FTC Approves Car Makers’ B2B Web Exchange

A joint venture by some of the largest auto makers in the world to create a global online marketplace for car parts won the tacit approval Monday of the Federal Trade Commission, alleviating concerns that such ventures would be squelched by the government as anti-competitive.

On a 4-0 vote, the commission closed its antitrust investigation of Covisint--a partnership formed between General Motors Corp., Ford Motor Co., DaimlerChrysler, Renault and Nissan Motors Co. The investigation was the first by the FTC of an online business-to-business exchange. Business-to-business commerce on the Internet is expected to hit $1.3 trillion annually by 2003, according to EMarketer Inc., a New York research firm.

The government cautioned that Covisint must still be closely watched for antitrust abuses that could arise once it is up and running.

The FTC “reserved the right to take such further action as the public interest may require,” according to a statement from the commission.

But FTC Chairman Robert Pitofsky seemed to signal that the government is keeping an open mind in reviewing these new types of Internet exchanges, which have brought often-fierce competitors together into large global ventures.

“The antitrust analysis of an individual B2B [business-to-business exchange] will be specific to its mission, its structure, its particular market circumstances, procedures and rules for organization and operation, and actual operations and market performance,” he said.

Bruce Temkin, an analyst of online B2B exchanges for Forrester Research in Cambridge, Mass., said that many business people had been worried that the FTC would over-scrutinize Internet exchanges, which have popped up in virtually every industry, from medical supplies to airplane parts.

“The FTC’s decision is a signal to people that they can get off the sidelines and stop worrying that these exchanges are anti-competitive,” Temkin said. “It’s a positive signal for all exchanges in all industries.”

Germany’s antitrust regulatory agency, the Bundeskartellamt, has yet to complete its review of Covisint. Once it does, Covisint will have crossed its last regulatory hurdle to begin global operations.

The FTC’s decision, however, is a significant step forward for Covisint, clearing the way for the company to focus on what may be the most difficult task--melding the patchwork of partners into a working whole.

“Covisint is a collection of very competitive players all jockeying now for position,” Temkin said. “It’s like a bunch of strangers dating each other for the first time.”

The creation of the marketplace was originally hailed as a prime example of “coop-etition”--the joining of competitors for common gain--in the “new economy.”

But there have been some signs that the alliance is still working out the kinks of the partnership.

Covisint’s interim co-Chief Executive A. Alan Turfe left in the summer to take over an Atlanta-based online specialty metals marketplace. Covisint so far has not hired a president and there has been some debate over where the company will be headquartered.

The new firm could be based in California, close to the centers of technology on which the company will operate, but several Michigan locations are lobbying intensely to be the site of the Covisint headquarters, including Oakland County north of Detroit, Ann Arbor to the west where the University of Michigan is located, and along a highway leading north of Ann Arbor that local officials are trying to turn into a high-technology business corridor.

Covisint is temporarily based in Southfield, a business center in Oakland County. It plans to open offices in Europe and Asia after it begins operations.

Temkin said the turmoil of melding the companies could result in the withdrawal of one of the major partners, possibly GM or Ford, which have been the driving forces behind the alliance. Some reports have speculated that Ford is considering pulling out of the partnership.

Fara Warner, a Ford spokesperson, said there is no truth to such reports. Brian Kelley, the Ford vice president overseeing the company’s involvement with Covisint, added that Ford “continues to be fundamentally committed to the success of Covisint.”

Covisint was formed by GM, Ford and DaimlerChrysler in February as a way of moving the now-laborious process of buying car parts and auctioning off surplus components onto the Internet.

Each of the companies had previously announced competing trade exchanges, but suppliers, daunted by the prospect of dealing with multiple Internet exchanges with differing platforms and technologies, drove the three companies to form a single trade exchange. Nissan and Renault later joined the partnership.

The online marketplace will allow suppliers and buyers to automate routine transactions and streamline the bidding process for everything from car windows and fuel injection parts to paper clips and paint.

The transaction would take place through electronic sales, auctions and “reverse auctions,” in which buyers state their needs and receive bids from sellers.

The partners said at that time that they intended to move all their purchases--totaling $250 billion a year and involving 60,000 suppliers--onto the Internet.

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Reuters contributed to this report.