Worldwide cartel investigations in the automotive supply industry
In Europe, cartel investigations in the car parts industry were rare until the European Commission imposed record fines in the car glass cartel case in 2008, with Saint Gobain alone being fined € 896 million.
The European Commission's dawn raids in the wire harness industry in early 2010 marked the start of an avalanche of similar investigations in other automotive supply markets, which have involved suppliers of seat belts, air bags, steering wheels, windshield wipers, radiators, engine starters, ignition coils, alternators, ballast, dashboard electronics, catalyst converter parts and, most recently, automotive bearings.
These investigations are coordinated with parallel investigations in the US, Canada and/or Japan, and there are even indications that the initial evidence of anti-competitive practices taking place in Europe was obtained by competition authorities in other jurisdictions.
The more advanced cartel investigations in the US and Japan have already resulted in significant fines. For example, in September of last year Furukawa agreed to pay a $200 million fine in the US for its role in a price-fixing and bid-rigging conspiracy involving the sale of wire harnesses and three Furukawa executives will serve jail time in the US.
In January the Japanese Fair Trade Commission ordered Yazaki, Sumitomo and Fujikura to pay total fines of $168m (Yazaki: $125 m) for bid-rigging in the wire harness sector.
A few weeks ago, Yazaki and Denso agreed to pay $548 million in the US for their involvement in price-fixing and bid-rigging conspiracies regarding various products. Four Japanese executives also agreed to serve prison time in the US.
Commenting on the Yazaki and Denso matter, Sharis Pozen, the acting Assistant Attorney General at the antitrust division of the US Department of Justice, noted that these cases were just the "tip of the iceberg" in a wide-ranging investigation of price-fixing of various car parts that is being coordinated between competition authorities in North America, Europe and Asia. Canada's Competition Bureau is understood to investigate potential collusion on 164 (sic!) different car components.
Structure and functioning of automotive supply industry facilitate competition law infringements
The ongoing cartel investigations have brought the inherent competition law risks of the automotive supply industry into the spotlight.
In most markets there is only a relatively small number of credible suppliers which usually know each other well.
Competitors regularly meet at a variety of events, such as trade fairs or workshops organised by OEMs, which creates opportunities for illegal discussions.
Leaving employees frequently join a competitor. This facilitates informal contacts and information exchange as employees continue to socialize with their former colleagues.
As a result of the multi-tier supply structure in the automotive industry and the fact that many suppliers are vertically integrated, companies frequently buy products from, or supply products to, competitors. The (entirely legal) contacts with competitors in this context make employees less guarded in their dealings with competitors. Moreover, the associated communication between the parties typically gives rise to a large amount of seemingly suspicious correspondence.
Car manufacturers sometimes provide bidders with information about prices offered by competing bidders. This often leads employees to believe that the prices of competitors are not really confidential. More importantly, since suppliers rarely trust price information provided by OEMs, this creates a strong incentive to "check" with the competitor in question whether he effectively offered these prices.
Recent investigations increase risks of infringements being uncovered
The risk for parts suppliers of becoming involved in a cartel investigation has increased substantially due to the large number of ongoing proceedings.
Part of the investigations seems to be related to what is sometimes referred to as the "snowball effect" of leniency programmes. Companies that are caught in an investigation often carry out a detailed internal audit to determine whether other business divisions are involved in illegal conduct as well. If this is the case, they typically will file a leniency application, i.e. they will disclose this conduct voluntarily to the authorities in order to be exempt from fines for infringements in these other business areas. Under the US "Amnesty Plus" programme, there is even a double incentive for companies to make such a voluntary self-disclosure since applicants not only can obtain amnesty on the second cartel but are also granted a reduction of the fine for their participation in a first cartel.
The risk that anticompetitive conduct by parts suppliers is brought to the attention of competition authorities thus has increased significantly: Many of the companies under investigation have carried out or are carrying out internal investigations and will blow the whistle on competitors if they discover illegal activities in other areas.
Authorities take increasing interest in information exchange between competitors
Until recently, the vast majority of all cartel investigations concerned anticompetitive agreements between competitors, such as price fixing, bid rigging or market sharing agreements. The only cases in which the European Commission prosecuted the exchange of information between competitors involved an organized regular exchange of sensitive information between multiple competitors.
However, in some of the recent probes in the automotive sector the Commission is also looking into one-time or irregular bilateral exchanges of confidential information between competitors. This constitutes a major risk for parts suppliers since it appears that, as a result of the circumstances described above, such exchanges are relatively common in the automotive supply industry.
Most employees have insufficient awareness of competition law risks
Experience has shown that most employees have an insufficient understanding of the competition rules. While many are aware that it is illegal to fix prices or share markets with competitors, only very few employees know what information they can and cannot discuss with or disclose to competitors. What employees consider as harmless shop talk often involves a disclosure of sensitive business information that can be qualified as an illegal "concerted practice" that can carry high fines.
For instance, would your sales staff know which of the following statements or questions would be illegal in a discussion with a competitor?
"Did you hear that supplier A won the tender for this project?"1
"Car manufacturer X told us that you have been offering a parts price of € yy.yy for this project. Is that true?"2
"We are going to build a production plant in Serbia."3
"The new price indexation clause that car manufacturer Z wants to use is outrageous. We are definitely not going to accept it."4
"One of our priorities for next year will be expanding our footprint in Asia."5
"We just moved our testing facilities to the Czech Republic."6
"We won't bid for this project since we don't have sufficient capacity."7
How we can help
For the reasons outlined above it is more important than ever for parts suppliers to have a robust competition law compliance programme in place. The EU & Competition Law Group at Bird & Bird would be very pleased to assist you in developing such a programme or to discuss with you how existing procedures and documentation can be improved to protect your company effectively against competition law risks.
A key element in any compliance programme is competition law training for management and employees. We have significant experience in developing focused, practical and cost-effective competition law training for companies and offer a variety of different training formats, including a competition law e-learning programme.
Our involvement in some of the ongoing investigations in the automotive sector gives us insights into the latest enforcement trends and our long-standing experience in advising automotive suppliers allows us to tailor the training to the specific market environment in which your company interacts with its competitors.
Employees at all key sites should also be trained on how to behave in case of an unannounced inspection by competition authorities. We have developed various types of dawn raid training as well as a full set of written materials that ensure your company will be able to respond effectively in case of a dawn raid.
If there are indications that employees may have violated the competition rules, we can assist you in conducting (open or covert) competition law audits and provide strategic advice and assistance in case the investigation uncovers evidence of illegal behaviour.
Bird & Bird has competition law experts in 13 European countries and established working relations with competition law experts in a large number of other jurisdictions. We are therefore able to advise companies on their activities worldwide.
Several members of our competition law group are actively involved in the activities of Bird & Bird's International Automotive Industry Group, which provides a full range of contentious and non-contentious corporate, commercial, intellectual property and regulatory law services to investors, manufacturers, suppliers, distributors and dealers.
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1 Legal - The competitor is not disclosing confidential information of his own company. However, there is a risk that the ensuing discussion slides into illegal territory.
2 Illegal – The fact that an OEM discloses the price of another bidder does not allow a company to "check" directly with that supplier whether this information is correct.
3 Depends – For instance, the statement is legal if the information is public knowledge.
4 Illegal – Knowing that competitors will not accept the new clause makes it easier for a company to do the same.
5 Legal – The statement is too vague to allow a competitor to adapt its commercial strategy.
6 Probably legal.
7 Illegal – Knowing that certain competitors will not bid reduces the pricing pressure for the other bidders.