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Tuesday, 19 July 2011

Competition investigations in the parts sector

Antitrust scrutiny of parts-makers is increasing, throughout the world, the Financial Times reports. I mention some of this in the latest Motor Law, which incidentally will be in the post to subscribers in a day or two. The  story in the newsletter mentions investigations being carried out by the European Commission and the US Department of Justice which seem to be focussed on Autoliv and TRW and in particular on safety-related parts.

Of course, the motor industry has always attracted the attention of the competition authorities, which is why it has its own block exemption regulation. The Commission is presently engaged in an investigation into price-fixing in the truck industry, too. This is part of a general picture of increased enforcement activity across the board, and perhaps what is happening in the motor industry is just a proportionate share of that increased activity - but it feels like it's more than that. The FT report says that the US authorities are investigating cartel activity in the auto electronics industry, though the paper says that they declined to comment further: no doubt we will hear more about it in due course. There is also an investigation into suppliers of wiring harnesses (what were called "looms" when and friend and I replaced the one in my Frogeye in 1977), involving the Japanese competition authorities and concentrating on suppliers in that country.

This comes on top of financial penalties imposed by the Commission on members of a cartel of glass makers a couple of years ago. Car makers are pursuing damages against them. That will be an interesting case to follow, as civil claims for damages arising from competition breaches have never lived up to expectations.

The FT has some possible reasons for this increased scrutiny. There has been a great deal of consolidation in the parts market in recent years: Autoliv - hardly a household name - has made 11 acquisitions since 2000, the paper says, and I wouldn't be surprised if there weren't some others small enough to get under the radar. Another merger has just been approved: Commission approves acquisition of ThyssenKrupp Metal Forming by CorporaciĆ³n Gestamp, both suppliers to the automotive sector.The paper also points out that the four glass cartel members controlled 90 per cent of the market - and quotes an industry lawyer saying that it's  much easier to create a cartel when the market is concentrated in the hands of a few suppliers.

On top of all that, government aid to the motor industry during the GFC has attracted the attention of competition authorities, and globalisation of the industry has led the authorities to exchange information with increased urgency. There's also the simple fact that a car remains a big consumer purchase, so any dodgy behaviour in the market is likely to have a big impact on consumers' wallets.

It's timely, therefore, that the Office of Fair Trading has issued new guidance for businesses on how to comply with competition law, including a new film to replace the amazingly hammy one they did to introduce the new (1998) Act - which despite an update to include the cartel offence (the joins were very obvious) was distinctly long in the tooth. Having a compliance programme in place is an essential part of minimising the impact of the competition rules - not only by ensuring that you don't break them, but also by providing an opportunity to minimise penalties if it all goes wrong and you do fall foul of the rules, perhaps through the unauthorised actions of an employee. When I run awareness and compliance training courses (which I would naturally be very pleased to do for you, if the terms are right) I always stress to people that just the disruption to your business if you are investigated is enough to be worth investing a lot in avoiding.

Postscript: Automotive World reports that the Fair Trade Commission in Japan is investigating seven suppliers, including Denso.

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