(Repeats article first published on Sunday. No changes to
By Norihiko Shirouzu and Maki Shiraki
NAGOYA, Japan/TOKYO Aug 24 When a Japanese
carmaker issued a tender for shock absorbers a few years ago for
a model it planned to sell in Indonesia, two suppliers came back
with bids that were "so obviously coordinated," said an
executive at the automaker.
One supplier put in a slightly lower bid for front shock
absorbers than its rival and a slightly higher bid for rear
shocks, while its rival did the opposite. The intent was clear,
recalled the carmaker's former parts procurement chief for
Indonesia who is now back in Japan and didn't want to be named
because of the sensitivity of the issue: they were dividing the
contracts between them.
A few weeks later, he came across the two rival suppliers'
chiefs playing golf together in Jakarta, and summoned them to
his office for an explanation. The upshot: the automaker asked
the parts suppliers to re-bid.
The account helps illustrate how some auto parts makers, in
particular those from Japan, have colluded for years to inflate
parts prices for automakers, dealers and repair shops in a
global market with annual sales of over 80 million vehicles, and
which are now being exposed in a worldwide sweep by regulators.
For the past five years, competition watchdogs - from the
United States, Europe and across Asia - have moved in, handing
out record fines in some cases, and calling time on a business
model that has served parts makers well.
That model essentially sees parts makers collude to keep
prices relatively high for new components they supply to car
manufacturers, and then charge even more for the same parts
supplied as replacements to dealerships and repair shops.
Denso Corp, Japan's leading auto electronics parts
supplier had a higher operating profit margin of 9.2 percent
than Toyota Motor Corp in the year to March, while
Aisin Seiki Co Ltd's 6.1 percent margin topped Nissan
Motor Co's 5.3 percent.
In South Korea, Hyundai Mobis, a leading Hyundai
Motor supplier, had a margin of around 6 percent
on parts and component systems sales to automakers last year,
but 21 percent on replacement parts sales, according to its
filing with the stock exchange.
Some Japanese parts suppliers have evidently taken that
business model further.
"To secure high profitability, those suppliers often
coordinate bids for a supply contract when they can, and come to
automakers with mostly identical bids," the auto executive said
in an interview at his firm's procurement office in Japan.
As well as colluding to push up prices for new car parts,
they also charge multiple times - sometimes as much as 10 times
- the price when they make the exact same components available
as replacement parts in the aftermarket marketplace.
"In other words, they're doubling dipping to beef up and
maximize their profit margins," the executive said. "This is the
kind of cartel you deal with in Southeast Asia with Japanese
suppliers, and that's not the exception, but the typical
business condition we deal with routinely around the world."
As regulators, most recently in China, go after suppliers in
what has become a worldwide probe into price fixing, this
"business model is in danger," the executive said. "We might be
seeing the beginning of an end of it."
BACK TO BASICS
Japanese auto component suppliers, such as Toyota Group's
Denso and Aisin, have, like their parent, long been considered
as running highly efficient operations. But that reputation for
being "lean" when selling cars in mature Western markets was
challenged as global automakers aggressively went after a new
generation of more cost-conscious buyers in emerging markets.
Automakers took note of suppliers' cost structure before the
authorities began clamping down on price manipulation - around a
decade and a half ago as they sought to cut costs and vehicle
prices to make cars more affordable in emerging economies. At
the unnamed executive's company, for example, procurement
officials began going after parts suppliers five years ago,
mindful of their "pricing tricks," he said.
For parts suppliers now, the answer may be to go back to
business basics, industry officials and experts say.
"Rather than change in their business model, parts makers
are going to have to quit getting their hands dirty for
profiteering and should go back to basics," said Hidehiro
Utsumi, an attorney-at-law at law firm TMI Associates in Tokyo
and an expert on anti-monopoly.
That means re-embracing what Japanese automakers are best
known for - eliminating excess from the manufacturing
process throughout the supply chain and trimming any fat
from production to achieve low cost and high quality.
No one at Aisin or the Japan Auto Parts Industries
Association was immediately available to comment. A Denso
spokesman referred to its earlier press statements on fines in
The crackdown on auto parts makers began around early 2010,
when regulators in the United States, Europe and Japan started
looking into parts suppliers including wire harness makers such
as Yazaki Corp and Sumitomo Electric.
Japan's Fair Trade Commission has fined 12 local parts
makers a total of $332 million since January 2012 for violating
anti-monopoly laws, including Yazaki, headlamp maker Koito
Manufacturing Co and bearing maker NSK Ltd.
China last week fined a dozen Japanese parts makers a record
$201 million for manipulating prices, while in
the United States, 28 firms including Denso and Yazaki and more
than two dozen executives have in recent years agreed to pay
$2.4 billion in fines, according to the Justice Department.
The European Commission last month fined several parts
makers, including Yazaki, NTN Corp, NSK and Furukawa
Electric, a total of $182 million, and
is currently investigating possible cartels in car lights,
thermal systems, air conditioners, seat belts, air bags,
radiators and windscreen wipers.
South Korean regulators last year fined units of Denso,
Continental AG and Robert Bosch for price
fixing, and are looking into whether there has been price
collusion among car makers and dealers.
In May, Singapore's Competition Commission fined
Nachi-Fujikoshi Corp, NTN and NSK a record S$9.3
million ($7.43 million) for cartel behaviour in ball bearings,
noting the price fixing, going back as far as 1980, even had a
formal name: the Market Share and Profit Protection Initiative.
The crackdown has hit Japanese parts suppliers hardest as
they operate globally, though others such as Autoliv Inc
have also been caught up. Car parts implicated in the probes
range from wire harnesses, bearings and seat belts to
anti-vibration rubber and ignition coils.
(1 US dollar = 103.8700 Japanese yen)
(1 US dollar = 1.2513 Singapore dollar)
(Additional reporting by Yoko Kubota in TOKYO, Rachel Armstrong
in SINGAPORE, Hyunjoo jin in SEOUL and Foo Yun Chee in BRUSSELS;
Editing by Ian Geoghegan)