Auto Parts Firm To Pay $200M Fine For Price Fixing
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DETROIT (WWJ/AP) - Carmakers were forced to pay more for auto parts because a group of suppliers conspired to raise prices for more than a decade, the Justice Department said Thursday.
The scheme, revealed in documents filed with the federal court in Detroit, likely raised prices that consumers paid for cars.
In the documents, federal prosecutors charged a Japanese company and three of its executives with conspiracy to restrain trade. Prosecutors said the company, Furukawa Electric Co. of Tokyo, agreed to plead guilty and pay a $200 million fine, while the executives also will admit guilt and serve prison time in the U.S.
Katie Kerwin, editor of the Auto Beat Daily, said the investigation is global and ongoing.
“I’m impressed, though, by the penalties, a $200 million fine against the company. What’s remarkable is that the three deputy citizens, the executives at the company, are going to be serving time in US prison.”
Furukawa, which makes automobile wiring, is part of a wider investigation into an auto parts cartel that rigged prices in the U.S. and Japan, according to the documents.
“This cartel harmed an important industry in our nation’s economy,” said Sharis Pozen the acting assistant attorney general for the Justice Department’s antitrust division. She called the fine “one of our largest.”
It was unclear how many automakers were affected by the conspiracy, how many models were affected and how much the price-fixing scheme inflated parts prices. The Justice Department did not identify the other companies involved in the cartel.
Kerwin said the price-fixing scheme likely affected vehicle retail prices paid by consumers.
“They were basically overcharging for parts in some fashion and thereby driving up the cost for the automaker involved and perhaps driving up the price of vehicles as a result,” she said.
Starting in January 2000, Furukawa conspired with other cartel members to fix prices of wiring harnesses that were sold to car manufacturers in the U.S. and elsewhere “on a model-by-model basis,” Pozen told reporters at a Washington news conference.
The harnesses are groups of wires that link electronic controls to everything from brake lights to transmissions.
Pozen said the Justice Department is working with international authorities in the probe, though she declined to identify them.
Asked if prices were fixed and bids rigged for other auto parts, Pozen responded that the investigation is “broad.”
The company and the three executives have all agreed to cooperate with the Justice Department.
The three Furukawa executives, all Japanese nationals, will serve prison time in the U.S ranging from a year and a day to 18 months. It is rare for foreign executives to serve any U.S. prison time for price-fixing, much less serious felony time of more than a year behind bars.
During at least part of the conspiracy, two of the executives who are pleading guilty — Junichi Funo and Hirotsugu Nagata — engaged in price-fixing in the Detroit area, the Justice Department said. Court papers identified the third executive as Tetsuya Ukai. Two of the executives worked in the Honda sales division.
Justice Department Spokeswoman Gina Talamona said she did not know if the executives will have to be extradited from Japan.
Honda alone has sold more than 15 million vehicles in the U.S. since January 2000, so the company could have been overcharged by hundreds of millions of dollars, said Jim Gillette, an analyst with the firm IHS Automotive, which advises auto parts suppliers.
Most cars have at least four wiring harnesses that cost automakers around $100 each depending on their complexity, Gillette said.
Honda, he said, probably had to absorb most of the added cost. That is because it has been difficult to raise prices in recent years due to competition.
Honda spokesman Ed Miller would say only that federal authorities told the company of the investigation in early 2010, and Honda is cooperating in the probe.
Peter Henning, a law professor at Wayne State University in Detroit and a former federal prosecutor, said more companies will be charged as the Justice Department gets information from the Furukawa executives.
Automakers are likely to sue the companies to recover millions of dollars, he said.
“You can piggyback on the criminal conviction because that establishes that they were involved in price fixing,” Henning said.
Word of the investigation surfaced in February of 2010 when the FBI raided the U.S. offices of three parts makers that supply Toyota Motor Corp. and other manufacturers.
The FBI’s Detroit office said at the time that agents raided the offices of Denso Corp., Yazaki North America and Tokai Rika. Spokesmen for Yazaki and Tokai Rika said Thursday that the investigations continue and they are cooperating. Messages were left for a Denso spokeswoman.
Furukawa and the three executives are each charged with conspiring to violate the Sherman Act in restraint of trade. Talamona said she did not know when the executives would appear in court.
The Associated Press contributed to this report.