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Ford’s E-Business StrategyMay 10, 2000Ed DavisBrandt Allen Brandt Allen, 2000 Brandt Allen, 20001
Whywould anyone buy a car on the web? What sort of person? What sort of car? What are the risks? Brandt Allen, 2000What’s Ford’s E-Business Strategy? Brandt Allen, 20002
What’s Ford’s E-Business Strategy?Will it work?Does Ford have the power to do this? Brandt Allen, 2000We are also working on an e-business strategy thatwill link the dealer and customer as well as theengineering and manufacturing functions to allow avehicle to be custom-built through the Internet. Wecall it order-to-delivery, and it will allow customersto custom order our B-2-C and B2-B initiatives. Itwill also speed up the purchasing andmanufacturing process as well as the deliveryprocess. As the vehicle is built, the customer willactually be able to track its day-to-day progressover the Internet.John F. Smith, Jr., Chairman and CEO, GM, April 18, 2000 Brandt Allen, 20003
Why so much excitement about these B2BExchanges and Trading Hubs? Brandt Allen, 2000But the going is slow, Forrester Research (FORR),based in Cambridge, Mass., estimates that onlyabout 1 percent of b-to-b trade will be conductedthrough online marketplaces this year. A separateForrester survey of 80 executives at large U.S.companies also found that 77 percent had yet toexecute a single transaction through an onlineexchange.“ B-to-B Exchanges: Lots of Wheeling, Little Dealing”The Standard, May 01, 2000 Brandt Allen, 20004
Automobile Supply Chain Costs for the TypicalNorth American Vehicle(Dollars per vehicle)ProductDevelopment 1,8657%Manufacturing 16,20062%OEMOverhead 1,6957%450109 514Purchased Materials 11,2851,029604431 661Order-toDelivery 6,24524%net 22,700Retail,604431250 702 26,0009083002,100381 5703,200201 7474,4593,3851,007457857 1891,462DdnR& ering rhea iatio itiesee rec modgin ovEn fg. Dep ComM1Includesoreed ryLab iation - add ento hargcInv ital cpre alueepDCarvehOtAsor rynty G& Taxe rofitsLab ento argerraPInv ital chWapaC11stldutslyFie reigh ing ntor lling head unts k -o losse TotaFsrtis nve ir.Seer isco toc MixevosvIS.O DDGrriAd Dir.Ddealer and factory costsSource: GS Research Analysis Brandt Allen, 2000How does the Trading Hub fit the Strategy?Is this another supplier Squeeze?How much can you take out of the costs of a car on theback end? Brandt Allen, 20005
Inventory Carrying Costs Add Almost 750 to the Price of aCar in North AmericaInventory Value (billions of dollars)Inventory Carrying Cost (dollars per vehicle) 123 21 11 74RetailStock 133 49ManufacturerWIPTier-OneSupplierWIPBack -End 109Front -End 74OtherSupplierWIPTotal 310 68Back -End 17 431RetailStockFront rWIP 431TotalFront -EndManufacturer& SupplierSource: GS Research Analysis Brandt Allen, 2000Potential Back-End Supply Chain Cost Savings(MM Dollars per vehicle)1,200 1,0641,00 94SupplierManufacturer 70 47800 147 695 91600 187400 115 50 67 362000 368 84 eProductivity Scrap andAlignConsolidate Align withGainsRework Specifications VolumeLow CostSuppliersTotal SupplyChainSource: GS Research Analysis Brandt Allen, 20006
Ifthe Trading Hub is key to Fast MassCustomization and Integrated Supply Chains, Why join with GM and Daimler and slow yourself down? Why would you sell out? Brandt Allen, 2000Savings Potential of Online B2B, B2C and Make-to-Order(dollars per vehicle)4,000 3,64314% Reduction inSupply Chain Costs3,5003,000 1,531 1,5312,5002,000 1,0481,500 1,0481,000500 2,112 1,0640Back-EndOnline Direct SalesMake-to-orderTotalSource: GS Research Analysis Brandt Allen, 20007
How do the Dealers fit into the new plan? Brandt Allen, 2000FinanceAutoNationTier 2NationalCar RentalTier 1SuppliersKwikFitTier 2Tier 2Tier 1SuppliersTier 1SuppliersBuyerConnectionFordMotor el Brandt Allen, 20008
