Driving to dusk

As the sun begins to set on the global auto parts investigation, Ron Knox examines the conspiracy’s enormous bill (so far!), how the world’s antitrust enforcers got to this point and where the investigation goes from here.


Seven years ago last month, law enforcement officers from the US, Europe and Japan rushed into the corporate offices of the world’s largest makers of automotive parts. The search warrants, court orders and other documents they carried explained that they were there because they had good reason to believe that Yazaki, Denso, Leoni and a host of other companies had met with one another to rig bids and fix prices for auto parts sold to the likes of Ford, Toyota and Hyundai.

In the antitrust world, that was a normal enough beginning to any price-fixing investigation: antitrust agencies from around the world coordinate raids to seize documents and hard drives that might contain evidence of an illicit plot among the companies and executives involved, often based on information provided by a whistle-blower. The auto parts cartel seemed a run-of-the-mill affair, with fines and prison terms sure to follow.

And follow they did. The difference from other cartels is that seven years later, they have yet to stop. In those intervening years, the auto parts investigation bloated and multiplied in ways no antitrust observer had seen before. From a handful of parts came dozens and dozens, and more than 150 separate investi­gations. In the US alone, more than 100 companies and individuals have been charged with taking part in the vast web of parts conspiracies.

Now GCR has used databases, interviews and enforcement documents to calculate the total price tag of the conspiracy so far for the companies accused of fixing the prices of steering wheels, seat belts, heater controls and much more. Our research lends supporting evidence to the long-standing claim that the auto parts cartel investigation is the largest in history, both in terms of the number of companies accused of taking part in the conspiracy, and the size of the corporate fines doled out by the world’s competition watchdogs.

By the number of companies allegedly participating, it is history’s largest discovered cartel. According to a database provided to GCR by Purdue University professor emeritus John Connor, and refined by GCR’s own research, at least 138 companies have been accused of taking part in the vast conspiracy, either by an antitrust enforcement agency or by private litigants in a lawsuit. Combined with yet-to-be-named defendants and subsidiaries, that number balloons to more than 200. That’s more than three times the number of companies involved in three similarly wide-ranging cartels – related to vitamins, lysine and liquid-crystal displays – combined.

Unsurprisingly, companies involved in the auto parts cartel have also, by most measures, absorbed more in antitrust fines and litigation settlements than any group of cartelists in history. According to Professor Connor’s data set, last updated in early 2016, as well as GCR’s own research including more recent data, the amount of fines and settlements inflicted on the accused auto parts cartelists stands at $6.64 billion.

The data collected by Professor Connor, as well as other corroborating information including a recent analysis conducted by lawyers at Morgan Lewis & Bockius, outlines a conspiracy remarkable in its scope and complexity. Over the seven years the cartel has been investigated and prosecuted, the Antitrust Division of the US Department of Justice secured just shy of $3 billion in corporate fines from the 47 parts makers targeted in the probe. Meanwhile, 65 automotive parts executives have been charged with breaking the antitrust laws; 30 have been convicted, while 35 have been charged and their cases are pending as GCR goes to press.

Those government enforcement totals do not take into account the enormous and still-growing settlements reached in the private US class actions. Those cases, consolidated in Detroit federal court, include three classes of plaintiffs – one each for automakers and parts suppliers, auto dealers and the end purchasers of the cars. So far, the end buyers alone have collected more than $673 million in settlements from parts makers. That includes nearly $194 million from parts maker Denso, which settled to end its exposure in all of the conspiracies it was accused of participating in, and another $73 million from Yazaki for its role in the wire harness cartel. Car dealers, meanwhile, have secured close to $185 million in settlements in two separate phases of litigation that together included dozens of conspiracies. And the parts suppliers included in the direct purchaser class have gathered more than $310 million in settlements so far, according to counsel.

In terms of a cartel’s size and complexity, only one past DOJ investigation compares to the auto parts cartel cases: the vitamins cartel of the late 1990s that, in part, ushered in the modern era of international cartel enforcement. That cartel saw more than a dozen companies prosecuted for fixing the price of multiple vitamins, and resulted in $917 million in corporate fines in the US. Worldwide, the vitamin makers paid close to $1.9 billion in fines. A massive amount, but just a third of what the auto parts cartel has clocked up over the past several years.

