The indictment of three current-and-former Bridgestone executives this week is the latest development in a massive investigation into price fixing and bid rigging in the auto parts industry. From Ohio Public Radio Station WKSU, ML Schultze has more on the case with John Connor from the American Antitrust Institute.
The case against the Bridgestone execs has to do with fixing the prices of what may seem like a small part in a very big worldwide market: The rubber mounts and other pieces that minimize vibration in cars built by companies like Toyota, Nissan and Suzuki. The executives have not been convicted. And Bridgestone says it's waiting for the case play out in the courts. But it has already agreed to pay a $425 million criminal fine for its part in the conspiracy.
John Connor says there's nothing small about it and about other antitrust schemes that have spread through the auto-parts industry in the last decade.
"I've had to develop a new word. I call it a call it a 'supercartel'," said Connor, "because it's actually composed many little cartels that are interlinked and overlapping and something like the parts of an old fashioned watch."
Connor defines the cartels as voluntary associations of companies that are - on the surface - rivals, "and yet come together secretly to either reduce output collectively or raise prices collectively."
And he says it's pretty new to the auto industry.
"Actually, it's been a relatively clean industry," said Connor, " if you look at the period of say more than 10 years ago." But that changed "in my view, with the intense cost-cutting pressures that were placed on the subsidiaries and the suppliers. They were facing an existential threat. In order to stay in business they needed to collude and fix prices."
And at least initially, Connor says it seemed like a good bet. "The chances of being caught are probably less than 50 percent so it's a tempting strategy for companies that are under profit duress."
"Profits are the glue that hold these illegal schemes together," said Connor, "The managers who run the cartels know there's risk involved. Many of them, of course, minimize it. Like most thieves, they think the chance of getting caught is pretty small.
"But the antitrust agencies have a lot of tools at their disposal these days," Connor says, and they're using them.
Thirty-two people have been charged in the U.S. Twenty-six companies have pleaded guilty or agreed to plead guilty, and are paying fines of nearly $2.3 billion. And Connor notes that the schemes operated overseas as well as in the U.S., meaning companies are facing another $1 billion or more in fines.
"I think there's a lot of fear about the future of the companies. In many cases the fines being imposed come dangerously close to putting companies out of business."
And "certainly the 30 or so executives who have been indicted face very lengthy prison sentences," said Connor, "and in some cases fines as well. It's basically the end of their careers in most cases."
But for companies as big as Bridgestone-even a $425 million fine is "a mere paper cut."
And Connor estimates the fixing of prices among rivals in the auto-parts industry has cost consumers $10 billion.