How do the Dealers fit into the new plan?Does Ford need the Dealers? For What?Are Dealers “Competitively Disadvantaged”?Can manufacturers get around the franchiselaws?Do they want to? Brandt Allen, 2000What should you be doing if you were a dealer? Brandt Allen, 20009
Whatis Ford trying to do with: Buyer Connection Dealer Connection Owner Connection Brandt Allen, 2000In late March, Ford sent a warning memo aboutworking with such brokers to its dealers, putting theindustry on edge. “It has come to our attention that certain all-makes Internet services arerequesting that Ford dealers make available for salethrough their services new vehicles at a specificprice or agree to pay a fee for any sales negotiatedby such service.” James O’Connor, president of theFord division, wrote in the memo. Specific pricerequirements and transaction-based fees fall underthe definition of auto brokering, an illegal practicein many states.“Car Makers and Sellers fume over E -commerce rights”Source: www.redherring.com, May 01, 2000 Brandt Allen, 200010
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Brandt Allen, 2000 Information,Communications, Entertainment,Safety Concierge Services Navigation Systems Satellite Radio Internet Access Collision Notification, Stolen Vehicle Tracking Hands free phones Remote Vehicle Monitoring Brandt Allen, 200012
Examples of Ford Motor Company’s Downstream ParticipationRevenue stream for a midsize car over ten years and 100,000 miles,1 1995, Typical automaker participation:43% of revenue stream New price (20,341) Dealer margin (1,311) Incentive (1,500) Warranty cost (400) OEM holdback (509) Shipping (550) Floor plan (316) Dealer options (400) Dealer preparation (25) National advertising (100) Direct advertising (285) Extended warranty (250) First finance (3,689)TotalFord’s downstream29,676participationSales tax23,395Ford Credit used -carAuction fee 75financing, Certified UsedCar ProgramSecond finance 2,900Third finance 1,500Co-branded insurance 3,Internet auto insurance4Insurance6,610Aftermarket accessories 1,000Aftermarketaccessories on-l i n eLicense, registration, taxes 2,110Gas, oil6,000Kwik Fit, AutoCollectionsMaintenance 2,600Repairs4,090Dealer tire salesTires 1,400Rescu telematicsCell phone4,700Audio software 400CD Radio allianceAPCOParking475Extendedwarranty5Tolls 210Collision TeamCrash deductible 500of AmericaWash, miscellaneous 1,350Scrap 100Copher BrothersUsed parts 400Auto PartsRecycle value 10069,5911Revenuestreams not listed here include driving school, fleet leasing, direct Internet used-car sales, CarClub.com Internet shoppingservice, Microsoft CarPoint build-to-order alliance, and Ford Concierge Services2Assumes 7% sales tax rate and three sales of car in its lifetime3Service through The Hartford4Service through Insurance Holdings of America5Also offered for non-Ford productsSource: Kelley Blue Book; National Automobile Dealers Association; American Automobile Association; Runzheimer International; FederalReserve System; American Automobile Manufacturers Association; press clippings; Ford Motor Company Web site; McKinsey analysisBrandt Allen, 2000 Brandt Allen, 200013
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Whatare these other players trying to do? AutoNation AutoBytel CarsDirect Greenlight Brandt Allen, 2000 “Theauto dealer’s challenge is a warning to webheads in every industry who dream of cutting outthe middleman and selling directly to customersonline.” WSJ,May 10, 2000 Brandt Allen, 200015
Source: Merrill Lynch Online Brandt Allen, 200016
1Revenue streams not listed here include driving school, fleet leasing, direct Internet used-car sales, CarClub.com Internet shopping service, Microsoft CarPoint build-to-order alliance, and Ford Concierge Services 2Assumes 7% sales tax rate and three sales of c
