Since the Great Recession the two major global industries hit the hardest by the economic downturn were the financial and automotive industries. The economic downturn created prime conditions for market manipulation. Such conditions were potentially escalated by a weakened global economy and unwillingness of the Japanese government to increase oversight of an already desperate, fledgling automotive industry. Likewise, the South Korean company, Hyundai Motor Group, was not diligent in their financial accounting of parts and prices. This is a massive diversion from what made Asian automotive manufacturers break into the global market: cost effectiveness and process efficiency. Additionally, American automotive manufacturing has not escaped criticism with companies’ manufacturing plants based in Ohio, for example, pleading guilty to allegations of fraud and cartel-like behavior.
South Korea’s antitrust regulator will fine five auto parts firms, including Japan’s Denso Corporation and NGK Spark Plug, for a total of $3.2 million for fixing prices and rigging bids for engine parts. It has been largely noted in recent news that regulators are increasing activity and investigations in a global crackdown on price-fixing and supplier collusion against the automotive industry. The price-fixing and supplier collusion allegedly took place between 2008 and 2011. The companies that supplied Hyundai Motor Group and Kia Motors made up roughly 75% of the local car market in Japan and South Korea. While the South Korean Fair Trade Commission aggressively insisted that these fines sent a strict message that collusion and price-fixing will not be tolerated, there are still many questions regarding the intricacy of the situation that makes South Korean, Japanese, and perhaps global consumers feel very doubtful. Due to privacy laws and contractual restrictions, Hyundai Motor Group and KIA Motors have not released any financial information clarifying the size of the contracts awarded which would add context to the costs passed onto the consumers from parts costs being artificially high and how substantial of a signal this ruling sends to other automotive suppliers.
The legal and financial ramifications in Asia have had a magnified effect in the United States with 33 companies pleading guilty and agreeing to pay $2.4 billion in fines. The investigations are still ongoing. States like Ohio are feeling the brunt of the impact with clusters of Japanese-based companies (that provided parts to Honda Motor Co.) pleading guilty. These plea agreements are exposing larger issues within the Japanese automobile manufacturer’s supply chains and broader business relationships. The ramifications of the conspiracy cannot be overstated in the United States with more than a decade of price-fixing across more than 25 million vehicles purchased by United States consumers.
The story of American entrepreneur Mike Tanner (highlighted in The Columbus Dispatch) captures largely what many in the United States automotive industry are feeling. Tanner spent five years trying to get Honda Motor Co. to purchase his brake hoses. Eventually, the company purchased a small share of Tanner’s hoses; of which, he, in hindsight, believes Honda Motor Co. was using to leverage against other parts suppliers based in Japan. American entrepreneurs and businesses have largely been criticized for costly labor and inefficiency; however, the unprecedented collusion on the part of Japanese suppliers may shift the focus of American automotive manufacturing from labor costs to product parts and supply chain management.
Image courtesy of telegraph.co.uk
Image courtesy of telegraph.co.uk