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Mr Erkki Liikanen

Member of the European Commission, responsible for Enterprise and the Information Society

"E-commerce and car distribution"

Automotive Fellowship International Ltd.

London, 14 February 2002

Thank you for inviting me to this meeting. It is a pleasure for me to share my views with key players in the automotive sector.

I would like to say a few words about e-commerce and car distribution.

E-commerce concerns the whole supply process, from the ordering of a car to its delivery to the customer. This process has always posed challenges to the whole supply chain. Challenges such as achieving higher quality, reducing inventories and lead times, compressing costs and obtaining the greatest customer satisfaction.

Recent structural developments put additional pressure on the whole supply chain for reorganising and optimising logistical operations. I am referring to:

  • the greater customisation and complexity of products,

  • the respect of growing environmental concerns,

  • the multiplication of distribution channels for both new and used cars, and for spare parts. I am referring to "mass retailers" and online intermediaries,

  • the introduction of the Euro, which has brought about increased price transparency. This price transparency has fuelled the desire of buyers to benefit from the price differentials in the car sector,

and, finally,

  • the revision of the block exemption for the car distribution.

For these, and other challenges, e-commerce represents a valuable tool. E-commerce is well known by the European automotive industry since 1990 when the EDI-based Odette commenced operations and made offline transactions obsolete. Nowadays it is the Internet which is becoming the dominant supply chain information channel, and this at an accelerated pace.

Industry is in the process of evolving from One-to-One relationships (a buyer and a seller) to e-market places, with Many-to-Many relationships (many buyers and sellers interacting at the same time). And industry has already initiated the next step, which is the interrelation of horizontal and vertical e-market places.

Market efficiency requires greater collaboration and integration levels throughout the supply chain. E-commerce is a facilitator of closer collaboration and influences all aspects of the supply chain, from procurement to collaborative execution and collaborative planning. This leads us to the importance of trust for achieving a high degree of competitive advantage. A high degree of trust is necessary for collaborative planning and design.

Supply chain visibility and logistics collaboration can only be achieved by connecting all trade partners: suppliers, carriers, logistical companies and customers. Pure e-business is not sufficient to reduce the average lead times. An e-business strategy is necessary that has been collaboratively developed and makes possible the transparency of information.

Suppliers recognise the importance of e-commerce, but it is still used in many cases only for purely information exchange. This picture is continuously improving, and everyday there are more suppliers responding to bids on the Net and collaborating in product design. Increased on-line product quoting, increased knowledge sharing and collaboration through the Internet are becoming more common.

The overall impact of e-business is expected to be very positive for all stakeholders. Analysts expect that there will be savings retention in each step of the value chain, from all tiers to the dealer. And most of the savings will be transferred to the consumer.

The next steps for a greater market efficiency seem to be:

  • to increase consumer utilisation of the Internet to place orders for new and used vehicles,

  • to build an extensive integration of the supply base through strategic alliances,

and finally,

  • to upgrade the integration of back-office and supply chain systems; this would allow a seamless communication throughout the supply chain.

Industry has understood that e-commerce is a tool for enhancing business by building on virtual integration and going far beyond procurement to include areas such as product development and design.

B2B Internet platforms related to the automotive industry have different characteristics, from the points of view of ownership, strategy and technology base.

I would like to refer to three of them: Covisint, "VW Group" and SupplyOn.

Covisint is a platform exclusive to the automotive sector, in which Ford, GM, Daymler-Chrysler, Renault-Nissan and the PSA group participate. Covisint founders identified complexities in the supply chain for which a response was needed. The main complexities were:

  • companies had to run multiple, simultaneous projects,

  • the products were highly engineered ones,

and finally,

  • there was a large number of participants in the supply chain.

The response was to facilitate the integration of business processes by delivering a comprehensive and integrated solution. In December last year over 4,600 companies had signed to use Covisint, and this e-marketplace should be profitable already in 2002. It is actively co-operating with all stakeholders to achieve common global standards and standardised business practices. Its architecture is based on scalable, open standards. This exchange offers a comprehensive range of services, which is going to be extended with a cross-product functionality.

Ford has reached an agreement with Covisint to host the next generation of the Ford Supplier Network, which should be operational by this month.

"VW Group", Volkswagen's e-market place, will include all the demand of components and other goods for all the companies belonging to the Volkswagen group. This aggregation was difficult to manage before the development of the internet technology. Volkswagen's e-market place continues to expand. Last year, over 500,000 transactions took place through this platform. It will eventually cover the entire procurement volume of € 50 billion for the whole group. The platform already conducts auctions. Volkswagen has reported a reduction of process times by 95 percent through the simplification of procurement procedures and the optimization of logistical processes.

Component suppliers are making similar moves as car manufacturers to set up platforms for their own B2B purchasing operations. Bosch, Continental, ZF and INA have launched "SupplyOn", a supplier purchasing network. The main purposes of this exchange created by suppliers for suppliers are:

  • to optimise the capacity of the supply chain by cumulating the demand of specific components or systems,

  • to work with car manufacturers in the design of components or systems.

In addition to eProcurement, it also covers eLogistics and eEngineering, and provides a lot of support to its users.

