Covisint's exit from auctions not likely to have big impact

By Richard Truett, Automotive News

Detroit, Michingan-Covisint's decision to shed its online auction business is expected to have little impact on an industry that has watched the company struggle since its founding nearly four years ago.

Paul Manns, Covisint's marketing director, says last week's sale to FreeMarkets Inc. of Pittsburgh will allow his company to focus on its latest product, an electronic data messaging service introduced in November.

Neither company would provide terms of the deal.

Manns calls the move logical. “We have been evolving our business message service and portal,” Manns says. “[The sale] is the next logical step in making that happen.”

In October, Covisint said it was dumping electronic catalogs and hinted that the auction business could be next to go. Catalogs and auctions were the core of Covisint's business model after the exchange began operating in 2000.

Manns would not say what percent of Covisint's business came from auctions. But Covisint said in March that the figure had shrunk to 40 percent, from 70 percent about a year earlier.

The Big 3 created Covisint, of Southfield, Michigan, in 2000 and have poured at least $270 million into it. Covisint has never revealed revenue figures, but Manns says the company has been profitable since May.

Neil De Koker, president of the Original Equipment Suppliers Association in Troy, Michigan, says that by concentrating on its messaging service, Covisint would become a “standards-setting organisation. This is still evolving, but their messaging tools and some of their system will become very effective. We have to communicate with each other.”

Covisint's messaging service is meant to provide a common format that streamlines the exchange of electronic documents, such as purchase orders and engineering data, between suppliers and automakers.

De Koker's group had been a critic of Covisint's online auctions, saying suppliers had complained that few auctions resulted in new business. De Koker says that because of the consolidation trend in the supplier community, “The ones that remain will have a very significant relationship with OEM customers. There won't even be a quoting process. The focus will be on cost reduction, and they'll work close together with open books.”

FreeMarkets, which lost $4.6 million on sales of $36.0 million in the quarter ended Sept. 30, already is active in auto industry auctions. Spokeswoman Karen Kovatch says FreeMarkets handled some of the first supplier-to-automaker auctions in 1999.

“The benefit we bring is that we are a neutral third party,” she says. “We have a very attractive proposition for suppliers. There's no fee to participate. Suppliers will have a way to get in front of customers and show that is it more than about just price.”