| John M. Connor
Cartels, Section 1 of the Sherman Act, International, Private Enforcement, Public Enforcement
In the new AAI White Paper, AAI Senior Fellow and internationally known cartel expert, economist John M. Connor, unpacks the Auto-Parts Supercartel. Connor’s Twilight of Prosecutions of the Global Auto-Parts Cartels explains that the Auto-Parts Supercartel comprises 70 to 80 interconnected, international, automotive inputs, bid-rigging schemes detected mostly during 2008 to 2017. Almost half of the convicted companies were Japan-based parent firms or their subsidiaries. The connections among the cartels are provided by overlapping corporate memberships and by the targets of collusion, 17 Original Equipment Manufacturers (OEMs) of automotive vehicles.
Experienced antitrust officials have asserted that the supercartel is the largest constellation of cartels ever tackled by the world’s antitrust authorities. The truth is that “it depends.” In terms of the number of firms and individuals convicted, it is indeed the biggest; measured by affected sales and monetary penalties, it appears to be a close second.
The origin of these cartels is rather mysterious. Most cartels are formed after a sustained period of falling prices and profits, but not Auto-Parts. Outside of East Asia, auto manufacturers have long placed strong pressures on their suppliers to reduce prices of their inputs through competitive bidding. In Japan, customary OEM loyalty to suppliers began to break down in 1999, and the great majority of the cartels were launched during 1999-2006. Did the assemblers push too hard on price reductions in the early 2000s, and thereby trigger supplier collusion to cope with an existential threat?
At last count 18 jurisdictions vigorously prosecuted this supercartel, which demonstrated exceptional duration, global reach, size, and injuriousness. Estimates for affected commerce of the Auto-Parts supercartel range from $3.2 to $5.0 trillion. There are few reliable estimates of overcharges, but averaging the few preliminary estimates suggests that injuries are in the range of $0.6 to $1 trillion.
Antitrust enforcement aimed at this supercartel is nearly complete as of early 2019. Canada has definitely closed all Auto-Parts cases. In the United States, because of the U.S. five-year statute of limitations, the DOJ’s investigations of auto-parts cartels began winding down in late 2015. Corporate indictments elsewhere appear to be over. Although it is possible that the DOJ may nab a couple of the 60 Auto-Parts fugitives and seek their extradition, further convictions of individuals in the United States are unlikely. The status of several mature EC investigations suggest that most have been closed. Brazil and Mexico still have 20-plus investigations open in 2019.
Among other observations, the Auto-Parts cases bring into focus the relationship between monetary penalties and jail time for cartelists. For example, more than $20 billion in penalties has been imposed worldwide on nearly 300 corporate cartelists. In North America about half of those penalties were extracted through settlements from class-action damages suits, which is slightly higher than the historical average. To be sure, these penalties provide some measure of restitution for the victims of cartel crimes. But even if corporate monetary penalties rise well above the current $20 billion total; deterrence of collusion is highly unlikely. For deterrence purposes, indictments and sentencing of hundreds of individuals in the automotive industries may have lingering effects on the ethical behavior for would-be cartel managers.
