Blame price fixing on automakers, industry insiders say

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The Federal Bureau of Investigation logo.

The FBI is currently investigating price fixing collusion in the automotive industry. (Photo Credit: CC BY/Oliver Bel/Flickr)

A years-long federal investigation into auto industry price fixing collusion has so far failed to produce specific guilty parties. Some claim high vehicle prices are a product of the standard business cycle. Yet numerous industry experts believe they know where blame should be laid, and that’s with the automakers themselves, reports Automotive News.

Automakers pressured into unethical choices

Sheldon Stone of the Detroit-based corporate advisory firm Amhert Partners LLC and automotive equity analyst Richard Hilgert of Chicago-based Morningstar Inc. told Crain’s Detroit Business that pricing pressures could be driving automakers to make pricing decisions that are unethical or illegal.

“Margins are razor thin,” Hilgert exclaimed. “The customers (automakers) carve up the market on things other than just low prices, so I don’t know how the (U.S. Department of Justice) is able to put together an antitrust case when it’s so customer driven.

“If anyone should be blamed and held accountable for higher vehicle prices to the consumer, it’s the automaker, not the supplier,” he said.

Stone sees the trend of high vehicle pricing the past few years as no coincidence.

“The proliferation of fraud over the last two to three years is unprecedented,” he said. “But it’s not because you have criminals in these companies, you have executives that are being forced to behave in a way that is incongruent with their personal and corporate value system because of continual pricing pressures.”

Suppliers colluding against automakers

Suffolk University Law School in Boston professor Jeff Lipshaw can easily see a scenario in which suppliers collude against the automakers.

“Auto suppliers compete by platform. Competition or bidding shifts from platform to platform, the suppliers bid for a place on that platform and they are each in concentrated industries,” Lipshaw said. “They have only so many customers, so it’s not beyond the pale that several rogues would say, ‘let’s all go in to one customer at the same price.’ And the (automaker) finally says, ‘this can’t be a coincidence,’ and does something about it.”

Federal investigation began with wire harness makers

Federal investigators first fixed eyes upon price fixing collusion in the automotive industry when wire harness makers were investigated. That investigation grew to include scrutiny of the makers of other automotive components and safety systems. Now it is a global investigation the likes of which only U.S. Department of Justice Antitrust Division insiders and their foreign counterparts know the scope.

It is known that so far, Japanese executives from Furukawa Electric Co. Ltd., Sumitomo Electric Industries Ltd. and Yazaki Corp. have entered guilty pleas in Detroit. Canadian and German parts suppliers have also been under investigation.

Additional details on the investigation may surface by the end of November, according to various sources. Some predict the total fines that could come from the large-scale collusion case will exceed $5 billion. Federal fines for price fixing may reach $100 million or twice the victims’ losses, whichever figure is higher.

Primer on price fixing, using example of interest rates

http://www.youtube.com/watch?v=LHDVp6guzJ0

Sources

Automotive News

Crain’s Detroit Business

GM Inside News

PlasticsNews.com

Turnaround Management Association


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