Toyota Motor Corp. (7203) suppliers embroiled in the largest cartel probe on record have rebounded from a slump that followed almost $1 billion in fines in Japan and the U.S. Now they face the prospect of even more penalties in Europe.
EU fines will probably be announced this year, said Takeshi Shinagawa, a director at the Japan Fair Trade Commission. Parts makers Sumitomo Electric Industries Ltd. (5802), JTekt Corp. (6473) and at least 12 others could get EU cartel fines higher than those levied in Japan, he said.
Toyota affiliate Denso Corp. (6902) and Sumitomo Electric, also a supplier to Honda Motor Co. and Nissan Motor Co., have been investigated in cartel probes following raids of four manufacturers by watchdogs in the U.S., the EU and Japan in 2010. Fines this year may be big enough to cause declines in the component makers’ shares, said Syusaku Nishikawa, an analyst at Daiwa Securities Co.
“Investors may not have fully factored in the risks of the antitrust fines for the companies still under investigation,” Nishikawa said. Given the prospect of fines, he said he can’t recommend buying Sumitomo Electric, Fujikura Ltd. (5803), or many other parts makers.
Antoine Colombani, a spokesman for the European Commission, declined to comment on future fines for car parts makers. He said regulators have visited producers of automotive lighting, safety equipment, bearings and thermal systems and had no deadline for completing the inquiries. These add to a formal probe the EU opened in August into car wire harnesses that didn’t identify companies under investigation.
Japan’s parts makers have rebounded in Tokyo trading as the yen’s depreciation increased the value of overseas income. The yen has fallen 12 percent over the past three months, reaching 91.41 on Jan. 30, the weakest since June 2010.
Denso has surged 37 percent since Oct. 31, while Sumitomo Electric rose 20 percent and bearing maker JTekt rallied 63 percent. The 29 Japanese members of the Bloomberg World Auto Parts and Equipment Index gained a combined 28 percent in the period, more than the 25 percent gain in the benchmark Nikkei 225 Stock Average and better than the 19 percent gain for all 102 parts index members.
The probes include companies based in Japan, Europe and the United States, and the investigations have widened to Canada and Australia. So far, Japanese companies have received the biggest penalties.
Denso, Yazaki and 12 other companies declined to comment on cartel investigations that are underway. Fujikura, Yazaki Corp., Ichikoh Industries Ltd. (7244), Mitsuba Corp. and Stanley Electric Co. (6923) say they are taking steps to prevent price-fixing. Koito Manufacturing Co. (7276), Fujikura and Mitsubishi Electric Corp. said they have not set aside money to cover fines that may be imposed by EU regulators. Among at least 11 other Japanese companies under investigation, none would comment on whether they had allocated funds for possible EU fines.
Yazaki, the world’s largest maker of wire harnesses, which control a car’s electrical system, paid $470 million last year, a record for a Japanese component maker. Denso paid $78 million. The two accounted for more than half the total 2012 antitrust fines levied by the U.S. Justice Department, according to Washington, D.C., law firm Patton Boggs LLP. Closely held Yazaki also paid 9.6 billion yen ($106 million) in Japan.
Sharis Pozen, then the Justice Department division’s acting chief, said the U.S. investigation was the agency’s largest ever. Fines in Europe can be up to 10 percent of sales, though authorities rarely impose the maximum.
The highest EU fine was 896 million euros ($1.2 billion), levied on windshield maker Cie. de Saint-Gobain SA in 2008 for plotting with rivals to fix the price of car windows. The penalty amounts to 2 percent of the company’s 2008 revenue of 43.8 billion euros.
Denso and Yazaki pleaded guilty in the U.S. to “multiple price-fixing and bid-rigging conspiracies” in selling parts to auto manufacturers, the Justice Department said last year. The companies met regularly to allocate supply of parts and coordinate price increases, regulators said.
The fines levied by competition authorities do not include settlements for lawsuits by consumers and dealers seeking compensation for purchases made at prices inflated because of cartel activity.
For example, Tycko & Zavareei LLP filed papers in U.S. District Court in Michigan last March on behalf of Cindy Prince, a plaintiff seeking to represent buyers of affected vehicles. The filing alleges that Yazaki, Sumitomo Electric, and five other companies operated a conspiracy for at least 10 years, “the purpose and effect of which was to rig bids for, and to fix, raise, stabilize, and maintain prices of automotive wire harnesses and related products.”
The global focus on Japanese automakers comes partly from business traditions in the country, where industrial groups called “keiretsu” have historically chosen cooperation over direct competition, said Francis Rawlinson, a professor at Kwansei Gakuin University in Nishinomiya City, Japan.
“Part of the reason Japanese suppliers had violations is their special ties with automakers, which is part of a unique culture here,” said Rawlinson.
Toyota has a supplier group known as Kyohokai, which helps executives of the 200-plus member companies get to know each other through golf and dining. Rawlinson said such activities are “very dangerous,” given the risk of price collusion.
“It’s very regrettable that some of our suppliers have been involved in violations of antitrust laws and we recognize the seriousness of the issue,” Toyota spokeswoman Shino Yamada said by e-mail. “We will take concrete measures against individual cases based on the details of the investigation.”
Kyohokai, established in 1943, holds executive roundtables, makes proposals to Toyota on “timely themes,” and holds golf competitions and social gatherings, according to its website.
While supplier groups like Kyohokai are professional organizations for sharing information -- and not setting prices -- “they may appear to some foreigners as a hotbed of cartels,” said Toru Fujiwara, senior managing executive officer at Tsubakimoto Chain Co. (6371), a Kyohokai member.
At least one company has decided Kyohokai activities aren’t appropriate for its executives. Fujikura Ltd., a wire harness maker based in Tokyo, says it stopped attending Kyohokai events after the company strengthened compliance rules in 2009.
Japan’s competition watchdog entered the offices of Koito last March as it gathered information for its probe of four headlight makers in a price-fixing case.
The raid prompted a 6.9 percent slump in Koito on March 13, while Mitsuba fell 6.3 percent, Stanley Electric dropped 8.9 percent, and Ichikoh declined 4.2 percent.
Bearings makers JTekt, Nachi-Fujikoshi Corp. (6474), NTN Corp. (6472) and NSK Ltd. (6471) also slumped after the cartel watchdog raided their offices in July 2011, then tumbled again when probes were announced by EU authorities that November. Since Oct. 31, Koito has surged 54 percent, Stanley Electric is up 36 percent and Ichikoh has jumped 36 percent.
Antitrust regulators around the world last year levied at least $1.1 billion in fines on companies involved in car parts cartel investigations, according to John Connor, a law professor at Purdue University.
Based on the value of parts sales around the world, global fines may reach $5 billion, Connor said by phone. Any damage claims by purchasers may add to that, he said.
“The loss from the fines could be big enough to shake the foundation of these companies,” said Takuro Maekawa, a lawyer in Osaka whose clients include shareholders suing for damages in auto parts price-fixing cases. “Japanese companies have been extremely lax in terms of cartel prevention.”
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