IHS Global Insight Perspective | |
Significance | Europe's major truck-makers have received "surprise visits" from European Commission anti-trust officials over suspicions that that companies have been involved in an "inappropriate exchange of information" according to a Financial Times (FT) report |
Implications | The investigation potentially exposes the companies that are under investigation, Daimler, Scania, Volvo and MAN according to the FT, to sizeable fines, something which will hardly be welcome as the industry emerges from the recessionary environment of the last two years. |
Outlook | With the European truck market currently in a recovery phase following the downturn during the global recession in 2008, an investigation of this kind is hardly helpful to the OEMs involved. However, the European Commission appears of the opinion that the market practices of the leading OEMs in the European truck segment require investigation. |
Some of the world's biggest truck-makers are being investigated for the "inappropriate of exchange of information" relating to their market activities in Europe, according to a Financial Times (FT) report. The FT is claiming that Daimler, Scania, MAN, Iveco and Volvo have all received "surprise visits" from the European Commission's anti-trust investigators as they begin to look into suspected breaches of competition rules. In a statement, Scania said that it had "become subject of an investigation initiated by the European Commission regarding inappropriate exchange of information." It added, "Scania will cooperate fully with the Commission during the investigation work." For its part Iveco said, "The European Commission has announced an investigation on the leading manufacturers of commercial vehicles within the European Union. The investigation, which covers several Member States of the European Union, involves Iveco and its controlled companies. Iveco has taken note of this investigation and will cooperate fully with the representatives of the European Commission." Volvo also confirmed that authorities had visited its Gothenburg offices, while MAN said its Munich premises had been searched. In its own statement the European Commission said, "The commission has reason to believe that the companies concerned may have violated EU antitrust rules that prohibit cartels and restrictive business practices and/or the abuse of a dominant market position."
It appears that the investigation has it roots in the current legal case which is being brought by the Office of Fair Trading (OFT) in the United Kingdom. The OFT is probing suspected price fixing across the U.K. truck market and is holding criminal and civil investigations into suspected price-fixing, which means criminal prosecutions against executives were possible if misconduct was shown to have taken place. The Daily Telegraph newspaper reported last September that Ian Jones, the managing director of Mercedes-Benz Trucks UK was arrested and bailed in connection with the investigation, although charges have yet to be brought. At the time the OFT released a statement which said, "Investigations are being carried out under both the Enterprise Act 2002 and the Competition Act 1998. The investigations are at an early stage. The OFT will not be in a position to conclude whether it considers the law has been infringed until it has completed its investigations and assessed the available evidence." According to the FT, the European Commission indicated that the two investigations would be conducted on a separate basis but the two authorities were co-operating closely.
Outlook and Implications
The scale of the investigation being launched by the European Commission and the number of companies involved basically indicates that the entire structure of the European truck market is being examined by the European Commission. It is too early to speculate about what outcomes will result but invariably price competition is the main focus of these kind of investigations. By definition the medium and heavy truck market is less transparent than, for example, the passenger car industry as transactions often involve large volumes of truck sales to large retail suppliers and freight haulage operators, with the potential for large fleet discounts. It is also a market that is largely governed by price, with most of the major truck OEMs offering vehicles in the respective truck market segments with similar capabilities with regards to vehicle performance and efficiency. For truck operators the primary consideration at play when making a buying decision is full-life costs for the truck in question, including such aspects as servicing and the cost of spare parts. It is possible that the EU investigation may encompass these activities as well as outright vehicle purchase costs.
With the growing pressure towards consolidation within the European truck market, it is perfectly possible that information is being exchanged between OEMs for perfectly legal and valid purposes. For example, there are already moves for greater collaboration between MAN and Scania, involving component purchasing which is being driven by the VW Group which holds a 29.9% stake in Man and a 70% voting stake in Scania (see Sweden - Germany: 23 July 2010: MAN and Scania in Talks over Major Component-Sharing Deal). However, it appears that this investigation is likely to go beyond the kind of information likely to be exchanged in these kind of negotiations. MAN in particular will be hoping that it is not subject to any legal penalties following the 151-million-euro fine it incurred last year from the German authorities after being found guilty of offering bribes to land major contracts from foreign customers. The company took steps to avoid a repeat occurrence by establishing a compliance unit (see Germany: 6 August 2010: MAN Invests in Compliance Unit) and it will be highly embarrassing if any further impropriety is discovered. Similarly, Daimler was also fined last year for a similar practice of offering illegal bribes and cash incentives to secure contracts (see Germany: 21 April 2010: German Companies Sign Anti-Bribery Pact in Russia Following Daimler Case) and it also appointed an "ethics czar" to its board following this case. Whatever the outcome of the EU investigation, it appears increasingly clear that these internal bodies need to be given proper powers to examine the corporate ethics of their respective organisations and make the necessary recommendations and sanctions.