DETROIT — General Motors Corp. plans to have suppliers bid for parts contracts in live, online auctions over the Internet.
The automaker has hired FreeMarkets OnLine Inc. of Pittsburgh to provide software and coordinate the auctions, FreeMarkets said earlier this month.
GM would not discuss the move, and it is not clear how widely it plans to employ the auctions. Those auctions are likely to supplement rather than replace GM's current purchasing practices.
GM now expects suppliers to meet or beat worldwide market prices for their components. But the use of auctions ratchets up the pressure on suppliers to cut prices.
The new program could send an implicit message: A supplier's long-term relationship with GM means little if the vendor cannot offer the lowest prices.
That message is especially pointed at a time when GM is pushing a major cost-cutting campaign. The automaker hopes to reduce overall manufacturing costs by $4 billion this year, and suppliers are expected to generate a major portion of the savings.
Under the system, a group of suppliers are invited to participate in an online auction. Using a personal computer and Windows software, each supplier can view the bids of rival vendors.
FreeMarkets Chief Executive Officer Glen Meakem did not offer details on GM's plans. But he acknowledged that companies that place a high priority on long-term relationships with suppliers — such as Chrysler Corp. — are not likely to adopt the auctions.
``Chrysler is probably the best industrial company to manage partnerships, and I have no reason to suspect they are not doing a good job,'' he said in an interview with Automotive News, a Detroit-based sister publication to Plastics News. ``But how many companies can measure the productivity'' of a long-term supplier?
By contrast, an auction offers the customer an objective measure of the supplier's efficiency: the marketplace.
``If you scratch the surface, most customers don't know about alternatives'' to their current suppliers, Meakem said. These customers ``are probably not dealing with a best-in-class supplier.''
Chrysler could not be reached for comment. A Ford Motor Co. spokesman said the automaker has not experimented with online auctions.
According to Meakem, the auctions offer new opportunities for outsiders — that is, suppliers that lack long-term relationships with a manufacturer.
``A supplier might say this is brazen capitalism. It means lower prices. But there is a positive: It's an open process. The supplier can watch the bidding, and it's handled by a third party.''
Most likely, GM would employ the auctions for commodity components, such as spark plugs, fasteners or hoses. Metal stampings, machined components and blow molded plastics are other possible auction items.
Suppliers that produce complex products such as seats, instrument panels or anti-lock brakes would not be as likely to bid online.
GM has tested the auction system at least once. On Aug. 26, GM invited two-dozen rubber suppliers to bid on contracts for various parts.
The GM contract is a coup for FreeMarkets Online, a firm that has grown rapidly. The company was launched in 1995 with two employees; it now employs 85. This year, its customers will auction off purchasing contracts worth $500 million, up from $100 million in 1997. The company previously has organized online auctions for UT Automotive Inc., Caterpillar Inc. and John Deere and Co. FreeMarkets also has worked with food processors, electric utilities and appliance manufacturers.