The Wall Street Journal Asia
If it sometimes seems car parts are just too expensive, that's because they are.
In recent months, three Japanese car-parts companies have agreed to pay a combined $748 million in fines for bid rigging and price fixing in the U.S. The amount paid by the three -- Tokyo-listed Furukawa Electric and Denso, as well as Yazaki, a private company -- is more than the total of levies collected by the U.S. Justice Department's antitrust division in the previous fiscal year.
Fines don't generally outweigh the upside of price fixing for the companies involved, according to a 2011 American Antitrust Institute working paper. On average, penalties imposed on cartels globally equate to only about 38 percent of the overcharge, the AAI said.
But the strong yen and the impact of supply-chain disruptions last year are already crimping profits. The fines are a further blow to the car-parts companies. Furukawa's $200 million fine, for example, pushed the company's net-profit forecast into the red for the fiscal year through March.
The two-year probe is already the largest cartel investigation ever. So far, it has been limited to electrical components. But the volume of cases and potential fines will surely rise as the probe expands into other parts, says Michael Cohen, an antitrust attorney at Paul Hastings. Investigators in Japan and Europe are also poring over the evidence. Last month, Japan's antitrust watchdog ordered Yazaki to pay a $123 million fine for bid rigging. The company is preparing its response.
Furukawa's share price is up about 29 percent from its 12-month low in late November, while Denso has gained about 20 percent from its low at about the same time. The outlook for Japan's auto industry is improving as supply chains return to normal and sentiment brightens in the U.S. But the antitrust story has some way to go. With more fines likely, investors shouldn't be surprised by a further ding to profits