Automotive industry and particularly car parts sector has become an investigation target of competition authorities of various jurisdictions in recent years due to its importance both from the point of view of the economy as a whole and the individual customers. Cartels in car parts sector impair competitiveness of the automotive industry and artificially raise the price of cars.
Numerous investigations into anticompetitive business conduct of the car parts producers have taken place. Price fixing, bid rigging and exchange of information as the most common violations have been detected in the automotive industry for various goods, including wire harnesses, bearings, fuel-operated parking heaters, flexible foam used in car seats, etc. Perpetrator companies have been faced with heavy monetary fines (as well as with prison terms for numerous executives in some jurisdictions, e.g. the USA) with the view to deterring illegal behaviour and helping to restore competition in the industry.
This article outlines the major antitrust issues the car parts producers should be aware of in order to avoid a risk of being faced with antitrust investigation(s) and liability. Highlights of the recent cartel investigations of the European Commission, as well as peculiarities of the leniency policy under the EU law are provided in the article. Considering that the Turkish competition law is harmonised with the EU law to a large extend, the extraterritorial effect of competition law in general, as well as the fact that elements of cartel violations are generally the same around the world, the article could be of relevance to the Turkish car parts producers, particularly those whose activity may affect competition in the Turkish and EU automotive markets.
II. Practices To Be Cautious About: Major Don'ts for Car-Parts Producers
In the recent years there have been numerous antitrust investigations conducted by the European Commission, as well as competition authorities of other jurisdictions, in the car parts sector, most of which are actions against cartels. Cartels shall be understood as a group of independent (competing) companies joining together and agreeing on fixing prices, limiting production or sharing customers/markets, as well as exchanging commercially sensitive and confidential information among themselves.
The list of such illegal and prohibited under the competition law practices is non-exhaustive. In fact any agreement between competitors limiting their ability to compete is illegal. The agreement does not necessarily need to be in writing. In case of cartels, which are highly secretive, there will be no written agreements at all, since written agreements serve as a direct evidence of a cartel. The competition authorities have to use other indirect evidence (e.g. economic indicators, meetings, dinners, top executives of competing companies staying at the same hotel at the same time etc.) to prove the existence of coordination and agreement among cartelists.
Ignorance of the competition law and illegal antitrust practices does not free you of liability and hence cannot be used as an excuse in case of any potential allegations by the competition authorities against you/your company.
Therefore, when interacting with competitor(s), one should always remember a set of major DON'TS, such as:
- DO NOT agree to not compete with your competitor;
- DO NOT discuss/agree on prices of the goods/services;
- DO NOT discuss/allocate customers or territories;
- DO NOT discuss/agree to reduce or control production;
- DO NOT agree to coordinate your behaviour at tenders;
- DO NOT exchange/disclose information, particularly on current or future prices, customers, capacity or output;
- DO NOT discuss/agree on discounts, rebates etc.;
Generally speaking, any interaction with competitors may impose a risk on the company, if you are not careful.
A particular attention should be paid to disclosing and exchanging sensitive commercial information, such as information on prices, customers, cost of raw materials, financing conditions, future commercial plans etc. between competitors, as it is regarded as a hard-core violation of competition law. Generally speaking, you should avoid discussing non-public information with your competitors at either formal or informal meetings, including when attending trade association events, fairs, workshops etc. Common feature identified in the infringement decisions is that the antitrust conduct is very often linked to procurement/tender practices in the automotive industry, where information exchanges/discussion constitute an essential part of the procurement process.
Due to its negative impact on quality and prices of products customers are faced with, companies involved in cartels are normally charged with heavy fines. As a general practice, a fine of up to 10% of the total worldwide annual turnover of the company and it group can be imposed. The basic amount of the fine is normally determined as a proportion of the value of the sales of the relevant product made by each company in the relevant geographic area during the last full business year of the infringement, multiplied by the number of years of the infringement, plus an additional amount, also calculated as a proportion of the value of sales, in order to deter horizontal price fixing agreements.1
III. Practical Examples: Recent Cases and Fines in the Car Parts Sector
- Alternators and starters,2 2016. The European Commission ("EC") fined car parts producers Mitsubishi Electric and Hitachi for a total of Euro 137 789 000 for participation in a cartel for alternators and starters with another firm Denso. The companies (i) shared sensitive information about pricing and market strategies, (ii) coordinated responses to calls for tenders issued by car manufacturers and hence determined the price at which they would tender for the contracts and "who should win the specific business,3 and (iii) shared certain manufacturers and projects in terms of which of them would supply starters and alternators to. In order to limit competition the companies met at each other's offices and in restaurants and were in contact over the phone on a regular basis.
- It should be emphasized that the cartel took place outside the EEA. Nevertheless, the EC had jurisdiction to investigate and fine the companies on the grounds that cartel affected the European customers, as those products were also sold directly to car manufacturers in the EEA. This is an explicit example of extraterritoriality of competition law, meaning that if European consumers are affected by a cartel, the EC will investigate it even if the cartel took place outside the EU.
- Parking Heaters4, 2015. The EC detected a cartel run by two German producers of parking heaters, Eberspächer and Webasto. It fined Eberspacher for Euro 68 175 000 for participation in the cartel and restrictive business practices by way of coordination of prices and allocation of customers. The companies agreed not to compete with each other. Since Webasto revealed the existence of the cartel, it was not fined.
- Car and Truck Bearings,5 2014. The EC imposed a fine in the amount of Euro 953 million on the European producers of car and truck bearings - SKF, Schaeffler, as well as Japanese companies JTEK, NSK, NFC and NTN. Automotive bearings are used by manufacturers to reduce friction between moving parts inside a vehicle (e.g. gearbox, AC systems, etc.). The companies colluded to secretly coordinate their pricing policies for more than 7 years in the EEA. The six bearings manufacturers also colluded and shared sensitive information in submitting bids.
