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German Auto Antitrust Cartel – A Record Enforcement Action Begins

Just when you thought it could not get any worse, events remind us that things actually can get worse. Volkswagen suffered through a horrible scandal involving an elaborate scheme to circumvent emissions regulations. The scandal rocked VW and slowly stretched to other German auto manufacturers, including Audi, BMW, Daimler and Porsche.

It turns out that this coordination on the emissions testing equipment was just the tip of the cartel iceberg. We are now on the verge of witnessing one of the largest cartel enforcement matters.

Over the last five years, antitrust authorities have been pursuing a vast cartel among Japanese auto supply companies. The scope of the cartel has resulted in numerous criminal settlements and individual prosecutions.  This cartel, however, could pale in comparison to a long-time conspiracy among German auto makers to curtail competition in the auto manufacturing business.

In recent disclosures and press reports, it appears that German auto manufacturers colluded on a variety of technology issues through numerous meetings and agreements among themselves, beginning in the 1990s and continuing until the present.

In the auto marketplace, Daimler, BMW, Audi, Porsche and VW portrayed a robust competitive marketplace, particularly with technology advances. They agreed on technical limitations in their respective products including convertible tops to their cars, breaking systems, seating systems, air suspensions, clutches, gasoline engines and diesel engines. By foregoing competition in these areas and coordinating their respective technologies, auto consumers were the losers. Vigorous competition can lead to technological advances and marketplace rewards when they are implemented in response to consumer demand.

VW disclosed this issue in July 2016, when it admitted that it has participated in “suspected cartel infringements,” and specifically explained that VW, Daimler, BMW, VW, Audi and Porsche have coordinated matters relating to the development of their vehicles, costs, suppliers and markets since the 1990s to this day.

The German auto manufacturers coordinated their activities through technical working groups that were organized around various auto functions, such as engine, chassis, car body, electric/electronic and vehicle. Three of the five brands are commonly owned – VW owns Porsche and Audi.  (Obviously, coordinated activity  among three commonly-owned companies, VW, Porsche and Audi would not violate US cartel law, but agreements by any or all of the three companies with BMW and Daimler would violate US cartel law).

According to press reports, engineering representatives regularly met several times a year, and agreed on various common technologies, supply arrangements, and technical limitations in their respective product lines.

As an example, the emissions cheating scandal appears to be a coordinated agreement among the car makers to circumvent the emissions testing programs rather than installing higher cost technology to comply with such regulations. By agreeing to this limitation with their competitors, the auto manufacturers made sure that a competitor would not be able to claim unique compliance with emissions testing requirements.

Auto suppliers and consumers lost in the end – suppliers with new technologies were unable to sell their products to the five German car companies who participated in the cartel. Consumers purchased cars that do not meet emissions standards or contain the best technology available for certain functions.

The EU has launched an investigation of the cartel and seized documents from the companies. German antitrust authorities also are investigating. So far, there has been no mention of a US-investigation but the car companies may be scrambling for possible leniency status.

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