SupplyOn is a global company with offices in Europe, America and soon in Asia. This exchange started its commercial operations in June 2001, and counts already with more than 540 registered suppliers. The transaction volume for the second semester of last year was around € 2bn.

In November last year SupplyOn signed an agreement with Volkswagen for the creation of an interface between Volkswagen's supplier-portal and SupplyOn. This interface will allow suppliers to reply to the bids of Volkswagen through SupplyOn. The company is already discussing similar agreements with other car manufacturers.

With regard to the final car consumer, Internet is increasingly used as a tool to prepare for a car purchase, to gather information about optional equipment and compare different offers.

A recent study has forecasted that the use of the Internet will be involved in three out of four car purchases by 2005 in Europe. The Internet will be a key instrument in the achievement of the Internal Market in the car retail sector, as consumers increasingly shop around for the best deal from their own homes.

It is not so much used to make the actual transaction. The large majority of consumers prefer to buy their cars in a "brick and mortar" dealership.

On-line new car sales are not expected to become significant in relation to total sales. Market forecasters estimate that by 2010 on-line new car sales will only represent a 10 percent of total car sales. This seems a modest figure when seen the expected boom of Internet penetration in the coming years.

Some car manufacturers have run pilot projects for direct sales through the Internet. One of them is OPEL, which launched in 2001 a web-site that offers some models that can be bought on-line. Nevertheless it is a dealership which fulfils the order.

Internet may affect the respective roles of car manufacturers and dealers. Traditionally, dealerships were the first sales contact points for car buyers. Now car manufacturers, through their web sites, may become the first sales contact point and obtain enhanced customer knowledge and customer relationship. Dealerships will continue benefiting from physical proximity to the customers, permitting view of the car, test-drives and conclusion of contracts.

A minority of the consumers see web sites as a chance to get better prices. For them Internet is not only a source of information but also an alternative to the traditional method of buying a car. These consumers are the most inclined ones to visit the web-sites of the on-line intermediaries. There are two Internet models for on-line intermediaries:

  • Third-party buying services. These do not sell new cars, but refer customers to dealers. An example of a company operating in Europe is "".

  • Direct brokers. These sell directly to consumers. "" and "" are European examples.

Against this background, the role of the regulator is to facilitate these developments as much as possible. This brings me to the second point I wanted to discuss : the review of the European rules on car distribution, also known as the car block exemption.

At the beginning of this month, the Commission adopted a proposal for a new block exemption regulation on car distribution, to replace the present system from next October. This proposal will now be discussed with the Member States and also published for comments by all interested stakeholders in the industry.

The key changes proposed to the current system are aimed at improving intra-brand competition and the functioning of the Internal Market. This should lead to a reduction of price differentials between the different Member States. In addition, there is the need to take account of the changes in distribution that have taken place over recent years and to reinforce the independence of dealers.

It is clear that the benefits of more liberalisation had to be weighed carefully against the potential risks inherent in too radical an approach. After all, the European motor vehicle industry is one of the most important economic sectors, and is notable for its high rate of innovation. Therefore, the new draft regulation reflects a carefully balanced approach.

The proposal is based on the findings of the evaluation report on the current arrangement established by the Commission. The main conclusions of this report are the following:

  • The existing regulation has a straightjacketing effect because it allows car manufacturers to establish distribution systems based on cumulating exclusive and selective distribution.

  • The role of parallel trade in reducing price differences in Europe is still marginal. The current system has been misused by some manufacturers to block parallel exports, as prominent antitrust cases within the last years have revealed.

  • The link between sales of new cars and after sales services is too rigid.

  • New marketing methods, such as sales via Internet or via multi-brand dealerships, are difficult to use under Regulation 1475/95.

  • Other important issues relate to better access to technical information for independent repairers, better access to dealers for spare part producers and the strengthening of dealers' independence in general.

The proposal adopted by the Commission follows an economics-based approach and offers greater flexibility to the market participants in organising their distribution networks:

  • It offers a choice between a spectrum of distribution systems. However, cumulating exclusive and selective distribution will not any more be allowed.

  • In order to facilitate European-wide transactions, active sales over the whole Internal Market by dealers in a selective distribution system can no longer be prevented. The role of intermediaries is strengthened, and sales via Internet of official dealers cannot be limited. Furthermore, multi-branding is facilitated.

  • The link between sales and after-sales is reorganised. Distributors can, for example, either choose to specialise on sales or to offer both services. In case they opt for the first choice, they have to subcontract after-sales services to a repairer within the official network.

  • Furthermore, the proposal secures the non-discriminatory treatment of independent repairers, and it strengthens dealers' independence, for example by an improved protection against unjustified termination of contracts.

It is foreseen that the new regulation will be in force until 2010, at the same date as the general block exemption regulation on vertical agreements expires. This will enable the Commission to review the general distribution situation in all industries simultaneously.

It is clear that e-commerce and distribution issues are closely intertwined in the car industry. The proposed regulation on motor vehicle distribution has taken this into account, without overshooting into a direction where markets have not yet arrived.

Safeguarding more flexibility for the organisation of networks is an important step. It provides market players with the opportunity to develop their systems in a way that corresponds to changes in the industry.

In conclusion, developments in e-commerce and car distribution seem to be going in the right direction: satisfying the demands of society in the best possible way.

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