AM Online

Secret cartels can cost dealers and consumers dear

Car dealers like a good deal – that’s a given. And they hate a bad deal. But when they are getting a bad deal, and the wool is being pulled over their eyes – well, that takes the biscuit.

And yet, sadly, this does happen – in the shape of cartels, of auto part manufacturers, who collude to fix their markets.

This can be very costly. Research by American cartel expert Professor John Connor, formerly of Purdue University in Indiana, has estimated the average price increase of products sold by cartels at 25%.

And that is a significant dent in the bottom line that could raise assembled car prices and lose sales.

In Britain, the really big cartels are actually tackled by the European Commission, whose competition investigators recently launched a probe into a suspected cartel among suppliers of seatbelts, airbags and steering wheels.

If Brussels concludes that companies involved have breached European Union (EU) competition law, it has powers to levy huge fines, which are supposed to act as a deterrent.

They also partly reflect the inflated earnings that cartel members enjoyed through their collusion, so the levels of these fines offer some eyewatering revelations.

For instance 2008, the European Commission imposed a R1.38 billion combined fine on four car glass manufacturers for illegal market sharing and exchange of commercially sensitive information in a cartel designed to keep prices artificially high.

The four companies involved in the cartel – Asahi of Japan; Pilkington of Britain; Saint-Gobain of France; and Belgium’s Soliver – controlled about 90% of the glass used in the European Econ-omic Area (the EU, plus Norway, Iceland and Liechtenstein) in new cars at the time.

In the latest raids, the European Commission has not announced who it is investigating, but a few companies have already confirmed they were involved in the probe, including Sweden-based Autoliv Inc, the major manufacturer of car seatbelts and airbags. It released a statement that authorities have raided two of its German premises.

US-based airbag maker TRW Automotive Holdings Corp, has said also the company’s German unit had received requests for information from EU competition authorities.

Cartel raids in the European automotive sector are not uncommon: in January 2011, commission officials carried out unannounced inspections at lorry manufacturers Daimler and Volvo in Europe, along with Sweden’s Scania and Germany’s MAN, and Fiat Industrial, maker of Iveco trucks.

And in February 2010, officials carried out unannounced inspections in several member states at companies in the automotive electrical distribution systems sector.

So, how much can a successful cartel put on the price of a car?

“Unfortunately, this kind of information is something we don’t gather,” a representative from Retail Motor Industry Federation told AM. “It is not a subject we have looked into before.”

Other associations, such as the Independent Automotive Aftermarket Fed-eration (formerly the Automotive Distri-bution Federation) and the Society for Motor Manufacturers and Traders were similarly unable to help. Neither were there answers to other questions about cartels in the automotive sector.

Britain’s Office of Fair Trading (OFT), now looking into suspected cartels in the automotive sector, was similarly unwilling to discuss detail.

“We have one open criminal cartel case in the automotive sector,” the OFT said. “As this is still ongoing, there are only limited details available.”

These, on checking, added nothing beyond the fact that other authorities were involved in the investigation.

However, a non-attributable source suggested that international cartels of all kinds push up prices by an average of 28%, and domestic cartels by 18% on average.

“Proving their existence is very difficult,” our source added. “Companies are rarely stupid enough to put anything about collusion on paper.”

That is not just because of the EU fines. In some countries – including Britain – participation can be a crime.

The UK introduced a criminal cartel offence for hard-core cartel activity under the Enterprise Act 2002, with an individual facing a fine or a potential prison sentence if convicted along with disqualification from being a company director for up to 15 years.

Michalis Zaouras, a researcher at the University of Warwick specialising in cartels, said they could potentially be so damaging that dealers working on low margins could be pushed out of business.

“By increasing the price, you can decrease the number of retailers and as a result you are reducing the number of cars that are available,” he said.

 

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