New Cartel Suspicions Secret Price Fixing Among German Carmakers
After numerous scandals in recent years, the German automobile industry is facing scrutiny yet again. This time, VW, Daimler, BMW and Bosch are believed to have colluded on steel price fixing.
June 23, 2016, a Thursday, was an unusually hot day. In Stuttgart, Munich and Wolfsburg, temperatures climbed to 30 degrees Celsius (86 degrees Fahrenheit), and some of the men seeking access to the offices of board members and other executives at Daimler, Bosch, BMW and VW wore T-shirts. They didn't have an appointment, but they were equipped with warrants issued by the district court in Bonn - warrants that provided them with authorization to search the power centers of the German automobile industry and its most important suppliers.
The men and women from the Federal Criminal Police Office (BKA) and various state offices of criminal investigation were searching for evidence of the existence of a cartel. The Federal Cartel Office suspects that major carmakers and a few of their suppliers have been fixing prices for years, and possibly even decades. It's not the prices at which the companies sell their cars or car parts that is at issue, but rather a significant component of the prices they pay for steel.
"The aim of the suspected collusion," the court ruling that granted the search warrants read, was to "unify the purchasing price for steel in the automobile industry and, by doing so, create a commonality of costs." The Federal Cartel Office believes that the alleged collusion existed back in the 1990s and that "it existed again from March 2007 until February 2013." Investigators have also found indications there may have been collusion in 2016.
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Collusion of that nature is the antithesis of competition. It means that VW, Daimler and BMW were no longer competing to buy steel cheaper than their rivals and passing their savings down to customers - as is normally the case in a functioning market economy. And steel is one of the most important supplies purchased by carmakers.
The nationwide searches didn't remain secret, with the media quickly reporting on them. But until now, the background and details of the raids have remained largely unknown, the case having been overshadowed by a European Commission investigation into another case that also involves the automobile industry - a case that DER SPIEGEL exposed last summer. That case was triggered when Daimler and Volkswagen essentially admitted wrongdoing, and since then the Brussels authority has been looking into suspicions that the companies engaged in collusion for several years with BMW, Porsche and Audi, in the form of more than 60 working groups covering areas such as technological development, suppliers and how to deal with environmental protection authorities.
The companies had created working groups for almost every part of a vehicle. They existed for "gasoline engines," "diesel engines," "car body," "chassis," "total vehicle" and many more areas. With five brands involved -- Daimler, BMW, Audi, Porsche and VW -- the groups were referred to internally as "groups of five." All together, they met more than 1,000 times in past years.
Playing Down the Scandal
When the activities of the "automobile syndicate" became public following DER SPIEGEL's report, shareholders responded swiftly. Fearing steep fines, they unloaded their shares in the carmakers. Within the course of just a few days, several billion euros were shed from the market capitalizations of Daimler, VW and BMW.
The companies' CEOs tried to play down the scandal. Daimler CEO Dieter Zetsche and VW CEO Matthias Müller said it was unclear whether the coordination had violated competition laws. And even if it had, sources close to them said, then they could expect moderate fines at the worst, adding that the meetings of the Group of Five had only addressed technology and not prices or markets. As such, it wasn't a "hardcore cartel." At the time, Müller claimed: "I don't know anything about any price fixing."
But the case that the Federal Cartel Office is now investigating is precisely that. DER SPIEGEL was able to view emails from participating executives, meeting agendas, meeting notes and presentations from numerous meetings that officials in Bonn believe could be sufficient evidence of forbidden collusion. The suspicion that these agreements took place over several years, the cartel agency believes, likewise indicates that "the respective CEOs or board members of the automobile manufacturers in question were aware of the suspected collusion."
Bosch would not comment on the most recent allegations. BMW, for its part, confirmed that searches were conducted in June 2016 but declined make a statement regarding the details of an ongoing investigation.
In a statement, Daimler said the company was indeed under investigation and that it is providing its full cooperation with the authorities. The outcome of the Federal Cartel Office's investigation, the company noted, remains open and as such it is completely unclear whether a violation against cartel law occurred or whether the investigation will be closed again.
VW also claims that the company is providing its full cooperation with the authorities. In addition, the company noted that the Federal Cartel Office had itself "stressed that a search alone does not allow one to draw any conclusion about the further proceedings of an investigation and that there is an assumption of innocence until the end of the proceedings."
Sharing the Pain?
The competition authority's suspicions are based on meetings held by the Working Group of the Iron- and Metal-Processing Industry (AVI). Steel producers and processors as well the German vehicle manufacturers' association (VDA) are members of the Düsseldorf-based organization. But the powerful VDA itself also has a role in the investigations. Within the association's raw materials committee, long led by VW board member Francisco Garcia Sanz, members agreed to a common strategy on steel purchasing, the so-called guidelines for material price compensation.
During AVI's meetings, which have regularly taken place twice a year since 2004, representatives of steel producers meet with their major customers, vehicle manufacturers and auto parts suppliers. The meetings often took place at the Frankfurt Airport in conference rooms at the Sheraton Hotel, but also at the offices of companies involved. Daimler, for example, invited participants to its factory near Stuttgart on one occasion.
The meetings weren't secret. Agendas were prepared, and minutes taken. Often, the meetings would begin with a guest addressing attendees. In March 2010, for example, then head of German energy giant RWE, Jürgen Grossmann, told the group why nuclear power plants needed to stay on the grid despite German government plans to phase them out. Then there were presentations about the market situation. Afterward, Daimler executives chatted openly with their competitors at VW and BMW about sales figures and expectations, foreign markets and new technologies.
Some of the information was so detailed that the cartel authority believes it provides evidence of the exchange of "sensitive" business secrets in ways that violate competition law.
- Part 1: Secret Price Fixing Among German Carmakers
- Part 2: Forbidden Agreements