The liquid-crystal display cartel, which lasted between 2001 and 2006, is the most recent comparable to the auto parts cartel in sheer economic scope. The worldwide conspiracy included nearly every manufacturer of LCD screens in the world, which were then installed in millions of smartphones, televisions and computers sold to consumers. By the end of the global prosecution of the LCD case, the companies involved had been fined $2.9 billion, including a $500 million fine against AU Optronics after a US jury found the company guilty of price-fixing.

But the LCD cartel was not the only electronics industry conspiracy in which some of its participants were involved. Samsung, LG Display, Chunghwa Picture Tubes and others absorbed fines for fixing the prices of cathode ray tubes, which were used on older television sets. And Samsung was also a member of the Dynamic Random Access Memory, or DRAM, cartel, prosecuted in the US and Europe in the mid-2000s. Taken as a whole, the fines issued against these electronics parts cartels surpass those in the auto parts case – $5.6 billion for the electronics cases compared to $5.47 billion in fines so far in auto parts.

There is some merit to comparing the auto parts cartel to the string of electronics conspiracies in the late 1990s through the early 2010s. Both include a series of interrelated companies forming concentric circles of cartels fostered, it appears, by a culture of conspiracy within those industries.

But the comparisons end there, observers say. “I think intellectually you could compare electronics and auto parts but I am not sure how informative this would be,” says Antoine Winckler, a partner at Cleary Gottlieb Steen & Hamilton in Brussels who worked on both cases. What’s striking has always been the sheer number of conspiracies involved in the auto parts investigation, he says. One gets the impression that investigators were looking at conspiracies involving almost every part that goes into a car, likely because of the very similar procurement process for every part and every car maker, Winckler says, while the electronics investigations were far more limited.

Jean-François Bellis, a partner at Van Bael & Bellis in Brussels, says that it indeed may be an exaggeration to call auto parts the largest cartel investigation in history, since it was comprised of many separate and related conspiracies. “Nevertheless, auto parts manufacturers are perceived as being part of a single industry and the number of auto parts investigations is higher than what has been seen in any other sector, including electronics,” Bellis says.

That massive number of investigations began modestly. Japanese parts maker Sumitomo blew the whistle on the wire harness conspiracy to enforcers in late 2009, and the investigation included only a few parts conspiracies for nearly a year, until the dam broke and auto parts quickly became a sprawling network of investigations like the antitrust world had never seen.

It got there, sources and documents suggest, because the companies involved took advantage of an effective and sometimes controversial tool as it has never been used before – a scheme that rewards antitrust whistle-blowers in ways no other government programme can.


Life through leniency

Perhaps more than any other cartel probe in history, investigators assigned to the auto parts probe benefitted from a key provision in the US leniency programme. Called “amnesty-plus”, it allows a company caught in a cartel investigation to receive deep discounts on its fine, and protection from additional punishment, if it turns over information about other price-fixing schemes in which it is involved.

In the early 1990s, US officials saw patterns among international cartels indicating there would be clear advantages to offering whistle-blower protection to companies already ensnared in cartel cases. Major, multi-product companies that were willing to join a cartel for one product were likely open to collusive agreements for other products, particularly if those different product segments shared management. To shine a light on those agreements and break down patterns of price-fixing quickly and efficiently, top DOJ officials believed, they needed to ply cartelists with incentives to reveal other conspiracies that the government had yet to uncover.

The amnesty-plus policy appears to be effective: former officials say it has been the driver behind many of the world’s most significant cartel investigations. It was the main impetus in uncovering the full scope and scale of the vitamins cartel; it exposed another half-dozen or so chemicals conspiracies related to the lysine price-fixing case; and, perhaps most notably, opened the door to some of the largest and most consequential prosecutions in Antitrust Division history after Samsung spun its massive $300 million fine for fixing the price of DRAM into amnesty-plus applications in LCDs and other markets.

But nothing has compared to the torrent of amnesty-plus cases in the auto parts investigation. The deluge of information that poured into the doors of enforcers in the US, Europe and elsewhere was undammed in large part by the desire of major auto parts makers to contain the damage of their illicit activity by revealing undiscovered conspiracies. While not every jurisdiction provides amnesty-plus rewards – the European Commission has shunned such a programme – the lure of leniency led companies around the auto parts industry and their counsel to turn over any information that might even suggest a conspiracy in a product market.