- Car Seats (Polyurethane) Foam,6 2014. Major producers of flexible polyurethane foam – Eurofoan, Recticel, Carpenter and Vita, which occupy a quarter of the relevant market, were fined by the EC for Euro 114 077 000 for participating in a cartel by way of coordinating sales prices of various types of foam (used for mattresses, sofas and car seats) for almost five years. The cartelists organized 'price coordination' contacts, including at the European and national association meetings, telephone calls etc.
- Automotive Wire Harnesses,7 2013. Car parts suppliers Sumitomo, Yazaki, Furukawa, S-Y Systems Technologies and Leoni were fined for a total of Euro 141 791 000 for running five cartels involving supply of wire harnesses to Toyota, Honda, Nissan and Renault. The parties to the infringements informed each other through trilateral and/or bilateral contacts about their prices and exchanged other commercially sensitive information with the view to coordinating prices and allocating the supply of wire harnesses to the respective car manufacturers.8 Additionally, the participants of cartel rigged tenders for the supply of wire harnesses. The cartels covered the whole EEA and Japan and lasted from 2 months to 9 years.
- Car glass cartel,9 2008. The EC fined four car glass manufacturers, Saint Gobain, Asahi, Pilkington and Soliver, for a total of Euro 1 383 896 000 for sharing among themselves the market for car glass for five years. The products involved were windscreens, side windows and rear windows for new cars. The companies controlled about 90% of the glass used in the EEA in new cars. Several meetings at airports and hotels in various European cities (e.g. in Frankfurt, Paris and Brussels) were revealed by the EC. At these meetings, the companies exchanged commercially confidential information and discussed the allocation of car glass to be supplied for forthcoming new car models and renegotiations of on-going contracts.
IV. Consider Leniency: 'Whistleblowing' May Save You Millions
Considering that cartels are highly secretive, it is very difficult to detect them without help of its participants. To aid detection, competition authorities have developed leniency programmes, which encourage companies to hand over insider information about cartels to the competition authorities in exchange for immunity from a fine ("Leniency policy").
The Leniency policy under the EC's Leniency Notice10 2006 has proved to be quite successful in detecting cartels, as in most cases investigations start with an immunity/leniency application submitted by one of the participants of the cartel. The reasoning behind 'whistleblowing' is obtaining a chance to avoid financial losses, since the first leniency applicant that reports a cartel to the EC gets 100% immunity from the fine, while the next to come gets a reduction of the fine, the amount of which depends on cooperation and importance of the information for the investigation.
For instance, in Wire Harnesses case (see above) Sumitomo received full immunity for revealing the existence of the cartel and thereby avoided a fine of Euro 291 638 000 for its participation in all five infringements detected by the EC. Webasto received full immunity for revealing the existence of the cartel and thereby avoided a fine of Euro 222 247 000 for its participation in the infringement in the Parking Heaters case. Denso in the Alternators and Starters case received full immunity for revealing the existence of the cartel, thereby avoiding a fine of more than Euro 157 million; and Hitachi and Melco for their cooperation with the investigation, benefited from reductions of their fines 30% and 28% respectively reflecting the timing of their cooperation and the extent to which the evidence they provided helped the EC to prove the existence of the cartel.
In addition to fines reduction under the leniency policy, the companies have a chance to get a further 10% reduction under the settlement procedure, which is based on Regulation 1/2003 and envisages a simplified and shortened investigation and decision taking procedure. To be qualified to benefit under the settlement procedure, the company(s) need to acknowledge their participation in and liability for the cartel. The number of companies entering into settlement procedure with the EC has increased in the recent years.
V. Private Actions for Damages
The cartel decision of the competition authority may lead to follow-on private enforcement damages claims by car manufacturers. In fact any person or company affected by the anticompetitive actions as described in the cases above and wishing to recover financial losses caused by the high prices as a result of the cartel(s) may do so by bringing a claim before the court and seeking damages through a private enforcement procedure. The decision of the competition authority shall be regarded as a binding proof that the anticompetitive illegal behaviour took place and damages may be awarded to the victims of the anticompetitive practices.
The first case launched against the cartel by a car manufacturer was Volvo case 201011. Volvo Car Corporation opened a law suit against Pilkington in the High Court in London claiming damages from the illegally inflated prices charged for car glass during the cartel period. It is very likely that more cases are yet to come.
The analysed practices above are of help in identifying major risk factors and eventually giving lessons for automotive industry participants for the future. Practices relating to price fixing, allocating customers, bid rigging, sharing territory, as well as exchanging sensitive information particularly between competitors are anticompetitive and illegal.
Considering that the Turkish competition law is harmonised with the EU law to a large extend, the extraterritorial effect of competition law, as well as the fact that elements of cartel violations are generally the same around the world, the above described practices are of relevance to the Turkish car parts producers, particularly those whose activity may affect competition in the EU market.
It is highly advisable that companies active in the automotive industry develop their compliance and training programs in order to avoid any potential risk of violating competition law and know how to act in case of on-site inspections by the officials of the competition authorities. Compliance programs that take into account the specifics of the automotive industry are indeed essential in that respect.
1. 2006 Guidelines on Fines http://ec.europa.eu/competition/antitrust/legislation/fines.html
2. Case COMP/AT.40028 – Alternators and starters http://ec.europa.eu/competition/cartels/cases/cases.html
9. Case COMP/39.125 http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52009XC0725(02)
11. Volvo Car Corporation v. Pilkington Group Limited, HC10C02207, High Court of Justice Chancery Division (London).