Covisint: The Day After

Gartner analyst discusses CEO appointment at auto industry e-marketplace

Tempe, AZ  April 19, 2001  The appointment of Kevin English as chairman, president and CEO of Covisint, the coalition e-marketplace for the auto industry, seems to have raised more questions than it answered.

Why appoint English, an industry outsider with experience in technology and finance, to oversee a marketplace charged with bringing order to the complex, immense web of the auto manufacturing supply chain? Why would English accept the job, which went unfilled for more than a year? And with this milestone behind it, what are the next challenges for Covisint?

To gain some perspective on these issues, iSource Business spoke with Thilo Koslowski, a senior research analyst covering the auto industry for technology consulting firm Gartner.

iSource Business: What is your general reaction to English's appointment

Koslowski: It's a good thing that they do finally have a CEO. However, that won't make it easier to get Covisint up and running.

It doesn't surprise me that they chose somebody from outside the automotive industry simply for the reason that they didn't want that person to be too closely related to one of the manufacturers. They couldn't choose someone from Ford or DaimlerChrysler or GM because that would have been a biased person. And in case the marketplace doesn't take off, they can blame it on the person who came from outside the industry, not someone who represents a certain manufacturer.

They probably told him a lot about the opportunities that Covisint can provide. Potentially it's a huge marketplace, funneling trillions of dollars of materials and parts through it. What they probably did not tell him was that it's not that easy to get suppliers to do business over Covisint for various reasons, first of all because of the lack of trust and the concerns that the manufacturers will squeeze out more profits, as well as the complexity of moving the entire value chain over to do business on Covisint. That's something I think that he's not aware of yet, and he will have to learn this over time.

iSource Business: Why would someone like English, coming from his background, take on this type of challenge?

Koslowski: He has a technology background, an e-commerce/e-business background, but maybe he's not really aware of how sensitive it is to communicate between manufacturers and suppliers in the automotive industry, and how huge this industry is.

We're not talking just about the tier-one suppliers. In order to make this really work, you also have to include the tier-two and tier-three suppliers. That's the only way that you can get to an optimized supply chain and maximize collaborative design and all the other things that Covisint wants to establish. Maybe he was a little bit naïve about the complexity and problems.

iSource Business: What is your general sense of how Covisint is shaping up

Koslowski: It has been slow in the past. Something that always surprised me was that, in the beginning, they never tried to target any of the smaller suppliers. They were primarily focusing on the tier-one suppliers. Which makes sense: those are the biggest ones. But at the same time, you have to start talking to the other ones in order to get everyone doing business over Covisint. That didn't happen in the beginning. Now it seems like they are thinking about getting those suppliers onboard as well, but they have lost some time.

The other challenge is simply the complexity of the market. You have thousands of suppliers out there. Of course, you can't get all of them to do business over Covisint, but you still need the major tier-two and tier-three suppliers as well. That will take a lot of time, because you have to talk to each of them individually and come up with a solution that will allow them to integrate their existing infrastructure into Covisint.

iSource Business: Are the Big Three sufficiently committed to making the investments necessary to make Covisint work?

Koslowski: That's the other concern I have. Don't get me wrong: I think the automotive industry ultimately has to arrive at a marketplace like Covisint. That's the only way to do business in the future because profit margins are shrinking, competition is getting stronger and cars more and more are becoming commodities. They have to do something like this.

However, right now they are pumping a lot of money into it without seeing any returns. I read a number like $17 million a month. That's what they have been pumping into this, which doesn't surprise me because they are currently doing business with all the major consulting companies, a whole bunch of different service providers and so on. You have to pay those folks first.

So there is no revenue yet, and it's not really working yet, either. That would be a problem, especially if you think that the market is already slowing down. That means that car manufacturers don't have [as much money] available as in the past couple years.

They still have a huge [cash reserve] from the last couple years, which were record years and which made them really fat. But at some point they can't afford this anymore. That's why I'm concerned. If we don't see Covisint being an established marketplace by the end of this year, with the manufacturers doing at least some transactions, then I think the interest [in Covisint on the part of the car manufacturers] will go away.

iSource Business: But you still feel that the automakers will have to come to something like a Covisint sooner or later?

Koslowski: Yes, they will have to come back to that again. But the interest will be really slow, and everyone will probably wait until the fat years come back again so that they have money to spend on this.

Interview conducted by Andrew K. Reese for iSource Business.