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Price fixing in the automotive industry slowly getting resolved

After nearly a year of investigations into price fixing and bid rigging among automotive suppliers, things are finally coming to a conclusion. As of September of this year, 55 individuals have been charged in the Justice Department's ongoing investigation into allegations of price fixing and bid rigging in the automotive parts industry. A total of 37 companies have pleaded guilty or agreed to pay a total of more than $2.6 billion in criminal fines, according to a report by David Shepherdson at the Detroit News Washington Bureau.

The latest company to settle is Sumitomo Electric Industries, which agreed to pay a fine of $50 million to settle a civil lawsuit stemming from the investigation. Tokyo-based Kayaba Industry Co. Ltd., aka KYB, "also agreed to plead guilty and to pay a $62 million criminal fine for its role in a conspiracy to fix the price of shock absorbers installed in cars and motorcycles sold to U.S. consumers," making it the 37th company to admit wrongdoing, reported Shepherdson.

Back in April, in an IHS SupplierBusiness editorial on this then-expanding investigation, it was noted that Bosch, Denso and NGK were fined after investigations in both the United States and South Korea found price fixing and bid rigging. "Bosch has pleaded guilty to price fixing in a U.S. investigation and will pay a $57.8 million fine" for its role in conspiring to rig bids on spark plugs, oxygen sensors and starter motors sold to General Motors, Ford, and Fiat Chrysler between 2000 and 2011, as well as conspiring with other suppliers to fix prices of starter motors sold to Volkswagen AG and its U.S. subsidiaries from January 2008 to June 2010.

In June Shepherdson wrote about additional settlements, including Stockholm-based Autoliv Inc., which agreed to pay $65 million to settle antitrust lawsuits in the United States, that covered three classes: Companies that directly purchased auto parts; auto dealers; and consumers who bought vehicles that had higher-priced parts because of price-fixing and bid-rigging. Autoliv paid $40 million to "the direct purchaser settlement class, $6 million to the auto dealer class, and $19 million to the vehicle buyer class," wrote Shepherdson.

This wide-ranging investigation that caught some of the biggest global automotive suppliers in its net ultimately reveals something deeper that is happening in the automotive supply chain. Most automotive suppliers fight long and hard to win the contracts they so dearly covet, then fight longer and harder to be profitable supplying an industry that for the past two-plus decades has tried to prevent profitability by clawing back any savings these suppliers gain through production processes and materials development.

That alone might be enough to cause suppliers to get together in a back room and rig the bidding process and fix prices. Not that it's right, ethical or moral mind you, but at a time when shareholder value drives most global publicly traded companies, it might just be enough to incent fraudulent activity among the players.

Ever since GM's infamous purchasing guru Jose Ignacio Lopez began his assault on suppliers back in the late 1980s and early 1990s, suppliers have had an uncomfortable, if not strained, relationship with their largest—and in some cases only—customers, the automotive OEMs. This is probably just the latest result of that strained relationship.

As the price-fixing and bid-rigging investigation winds to a close, another investigation into emissions-altering software that knows when a car is being tested and provides the optimum results is just beginning and could also be far-reaching in scope. That remains to be seen and that, too, will probably reveal an underlying issue that automakers are facing. That will be my next blog topic.

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