DETROIT (Nov. 1, 5:30 p.m. ET) — A long federal investigation into price fixing collusion among automotive suppliers has yet to answer one lingering question: Why is it happening?
One answer: Blame the automakers.
Sheldon Stone, partner at Detroit area turnaround firm Amherst Partners LLC, and Richard Hilgert, automotive equity analyst for Chicago-based Morningstar Inc., believe the price fixing is a result of the automakers' own pricing pressures.
“These suppliers, they've been beaten over the head for years, margins are razor thin,” Hilgert said. “The customers [automakers] carve up the market on things other than just low prices, so I don't know how the [U.S. Department of Justice] is able to put together an antitrust case when it's so customer driven.
“If anyone should be blamed and held accountable for higher vehicle prices to the consumer, it's the automaker, not the supplier,” he said.
“The proliferation of fraud over the last two to three years is unprecedented,” he said. “But it's not because you have criminals in these companies, you have executives that are being forced to behave in a way that is incongruent with their personal and corporate value system because of continual pricing pressures.”
But Jeff Lipshaw, a past general counsel at the former AlliedSignal Inc. and now associate professor at Suffolk University Law School in Boston, said he would not be surprised if pressured suppliers went rogue and then an automaker demanded an inquiry.
“Auto suppliers compete by platform. Competition or bidding shifts from platform to platform, the suppliers bid for a place on that platform and they are each in concentrated industries,” he said. “They have only so many customers, so it's not beyond the pale that several rogues would say, ‘let's all go in to one customer at the same price.' And the [automaker] finally says, ‘this can't be a coincidence,' and does something about it.”
Van Conway, president of Detroit area turnaround firm Conway MacKenzie Inc., said he is still researching the collusion investigation, but he would be surprised if much of it has to do with suppliers to domestic automakers.
“The [domestic automakers] know more about your margin than you do sometimes. They know your labor content, they know your material costs. Sometimes they even buy your steel and ship it to you, accountants come look at your books, all as a part of doing business with them,” he said.
“It's not like you can easily wink at a couple of guys in a room and get the prices marked up 10 percent. Could you do it on something? Maybe within a small component of the business that nobody has time to inspect. That's still illegal, but I just don't know how [pervasive] that would be.”
The federal investigation into price-fixing collusion among automotive suppliers started with wire-harness makers, but has branched into other component makers that include safety systems and auto tooling.
While only insiders at the U.S. Department of Justice Antitrust Division and their counterparts overseas know the full scope of the global investigation, more details could surface as early as the end of November, attorneys said.