Supplier price probe widens

By David Sedgwick, Automotive News staff report

Detroit, Michigan -- The price-fixing scandal that has enmeshed a Japanese supplier of wire harnesses is now a far-reaching probe of global suppliers of other auto parts.

Using history -- and almost any TV cop show -- as guides, it now becomes a race to see who will sing to federal prosecutors in an effort to win a lighter punishment. And federal prosecutors dangling tasty plea-bargain deals can be very persuasive.

Since the Furakawa scandal unfolded, the FBI has conducted raids on US offices of three suppliers of safety equipment, although the Justice Department won't give details. And Detroit defense lawyers with a track record in price-fixing litigation say the drama has just begun.

On Sept. 29, the Justice Department of sent a blunt message to suppliers when it announced a plea deal that included a $200 million fine plus jail terms for three Furukawa Electric Co. executives.

Two of the executives already have agreed to sentences of 12 months and 15 months in return for disclosing details of their conspiracy to fix prices with other suppliers of wire harnesses. The third executive has not yet been sentenced.

Those plea deals could be bad news for other wire harness makers under investigation. Yazaki Corp. and Tokai Rika Co. have been targeted by the Justice Department.

Japan's Fair Trade Commission also raided the offices of Sumitomo Electric Industries Ltd., while the European Commission conducted unannounced inspections of the European offices of Lear Corp. and TRW Automotive Holdings.

Makers of other parts could well be drawn into the investigation. In a Web site posting describing their investigative methods, federal prosecutors promise to lighten penalties if suppliers disclose what they know about conspiracies to fix prices of entirely different components.

The Justice Department hasn't said whether its wire harness investigation has triggered probes of other automotive components. But the FBI has searched the offices of three suppliers of safety equipment: TRW Automotive Holding, Takata Corp. and Autoliv Inc.

On Oct. 13, Magna International Inc. acknowledged this month that it was under investigation for tooling bids by its subsidiary, Cosma International. Magna said it is cooperating with the FBI.

In its financial statement for the three-month period ending Sept. 30, Autoliv warned stockholders that "it is likely that ... the company's operating results and cash flows will be materially impacted" by the probe.

'Tip of the iceberg'

"Folks, this is the tip of the iceberg," said Matthew Leitman, a lawyer for the Detroit law firm Miller, Canfield, Paddock and Stone who has represented companies in previous price-fixing investigations.

Measured by buzz alone, the price-fixing case is easily the biggest story in Detroit's supplier community. Last week the Society of Automotive Analysts hosted presentations by Leitman and two other attorneys on the topic of price-fixing.

Leitman does not claim to have inside information about the probe, but he offered a compelling scenario of the pressure the Justice Department can apply. In short, the sooner you cooperate, the lighter the penalties.

An example: A supplier under investigation for price-fixing involving sprockets could step forward with information about a separate widget cartel. The company that provides information might not be penalised in the ensuing widget probe and would receive lesser penalties in the sprocket investigation.

History shows that singing to the Justice Department offers hefty financial incentives -- in the form of avoiding stiff penalties imposed on rivals

For instance, in 1999, the Department of Justice announced fines for price fixing by global vitamin manufacturers. The Swiss firm F. Hoffmann-La Roche Ltd. paid a $500 million fine, and BASF paid $225 million. But the original whistle-blower company, which was part of the conspiracy, was not penalised.

Big incentive to confess

Companies that confess their crimes first get the best plea deal, says George Donnini, a lawyer for Butzel Long, a major Detroit law firm.

"It creates incentives to be the first one through the door to confess all your crimes," said Donnini during his presentation last week to the Society of Automotive Analysts. "The benefits are astounding."

Leitman cautioned that he did not have any inside information about the Justice Department's investigation. Judging by past history, however, penalties will get heavier as the Justice Department continues its investigation.

"You will see many, many additional pleas," Leitman predicted. "You will see companies pleading, and you will see individuals going to prison."

From Automotive News (A Crain publication)