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The Editorial: OEMs Reap What They Sow

November 18, 2011
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In October, three class-action lawsuits were filed against several major automotive suppliers, alleging the companies engaged in a “massive, decade-long conspiracy to unlawfully fix and artificially raise the price” of wire harnesses. As shocking and disappointing as the allegations are, I can’t say I’m surprised.



In October, three class-action lawsuits were filed against several major automotive suppliers, alleging the companies engaged in a “massive, decade-long conspiracy to unlawfully fix and artificially raise the price” of wire harnesses.

Filed by three vehicle owners on behalf of millions of others, the suits argue that the higher harness prices raised the overall price of new vehicles. The suits seek to return the price difference to car buyers.

The harness suppliers named in the suits include Delphi, Furukawa Electric, Lear, Leoni, Sumitomo Electric, S-Y Systems Technologies and Yazaki.

It gets worse. The U.S. Justice Department, European Union and Japan have been investigating the market for wire harnesses since at least February 2010. In fact, several executives at Furukawa Electric have already entered guilty pleas for charging “noncompetitive and higher prices” for parts, and the company has agreed to pay a $200 million fine.

As shocking and disappointing as the allegations are, I can’t say I’m surprised. The automotive OEMs have bullied their suppliers for so long, it was only a matter of time before they pushed back.

Remember the old Looney Tunes gag involving a round, black bomb with a lit fuse? As the fuse gets shorter, the bomb gets passed from one character to another until, inevitably, it winds up in the hands of Daffy Duck, who watches it blow up in his face.

The same thing has happened for years throughout the automotive supply chain. The OEMs pressure their Tier 1 suppliers to reduce their prices by X percent annually, or the OEMs will take their business elsewhere. The Tier 1s, in turn, seek the same concessions from their suppliers, the Tier 2 companies.

However, when the Tier 2s turn to their suppliers, they have little or no leverage with which to exact price cuts of their own. Instead, the price cuts come directly off their bottom line. That business practice drove many suppliers into bankruptcy in the previous decade.

It’s a shame, because there’s no question that the automotive supply chain has been instrumental in making the OEMs’ products-especially the Big Three’s-look great to consumers.

In 2004, a plant manager for one Tier 1 supplier told me in disgust that his company would no longer do business with a certain member of the Big Three. “There’s just no way for us to make money on the deal,” he lamented. I’ve heard similar complaints from systems integrators charged with making the equipment to assemble all those must-have options in today’s vehicles.

Certainly, we don’t condone price-fixing and other anticompetitive practices, and we’ll leave it to the lawyers to argue the finer points of the law. We only wish, perhaps naively, that the OEMs and their supply chain can find a way to work together to their mutual benefit.

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