, this will give them a common auction house for parts, which will include software tools for financing, bid management, currency exchange, and logistics. It is an ambitious proposition, without parallel in any industry to date. "You have to have a little vision," says Enrico Digirolamo, a former General Motors exec who, along with Ford's Alice Miles and Daimler's Peter Weiss, shared CEO duties during the launch.

Some auto industry experts remain unconvinced. After a year of software development, Covisint is still in its infancy. Of the 350 people working at its Southfield (Mich.) headquarters, all but 100 are contractors. Covisint has run $1.5 billion worth of goods through its auctions and online purchasing systems, but $1.15 billion of that comes from the Ford Motor Co. (F ) and General Motors Corp. (GM ) sites that were folded into Covisint. All told, the $600 billion goal still seems a stretch. "They're only trading commodities," sniffs Thomas J. Stallkamp, the former president of DaimlerChrysler Corp. (DCX ) who now heads supplier consulting firm MSX International.

MANY WOES. Insiders say the problems aren't all homegrown. A five-month antitrust probe by the Federal Trade Commission last summer practically froze the new venture in place. With regulators nosing around, none of the Big Three could commit all of their staff and resources to the new venture. New software development suffered. Meanwhile, in its haste to show results, Covisint tried to cobble the existing systems of GM and Ford together, rather than shop around Silicon Valley for the best new approaches to managing an exchange. The upshot: "The FTC probe was necessary, but the cost to the auto industry was huge," says A. Alan Turfe, a former acting CEO of Covisint.

As if Covisint didn't have enough problems, competition is heating up. Viewing Covisint as too Big-Three oriented, German auto maker Volkswagen went out and formed its own exchange last year. And materials suppliers looking for a sales outlet have plenty of other options, including such sites as Plastics Exchange, Metal Source, and e-Steel. Some big auto-parts suppliers have also jumped into the business, including Robert Bosch Corp. in Farmington Hills, Mich., and Germany's Siemens Automotive Corp. "I don't think Covisint will be the one-stop shop for everyone," says Bill Macfarlane, Siemens' chief information officer. According to Charles J. Donchess, chief strategy officer for Commerce One Inc., one of Covisint's software providers, the exchange has aggravated the problem by giving too little attention to parts suppliers.

English now says he will cater to suppliers. At the same time, he hopes to raise Covisint's global profile. During May and June, English plans to go to Europe to pitch the company's services to the likes of Volkswagen (VLKAY ) and BMW--and to parts suppliers as well. "This is a truly global enterprise," he says.

Launching a raft of new products and services is the next item on English's agenda. For example, the company is developing new systems that will help Covisint's customers handle shipping, carry out import and export activities, and manage bids and contracts online. Instead of turning exclusively to Oracle Corp. (ORCL ) and Commerce One (CMRC ), as in the beginning, Covisint is tapping a broader pool of e-commerce specialists--software startups with names like Mercator, Documentum, and NexPrise/EAI. Programs from SupplySolutions, in particular, will help Covisint customers manage inventory and production more efficiently.

HIGH HOPES. Down the road, English hopes to deliver even more advanced types of functions. Sometime next year, he will start offering tools to boost engineering collaboration among carmakers and suppliers. He also intends to make software from third-party providers available on the site, and to charge customers a subscription fee in return for access.

Suppliers have high hopes that Covisint will take off. They would welcome tools that enable car and parts makers to show each other their production schedules, for example, so that they can plan their workloads and inventories based on real demand for cars. Says Siemens' Macfarlane: "I find it hard to see how we'll do supply-chain management without Covisint." It's nice to hear that sort of thing from a customer this time and not from the horse's mouth.

By David Welch in Detroit

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