In some ways, enforcers were ready if and when the first few auto parts investigations spread to other parts of the car. The US investigative team, led by then DOJ prosecutor Kathryn Hellings, had in 2009 just finished its work on similar international cases in the air cargo and consumer electronics industries. Those muscle memories intact, the team went about investigating those first cases like they would reveal other conspiracies as the probe unfolded.

But few in the DOJ anticipated the investigation would grow so much and so quickly. “You imagine that in most cases, if you have one or two [amnesty]-plus applications, that’s a lot,” says one former official involved with the investigation. “You don’t get into cases where you can’t count the number of applications on all of your fingers and toes and then some, multiplied 10 times over.” It is, the former official says, exactly how the programme was always intended to work, where an investigation of one industry has the potential to root out cartel activity in many others. It had just never happened at the scale of the auto parts cases. “It just keeps expanding, like dominos falling. One thing leads to another, to another, to another.”

Interviews suggest that the rush of information did not come from just one, or even a small number of sources; once the first investigations unfolded, enforcers were inundated with information to that point that, 18 months after the first US investigations launched, the DOJ had to move segments of the probe out of its national criminal section office in Washington, DC, (now called the Washington Criminal I Section) and into its field offices around the country. “The amount of cooperation we received, and how quickly we received it, was a unique experience,” says another US official who worked on the case.

In 2012, GCR reported extensively on Canadian documents that suggested one company, called “Cooperating Party 6” in those documents, had blown the whistle on conspiracies in several other auto parts probes after being targeted in one of the first investigations into the industry. At the time, GCR reported that the company “asked for and won immunity and leniency markers for conspiracies in various other components thought to be the target of global investigations.” The story continued.

According to the Canadian affidavit, the whistle-blower has, on at least four occasions, provided documents and other information to the bureau regarding the conspiracies – including English translations of Japanese emails and tables allegedly outlining agreements and customer allocation for the different components.

Whether Cooperating Party 6 turned over the same information to other enforcement officials is unclear. But over the course of 2011, the auto parts investigation appears to have expanded significantly.

A grand jury convened by the Antitrust Division began issuing subpoenas to companies involved in an entirely different subset of parts – safety equipment such as seat belts and airbags – and by February 2011 US parts maker Autoliv said that a grand jury subpoena arrived at its offices. The same day, TK Holdings – the US subsidiary of Japanese seatbelt and harness manufacturer Takata – said that it too had been targeted by the Federal Bureau of Investigation. DG Comp carried out its own raids in the sector in June that year.

While the identity of Cooperating Party 6 remains unclear, sources and documents suggest that Denso, the Japanese auto parts titan, turned over information related to a number of other conspiracies after being busted for its role in fixing the price of heater control panels and electronic control units.

While the US government typically does not reveal the identity of its informants, other jurisdictions often do, and Denso’s whistle-blowing has won it immunity from prosecution elsewhere. The European Commission in early 2016 fined Japanese parts makers Hitachi Automotive and Mitsubishi Electric €138 million for allegedly conspiring to fix the prices of alternators and starter components. Denso would have been in line to receive the highest fine of any company involved in the conspiracy – €157 million – but the commission shielded Denso from punishment after the company blew the whistle and won immunity. Then, in February, Denso stated that it would also avoid a fine from the Korean antitrust enforcer in its starter investigation after it won immunity there.

Two years earlier, the company was also protected from fines, this time by Japan’s Fair Trade Commission, which doled out €28 million in penalties against four companies for fixing the price of windshield wipers, radiators and other parts. According to the documents associated with that case, Denso was the only company found to have broken antitrust laws for every car part that the JFTC targeted, but was not fined or issued a cease-and-desist order.

In the US, Denso was targeted in one of the Antitrust Division’s first auto parts cases, which produced one of the agency’s largest ever fines. Yazaki paid $470 million for its role in the control panel conspiracy, along with parallel conspiracies in wire harnesses and fuel senders. The Yazaki fine – then the second-largest in Antitrust Division history – could have been much larger, but the company secured a 30% discount from the DOJ for its cooperation in the investigation.

