By David Sedgwick, Crain News Service
WASHINGTON (Oct. 14, 2013) — The U.S. Justice Department announced on Sept. 26 that nine suppliers of about 30 low-tech components such as alternators, ignition coils and bearings will pay $740 million in criminal fines for price-fixing.
At first glance, the list appeared to be a grab bag of disparate parts, but they shared two key attributes. First, most of the components required little or no vehicle-specific engineering. Second, the main differentiator for the components is price. Profit margins are thin—measured in pennies, not dollars, per part.
When competition is all about price, suppliers have extra incentive to collude, said Dave Sullivan, manager of product analysis at AutoPacific Inc., a market research firm.
"With commodities, you are only competing on price," said Mr. Sullivan, who formerly worked in sales for a supplier that he declined to identify. "These parts have become commodity items, but the suppliers are still trying to make money."
An antitrust expert, who asked to remain anonymous because he used to work for a major auto maker, agreed. "A lot less engineering goes into those parts. If they are the same widget, and all we are talking about is price, I don't need a complicated agreement to fix prices."
When federal investigators launched their probes in 2010, they initially focused on wire harnesses and safety equipment such as airbags and seat belts.
So far, 21 suppliers have agreed to pay fines levied by federal authorities. But the new parts list published last month suggests an industrywide epidemic of bid-rigging.
The Justice Department has not indicated how many suppliers are currently under investigation. But Joaquin Almunia, the European Commission's vice president responsible for competition policies, hinted at the scope of the probes during a Sept. 25 speech at Georgetown University in Washington.
Antitrust officials around the world are investigating more than 100 products and 70 suppliers, Mr. Almunia said, adding that the European Commission is coordinating its investigations with U.S. officials.
German antitrust authorities raided the offices of Magna International Inc., IAC Group, Faurecia, Borgers A.G. and Autoneum Germany GmbH one day before the Justice Department announced the charges against the nine suppliers.
Those companies in Germany produce trunk trim and floor systems, according to Automotive News Europe, a sister publication of Tire Business.
The Justice Department injected a bit of mystery into its Sept. 26 announcement when it noted that a sales executive named Gary Walker would serve 14 months in prison and pay a $20,000 criminal fine for price-fixing.
The Justice Department's court filing listed Mr. Walker as a sales director of "Company A," a firm based in Auburn Hills, Mich., and said he had helped rig the price of seat belts sold to Toyota, Nissan, Honda, Mazda and Subaru.
Unlike the nine other suppliers named in the press release, Mr. Walker's unidentified company was not fined.
On Oct. 10, the mystery was resolved when Takata Corp. announced it will pay a $71.3 million fine to settle the Justice Department's antitrust charges.
Mr. Walker, a now-retired sales director of Takata subsidiary TK Holdings Inc., is the only Takata executive who will serve prison time.Bid-riggers
On Sept. 26, the Justice Department identified nine suppliers of about 30 components involved in bid-rigging conspiracies. Nearly all of those parts are low-tech parts that require little or no model-specific engineering. Here are the companies cited:
Hitachi Automotive Systems Ltd.: starter motors, alternators, air flow meters, valve timing control devices, fuel injectors, electronic throttle bodies, ignition coils, inverters, generators;
Mitsuba Corp.: windshield washers, windshield wipers, starter motors, power window motors, fan motors;
Mitsubishi Electric Corp.: starter motors, alternators, ignition coils;
Mitsubishi Heavy Industries Ltd.: compressors, condensers;
T.RAD Co. Ltd.: radiators, transmission fluid warmers;
Valeo Japan Co.: air conditioners, condensers, compressors, HVAC control panels;
Jtekt Corp.: bearings, steering assemblies;
NSK Ltd.: bearings; and
Yamashita Rubber Co.: anti-vibration rubber products.
Source: U.S. Department of Justice
This report appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.