Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Auto parts industry may be “supercartel”: AAI working paper, (Nov 12, 2013)

By Tobias J. Gillett, J.D., LL.M.

The auto parts industry may have developed into the world’s second “supercartel,” after the Vitamins cartels of the 1990s, American Antitrust Institute (AAI) Senior Fellow and Purdue Professor Emeritus John M. Connor argued in an AAI working paper issued November 7.

Roughly 34 cartels in the auto parts industry are currently under investigation, most of them global in scope, with more than 80 participating companies so far identified. Connor identified three distinctive aspects of supercartels, including (1) global scope, (2) many distinct products (separate cartels) with partially overlapping corporate membership, and (3) price-fixing directed at customers in one vertical production-distribution channel.

Cartels in the auto parts industry are “historically unusual,” according to Connor, a fact that may be traced to the relative sophistication of the auto manufacturers that buy the parts. However, aspects of the industry’s structure and practices make it “fertile ground for overt price fixing.” The affected auto parts products tend to have small numbers of suppliers that are “geographically clustered.” In addition, auto parts manufacturers have ample opportunities to conspire at industry events, and auto parts managers and executives tend to transition between companies in the industry.

Although automobile manufacturers are few in number and are relatively well-informed and sophisticated buyers, the industry’s Request for Proposal (RFP) process limited competition on price, creating product homogeneity that made bid rigging easier, and the length of RFP contracts helped prevent entry.

National and international antitrust authorities have pursued a wide range of enforcement actions against participants in auto parts cartels, aided by close cooperation among the authorities, the vast scope of the automobile manufacturing supply chain, and “amnesty plus” programs. Connor’s report lists 34 cartels, encompassing “a huge array of products” in auto parts industries, generating billions of dollars in sales, and lasting for “above-average lives,” with am average duration of eight or nine years. Antitrust prosecutions in the industry “are in their infancy,” but have still so far imposed almost $2 billion in fines.

“The Auto Parts Supercartel is well on its way into the cartel record books,” Connor concludes. “At 80-plus, it has already surpassed the former champion, Air Cargo, in terms of number of companies accused and convicted. My December 2012 prediction that worldwide fines will approach or exceed $5 billion seems more likely than ever, if the EC lives up to its historical reputation. And private settlements in North America in many cases will be limited only by the depth of the perpetrators’ pockets.”

News: Antitrust