At the same time, fellow parts maker Denso, however, won a far greater prize in paying $78 million as part of a plea deal to resolve the government’s accusations that it participated in electronic control units and heater control panels cartels. According to the plea documents, Denso could have been fined as much as $394 million under the US sentencing guidelines, primarily because the government increased the company’s “culpability score” after Denso employees obstructed justice by destroying key documents having learnt of the investigation. But the Antitrust Division asked the federal court to give Denso a 60% discount from the bottom of the potential fining range for the company’s extensive cooperation in the conspiracies at issue, and assuredly others. While the other information Denso might have turned into the Antitrust Division remain unclear – indeed, the sentencing document is heavily redacted – sources suggest that a discount of that magnitude must have included other cartels, for which Denso would have won protection from prosecution under the amnesty-plus programme.

Industry pressure

Focusing on one company or another and its role in the conspiracy downplays the magnitude of the auto parts probe. According to the most recent estimates, enforcers around the world have brought charges regarding at least 34 parts, with many more investigations under way at one point or another. Those conspiracies took shape in a rapidly changing industry in which the buyers of the parts – the car makers themselves – are some of the most powerful companies in the world.

Sources on both sides of the Atlantic say that the auto parts investigation began slowly. The first conspiracies to land on prosecutors’ desks, and the first to be prosecuted, involved electronic systems that helped to control a car’s computer. Those investigations began in November 2009, when Japanese parts maker Sumitomo alerted antitrust officials in Europe, the US and elsewhere of the existence of a price-fixing plot in the wire harnesses market. According to the application, Sumitomo and its rivals, in meetings and during phone calls, agreed to rig bids and set prices for the parts sold to the world’s largest car makers, including Honda, Toyota, Nissan and others.

At the time, officials at the Antitrust Division were intrigued by the information in the filing. The conspiracy, as reported in the leniency application, only covered a few parts, but how many parts went into a car? Hundreds? Thousands? A former DOJ official says the Division put a very aggressive investigative process in place right from the beginning “with the notion that this could be huge. Because there was pretty strong evidence for at least some of the conduct, and we thought where there was smoke, there could be a heck of a lot of fire.”

For decades, most US carmakers were vertically integrated, building parts for their cars in-house. Toyota and Nissan, Japanese car makers that had operated since before World War II, began spinning off their in-house parts suppliers mid-century but retained nearly exclusive relationships with those suppliers for decades. US carmakers sold off their in-house brands in the 1980s and 1990s, and opened up their parts supply streams to any and all potential bidders. By the turn of the millennium, outside parts makers supplied major car companies with just about every piece of a car, from the most esoteric engine component to the bolt-on windshield wipers.

The transition hasn’t been easy. While some parts makers have grown into enormous corporate conglomerates – market leaders Robert Bosch and Denso each make dozens of different parts, supplied to every major carmaker on earth – their customers still wield considerable market power, and some former in-house brands have struggled on their own. Delphi, the former General Motors-owned parts maker, laid off more than 10,000 workers less than two years after becoming independent in 1999, and by 2005 it had filed for bankruptcy protection. Ford’s former in-house manufacturer Visteon became independent in 2000, and five years later went through restructuring to sell off a number of factories and offices, most of which were eventually shuttered. By 2009, the company fell from the New York Stock Exchange listings and again declared bankruptcy.

Freed from their in-house component makers, car companies sought the best deals they could from parts manufacturers at home and abroad, and global suppliers such as Bosch and Denso were suddenly met with a new collection of powerful buyers from the US. Enforcers inside the agencies could understand the urge among the parts makers to preserve their profits in the face of such immense cost-cutting pressure from the companies to which they sold. The government claims that the earliest cartel agreements date as far back as 2000, and lasted until the government investigations began nearly a decade later.

The intrigue about what the auto parts investigation might become lasted for nearly a year, as officials in the US and Europe gathered documents and interviewed witnesses related to the electronic component and heater control panel investigations. But, owing in part to a Denso internal investigation that revealed the scope of the company’s involvement in meetings and agreements with its rivals, the floodgates opened. The torrent of leniency applications would continue for months, if not years. By 2012, Canada’s Competition Bureau reported in an affidavit that it had issued 164 provisional markers for companies attempting to blow the whistle on auto parts conspiracies – and sources say there were more markers than that. That year, acting assistant attorney general Sharis Pozen told Congress during a hearing that the auto parts cartel was the largest the Antitrust Division had ever investigated.


