DETROIT (Nov. 9, 3:10 p.m. ET) — Amid headlines about the Department of Justice probe of wire harness supplier Furukawa Electric Co.'s role in a price-fixing scandal, federal scrutiny of safety equipment suppliers has gone almost unnoticed.
Four of the world's top producers of airbags and seat belts — Autoliv Inc., Takata Corp., TRW Automotive Holdings and Tokai Rika Co. — are under investigation for anti-competitive practices in the U.S., Europe or Japan.
Justice Department spokeswoman Gina Talamona noted the government has not confirmed it is investigating any product segment other than wire harnesses. But on June 9, TRW disclosed that European regulators had searched its occupant safety systems unit in Germany. A month later, TRW confirmed it had received a subpoena from the Justice Department.
Autoliv also has acknowledged that it received a subpoena from the Justice Department's antitrust division, while Takata said its offices were searched by the FBI.
Takata spokesman Alby Berman confirmed the target of the raid. “We don't know the full scope of the investigation, but we do know that safety systems are included,” Berman said. A spokesman for Tokai Rika's U.S. safety systems unit, TRAM, said he had no comment on the Justice Department investigation.
Other companies may be involved in a probe of safety equipment suppliers. Denso Corp., which makes sensors and control units for airbags, acknowledged the FBI searched its suburban Detroit offices Feb. 23, 2010.
TRW and Denso declined to comment on a federal probe.
Suppliers got a glimpse Sept. 29 of the stakes involved, when the Justice Department announced a plea deal with Furukawa that included a $200 million fine plus jail terms for three company executives.
Subsequent penalties could be more severe. The U.S. government tends to offer lighter sentences and fines to companies that volunteer information early about other price-fixing activities.
In 1999, for example, the Justice Department fined the Swiss firm F. Hoffmann-La Roche Ltd. $500 million for its role in a global price-fixing conspiracy involving vitamins. BASF paid $225 million, but the original whistle-blower company, which was part of the conspiracy, was not penalized.
Companies that confess their crimes first get the best plea deal, said George Donnini, a lawyer for Butzel Long, a major Detroit law firm.
“It creates incentives to be the first one through the door to confess all your crimes,” Donnini said during a recent presentation to the Society of Automotive Analysts. “The benefits are astounding.”
Pricing cartels are more likely when a small group of global companies controls a product segment, analysts say.
In the safety equipment segment, five companies — Autoliv, TRW, Takata, Key Safety Systems and Toyota Gosei — control the lion's share of global airbag sales, says Scott Upham, president of Valient Automotive Market Research of Rochester, N.Y. Key Safety Systems and Toyota Gosei have not reported any antitrust inquiries by the Justice Department.
The industry consolidated in the mid- to late-1990s, Upham says. Now, there are eight major global suppliers of safety equipment.
Given the Justice Department's initial focus on Furukawa, it is likely other wire harness producers will be up for plea deals or indictments, said Matthew Leitman, a lawyer with Miller, Canfield, Paddock and Stone in Detroit.
Leitman said the Furukawa plea deal is the first result of a series of investigations that could drag on for years.
“This is the tip of the iceberg,” said Leitman at a presentation during the SAA's seminar Oct. 26 on price-fixing.
The Justice Department's investigations have spread beyond wire harnesses and safety equipment. On Oct. 13, Magna International Inc. issued a statement confirming that its Cosma International unit is undergoing a federal probe of its tooling operation.
Leitman, who has represented companies in previous price-fixing investigations, predicted the probe will claim more victims. “You will see many, many additional pleas,” he said. “You will see companies pleading, and you will see individuals going to prison.”