DETROIT - If a Constitution of the New Economy were written tomorrow, the first article would state, as absolutely everyone knows, that the Internet changes everything.
However, in recognition of the auto industry, two amendments would be added almost immediately.
First Amendment: No engineer, stylist, finance person, purchasing agent or marketing guru shall forget that Product is King.
Second Amendment: No wasteful business process or manufacturing system shall be automated.
At the Automotive News World Congress here last week, the Internet was the dominant topic: How to get on it, how to use it, how to profit from it. But many speakers were careful to temper the enthusiasm for electronic commerce with caution about the realities involved in building millions of cars and trucks every year.
For example, James Womack, an expert in lean manufacturing, expressed concern that too many simplistic notions are afoot about the Internet's potential impact on the auto industry.
There are, he said, 'a bunch of guys who understand electrons' who think the way to improve industry returns 'is to spray a layer of e-commerce over this creaky, existing mess.'
Where they go wrong, he said, is forgetting that the auto business is about 'molecules' - products.
BASIC: WHAT IS VALUE?
But improving a business, not to mention an industry, requires a lot of work. Waste is still the enemy. The industry, Womack said, must stick to a basic question: What is value?
Unless you take out the unnecessary steps before you try to automate what remains, 'you're not likely to get very far,' he said.
Mike Losh, CFO of General Motors, reminded World Congress attendees several times that automotive success still depends on building vehicles that people want to buy. Cars and trucks stir the emotions of consumers in ways that few other things can, he said.
'You have to have great products,' Losh said.
William Clay Ford Jr., Ford Motor Co. chairman, said the Internet will be as important to the 21st century as the moving assembly line was to the last. But in return, he said, the auto industry also will have a big impact on the world of electronic commerce.
'Because of our size and influence, we're going to greatly influence the information age and shape it even as it shapes us,' Ford said. 'We're going to increase it from a billion-dollar industry to a trillion-dollar industry. And we're going to save ourselves billions of dollars in the process.'
Smaller automakers are not ignoring the trend, either.
Pierre Gagnon, COO of Mitsubishi Motor Sales of America, compared the emergence of e-commerce today with the rise of international competition in the 1970s.
'It is redefining the way we do business,' he said.
Mitsubishi now has an Internet-based ordering system, the first of its kind in North America, Gagnon claimed. Inventory has dropped from 80,000 vehicles on the ground to 40,000, while sales have increased 40 percent a month.
On the supply side, the potential e-commerce savings are huge, said Gary Henson, executive vice president of manufacturing at DaimlerChrysler, and other participants on a World Congress manufacturing panel.
'Up to 50 percent of the cost could be out of the system if we really got lean in the total enterprise,' he said. 'I'm talking about Tier 2, Tier 3 and Tier 4 suppliers. That's one of the things we've missed.'
But so far, the Internet revolution perhaps has had its greatest impact on retailing.
Studies have shown that 65 to 80 percent of car buyers use the Internet to research vehicle models, options and prices as part of the purchase process. About 3 percent of consumers actually buy their new vehicle on the Net, according to the most recent estimates.
That frightens some dealers; they fear they will be pushed out of the business. But e-commerce will not displace traditional retailers, World Congress speakers agreed.
Jim Schroer, vice president of global marketing for Ford, said the industry will continue to operate as a partnership between manufacturer and dealer.
'The actual sales process and service process will always be in the store,' he said.
Likewise, Jed Connelly, vice president and general manager of Nissan Division of Nissan North America Inc., said Nissan will not compete against its dealers with e-commerce sales.
'We will continue our efforts to provide a seamless customer buying and service experience whether the lead is generated by a traditional media source or through our corporate or independent Web sites,' he said.
Dave Thomas, a multifranchise dealer near Portland, Ore., has been using the Internet as a selling tool for five years. He says it has emerged as a force to be reckoned with because traditional showroom selling is turning off consumers.
'Internet customers have done their homework,' he said. 'They have no patience for a sales representative who can't answer a question or make on-the-spot decisions concerning price.'
Marketing and advertising strategies also are changing. A marketing panel at the World Congress that included Ford's Schroer predicted Internet advertising spending will outpace traditional media spending in as little as eight or 10 years.
A potential promise of e-commerce is greater shareholder value.
Auto companies are moving quickly to provide in-vehicle Internet access, said Stephen Girsky, an automotive analyst with Morgan Stanley Dean Witter. He told the World Congress that consumer fees for that access, like those already paid for services such as GM's OnStar, could generate huge revenue.
'This is the Holy Grail that this industry has been looking for for some time,' Girsky said. 'It's recurring revenue that will smooth out cash flow in the down years. It will sustain earnings in the down year, and that, to me, can be the biggest driver of enhanced valuation in this group.'
While the Internet can be useful for a variety of purposes, it must be applied with intelligence.
Wolfgang Ziebart, BMW AG board member for research, development and purchasing, said he takes note of product feedback from his company's Web site, 'but only for very specific questions.' Even then, he said, he is skeptical whether responses come from BMW's target consumers.
'It could be that those who responded are people who are interested only in technology, in being on the Internet,' Ziebart said. 'We are not sure whether they are truly representative of our customers.'
GM and Ford have set up divisions dedicated to e-commerce. Last week, Jim Holden, president of DaimlerChrysler's Chrysler group, announced his company's plan to do the same.
But he predicted that dot-com mania will pass. Then the industry can focus on how to put the Internet to its best and highest use.
'The question should be: `How do we use this to revolutionize our cost base?'' Holden said. 'If we do that, we'll break out of the Rust Belt mentality, even if we're still manufacturing companies.'
Staff Reporters Arlena Sawyers, Mary Connelly and Jim Henry contributed to this report