Intrigue inside

Inside the agencies, there were two parallel issues confounding enforcement officials. First, it was difficult to understand whether they were examining a single, continuous conspiracy that should be investigated and prosecuted collectively, or whether they had uncovered a series of related but ultimately separate plots involving sometimes disparate auto parts makers. Officials within DG Competition were “desperately trying to understand just how many cartels were involved”, says one former EU official, who asked to speak anonymously because of direct work on auto parts cases. So much about the conspiracy was unclear, the source says: how many companies were involved, how many parts, how interconnected each cartel was.

Second, enforcers were struggling to keep up with the sheer logistics of the investigation. “At the initial stages, it was simply a resource question, simply getting the [companies’] lawyers in and out of the room” for interviews, the former EU official says. “It sounds silly, but it took days and weeks.”

In the US, the challenge was even more pronounced. The government had put in place a hiring freeze early in the term of former Antitrust Division head Bill Baer, who took over in January 2013 just as the auto parts investigation was at full speed. The agency had its smallest staff in years, and a government shutdown the following year brought no relief. Meanwhile, Division officials struggled with the same logistical issues as their European counterparts, questioning the size and interconnectedness of the cartel. With a lean staff, they could ill-afford to have different groups within the Division investigating the same conduct.

Conducting the investigation was simply a matter of managing resources, former DOJ officials say. Within Main Justice, lawyers from civil investigative units moved to the National Criminal Section (NCS) to help shoulder some of growing workload. When the investigation grew beyond the capacity of the Washington office, the probes of specific parts were sent to the Antitrust Division’s field offices. Chicago took over steel tubes, body sealing products and shock absorbers, for example, while New York is leading the access mechanisms investigation.

Moving those cases to the field offices mattered in multiple ways, sources say. Not only did it alleviate mounting pressure inside Main Justice as the number of auto parts investigations – and the documents to be reviewed and processed – piled up, but it sent valuable segments of the largest cartel matter in history to hungry attorneys outside Washington. It also helped to free up time for lawyers in NCS, who had been hammering away at auto parts cases for years on a gruelling schedule that sources say hampered morale.

Elsewhere, sources suggest capacity issues and the sheer volume of cases handcuffed some agencies from bringing as many cases as they might like. In Canada, one source close to the case says the Competition Bureau eventually had to close the auto parts tap, so to speak, as the relatively small agency strained to investigate the totality of the cartel. In all, the agency has brought seven cases against parts makers and none since 2014. While there is no statute of limitations in Canada and the bureau could certainly revive the investigations if it wished, the source says all is quiet for now.

Korea and Japan, meanwhile, seem to have slowed their release of new auto parts cases, as has DG Comp; Europe’s watchdog hasn’t released a decision since its alternators and starters case last January. Only the DOJ and Brazil’s CADE remain publicly active in the auto parts matter. Brazil in October opened a fresh investigation of 28 parts makers and 66 executives suspected of collusion. But even in the US, a source says some investigations have been quietly shut down as the enforcer shifts its attention to other matters; an exhaust system probe may be such an example. The DOJ declined to comment on the matter.

The dozens of parts makers pegged in the global cartel investigations fit every possible description, from conglomerates that make and sell myriad products, to small players that struggled to compete in the cutthroat market. The ranks of the accused also include companies that won steep discounts from fines for their quick cooperation and new compliance programmes, and companies such as Hitachi Automotive, which was involved in multiple cartels but never took advantage of the very amnesty-plus benefits that built the auto parts case in the first place, and suffered for it.

There are also at least two fighters among them. In June 2016, a federal grand jury indicted parts makers Maruyasu and Tokai Kogyo after both companies told the DOJ they would rather fight price-fixing charges before a jury than take a guilty plea. Maruyasu’s trial is now on the books for January 2018, while the court overseeing Tokai Kogyo’s litigation suggested that a trial in that case could happen as soon as July – although the company is currently locked in protracted discovery disputes with the DOJ.

In the meantime, it remains to be seen how many more auto parts cases the Antitrust Division might announce. The front office of the agency at the time of this writing remains empty, save for acting Division head Brent Snyder, and it is unclear what priorities the Trump administration might have, even for the criminal side of the Division. After a nearly a decade of late nights in Washington and dawn raids in Japan, the largest cartel investigation in history may be finally drawing to a close. GCR

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