SLICING THE PIE

At 'bid meetings,' suppliers aimed to maintain one another's market share

TOKYO -- When Japanese auto suppliers schemed to fix prices, it was as much about protecting market share as pumping up profits, an industry insider said.

In textbook Japanese fashion, in which consensus rule trumped individual agendas, rival companies agreed to protect the status quo, lest someone was pushed out altogether, said Mr. X, the executive who spoke to Automotive News on the condition of anonymity.

For any given nameplate, there was a formula for how to divide the business, said Mr. X, who was sent to prison for rigging bids to supply Japanese-brand cars being built in America. Past market share dictated future business.

If, for example, Company A supplied a component for the previous generation of a volume vehicle, suppliers to the vehicle would agree that company could keep that contract on the next. Company B might retain another part, while Company C might hold its lock on yet another.

"At that time in the bid meeting, we ask Company B or Company C, 'Can we keep this business?' If they say yes, then we make a price structure saying we'll submit $10, Company B submits $11 and Company C submits $12," said Mr. X.

The suppliers had a "share map" that outlined market share by model; one goal was to keep slicing the pie the same way, he said.

"They don't want to fight with each other to keep share," Mr. X said. "For a very popular car, suppliers normally accept the price-fixing offer because they want to keep steady, big volume business."

Sales managers stateside had little say in the process; the orders came straight from bosses in Japan, he said.

"For a Honda Civic or a Toyota Camry, or some other very popular car, suppliers normally accept the price-fixing offer because they want to keep steady, big volume business."
Industry executive Mr. X

"Then we meet in the United States and say, 'Hey, did you get the prices from Japan?' and we both say, 'Yes,' and then we agree to follow this price," Mr. X said.

"It's not a matter of us meeting to decide the price."

It wasn't time intensive. The executive estimated that such meetings happened just a couple of times a year in the run-up to a vehicle launch.

Ironically, engineers at the automakers said it often behooves both parties to have stable long-term deals. Continuity brings efficiencies that sometimes outweigh one-off discount prices.

"It would be a big headache for us if we have to switch suppliers with every redesign," said a chief engineer at one Japanese automaker.

And the fixed prices, the executive said, were just a starting point. The automaker began ratcheting down the price from there, said Mr. X.

"After that, they start exerting pressure, saying, 'I understand you were initially chosen, but don't misunderstand. You are not the finalist because $10 is still higher than what we estimated. You have to be $8, not $10,'" he said. "The original quote that we submit means nothing. It's just a price level to start negotiations. The real price is decided later."

Mr. X denied that bid rigging at the center of the U.S. Department of Justice's biggest-ever antitrust dragnet saddled customers with overpriced parts.

"That's not true, because we never settle on a price that is the original quotation. They'll ask, 'Hey, you are selling for $8 in Thailand. How come you're selling $10 in the United States?'" he said. Automakers "could sue us. But they don't because they can't prove that the prices hurt them."

You can reach Hans Greimel at hgreimel@autonews.com -- Follow Hans on Twitter: @hansgreimel

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