Automakers rev up Web strategies

It's fun to ogle the sleek concept cars that automakers parade at auto shows this time of year, but every enthusiast knows that they are largely objects of fantasy. The economics of mass production will tone down the voluptuous lines and bold colors until something sadly subdued rolls off the factory floor.

Those cold and sobering forces could also tame automobile makers' grand visions of a future based squarely on the Internet.

Executives at Ford, General Motors and other carmakers have been spending a lot of time talking about how they plan to transform their companies from icons of the Rust Belt to emblems of the Internet Economy. They are making admirable progress in both selling cars over the Web, and in making Internet access available in their vehicles. But the real payoff for the auto industry is in driving the Net all the way through their supply chains - linking through a single network the companies that make seat belts and the consumers who buckle up.

"This is nothing short of reinventing the automotive industry," says Ford CEO Jac Nasser. If Ford or one of its competitors pulls it off, it could add billions to its market capitalization and reduce the time it takes to build a car from a few months to several days.

Ford and GM have been racing to put their supply chains on the Internet by building online exchanges. Ford is expected to allow catalog purchases on its site starting Jan. 30; GM is aiming to be up and running in February.

Eventually, such sites could be the central information and trading nexus for the entire auto industry - which is a healthy slice of the U.S. economy. In the long run, the exchanges could handle most of the roughly $90 billion in parts and supplies used each year by Ford and GM. The companies believe Web-based purchasing can cut their spending on parts by 10 percent.

There are other financial incentives. The two auto giants have their eyes on another prize: taking their business-to-business exchanges public.

Ford's AutoXchange, which is a joint venture with Oracle (ORCL) (the automaker owns a 65 percent stake), was initially scheduled to go public within 12 to 18 months of its November launch. But Oracle President Ray Lane says that might be accelerated to nine months, which would place the IPO as early as the third quarter of this year. While issuing stock in a company that so far has no revenues or real operations is not unprecedented in the Internet world, the idea is causing stomachs to churn in the Motor City.

"Their treasury department is throwing up all over this," Lane says of Ford, which he adds normally wouldn't think about going public with a venture like this for 10 years.

GM also plans a stock offering for its wholly owned subsidiary, TradeXchange. It's not hard to see why. Auto companies' stocks typically trade at less than 10 times earnings; Internet stocks often trade at far more than 10 times revenues.

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