InsiderTAPS (29 September 2014)
Throwing a Competition Law Spanner in The Automobile Industry
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As if ‘open season’ has been declared in recent months, competition regulators around the world have been busy imposing fines and penalties against manufacturers and suppliers in the automobile sector. Least to say, 2014 has not been a good year for the industry thus far.
Price fixing cartel and abuse of dominant position
In August 2014, the National Development and Reform Commission (“NDRC”) – the Chinese competition law watchdog – has fined twelve Japanese businesses approximately 1.24 billion yuan (around US$201 million) for price fixing and engaging in anti-competitive conducts in the markets for the manufacturing and supply of car parts and automotive bearings. The NDRC’s investigation into the car parts industry unearthed an illegal alliance or cartel that operated in breached of China’s Anti-Monopoly Law by exchanging information on prices and customer quotations at a number of bilateral and multilateral meetings over a ten-year period.
Barely 2 weeks after the NDRC’s press release, the Competition Commission of India slapped a combined fine of 2,500 crore (approximately US$420 million), or equivalent to 2% of the carmakers’ three-year average turnover in India, on fourteen carmakers. This decision was made following their investigation into complaints that the genuine automobile spare parts manufactured by the car manufacturers are not made available to all workshops in the open market. The repair, maintenance and servicing of automobiles could only be carried out at the designated workshop or service stations of the authorised dealers. These concerted practices effectively created a monopoly over the supply of genuine spare parts and repair/maintenance services. Consequently, it would have the effect of indirectly determining the prices of the spare parts, repair and maintenance services. In delivering the decision, the Competition Commission of India expressly cautioned that the decision was aimed at providing “more freedom to Original Equipment Suppliers in sale of spare parts, and more choice to consumers and independent repairers.”
International cartel and cross border regulators enforcements
Apart from the Chinese and Indian examples above, there are several on-going and completed investigations and cases involving car parts manufacturers spanning across the European Union, Japan and the United States in which automobile cartels and anti-competition activities are slowly being brought to light. In Singapore, the Competition Commission of Singapore (“CCS”) in May 2014 has issued an infringement decision against the same Japanese manufacturers found to have violated the Chinese Anti-Monopoly Law (and their respective Singapore subsidiaries) for engaging in anti-competitive agreements and unlawful exchange of information in respect of the price and sale of ball and roller bearings sold to aftermarket customers in Singapore.
Business behavioural change – a solution?
In light of anti-competition concerns, Coca Cola Singapore Beverages in Singapore has taken pro-active measures to voluntarily amend its supply agreements to remove any potentially restrictive provisions in the agreements with on-premise retailers, such as exclusivity conditions and conditional rebates after the CCS commenced its investigation. In exchange for Coca Cola Singapore Beverages’s undertaking, the CCS has ceased the investigation.
On the verge of being exposed and with the competition authority close on their heels, some of these cartelists would naturally choose to co-operate with the authorities by not only admitting to the misconduct but also volunteering information on the operations of the cartel in question in exchange for leniency in the form of reduced penalties.
However, there are times where voluntary change of business behavior or cooperation would not attract sympathy from the regulator. NDRC’s investigators raided a Mercedes-Benz office – a unit of German auto giant Daimler – in Shanghai, questioned their employees and inspected their computers for price manipulation despite of Daimler’s effort to pacify the NDRC by reducing prices on their spare parts prior to the raid.
Competition Act 2010
In the local front, price fixing cartel and abuse of dominant position are similarly prohibited under sections 4 and 10 of the Malaysian Competition Act 2010 (“CA 2010”).
While competition law is still in its infancy in Malaysia, there is still very much a cause for concern for the automobile players in Malaysia because competition authorities can undertake various forms of cooperation at regional or international level in investigation and enforcement activities. Under section 39 of the CA 2010, the Minister of Domestic Trade, Cooperative and Consumerism may direct the Malaysia Competition Commission (“MyCC”) regarding interworking arrangements between the MyCC and any other authorities in a foreign jurisdiction or any international organisation. Section 21(2)(e) of the CA 2010 allows MyCC to disclose confidential information to any competition authority of another country in connection with a request by that country’s competition authority for assistance.
The international crackdown on anti-competition conducts in the automobile industry should be a wake-up call for companies in Malaysia to disassociate themselves from any form of anti-competitive behaviour, particularly those in the markets highlighted by the competition authorities as under scrutiny. For businesses with presence in multiple jurisdictions, compliance becomes challenging when each jurisdiction has its own set of competition law. Assessment exercise and reconciliation effort are especially required when in one jurisdiction it is not a contravention but in another jurisdiction it is.
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 Mitsubishi Electric, Mistuba, Aisan, Sumitomo, Yazaki, Furukawa, Denso, Hitachi, JTEKT, NTN, NSK and Nachi-Fujikoshi Corp. Hitachi and Nachi-Fujikoshi Corp. benefited from the immunity regime as they the first company to have reported the conduct to the NDRC.  Honda Siel Cars India Ltd., Volkswagen India Pvt Ltd., Fiat India Automobiles Ltd., BMW India Pvt. Ltd., Ford India Pvt. Ltd., General Motors India Pvt. Ltd., Hindustan Motors Ltd., Mahindra & Mahindra Ltd., Maruti Suzuki India Ltd., Mercedes-Benz India Pvt. Ltd., Nissan Motor India Pvt. Ltd., Skoda Auto India Pvt. Ltd., Tata Motors Ltd. And Toyota Kirloskar Motor Pvt. Ltd.  JTEKT, NTN, NSK and Nachi-Fujikoshi Corp