By AOIFE WHITE Bloomberg News Truck makers, including Bellevue-based Paccar’s DA
ID: 1165797 • Letter: B
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By AOIFE WHITE
Bloomberg News
Truck makers, including Bellevue-based Paccar’s DAF Trucks unit, agreed to pay European Union regulators a record 2.93 billion euros ($3.23 billion) in fines for fixing truck prices over 14 years.
Daimler got the largest penalty of 1.01 billion euros, and DAF will pay 752.7 million euros as part of a settlement with the European Commission that cut potential fines by at least 10 percent. Volvo and its Renault trucks brand face a 670.4 million euro fine and CNH Industrial’s Iveco will pay a 494.6 million euro fine.
The penalties could ultimately rise if Scania gets fined. The Swedish truck maker, now part of Volkswagen, has contested the outcome of the investigation.
Fellow Volkswagen unit MAN provided evidence on the cartel and got its punishment waived.
Fines are high because “this cartel concerns a very large market and continued for a very long time,” EU Competition Commissioner Margrethe Vestager told reporters in Brussels on Tuesday.
The companies’ actions fixed the prices for about nine out of every 10 medium and heavy trucks sold in Europe, she said.
The fines hit truck makers at a time of fierce price pressure in Europe and declining demand in North America, Brazil, and Russia.
Daimler, the No. 1 commercial-vehicle maker, cut its truck forecast in May, saying profits will be “significantly lower.” Volvo started cutting North America and Brazil production in February and promised more cuts Tuesday, as it reduced its North American forecast on stagnant freight volumes and excess inventory.
The auto industry is the focus of investigations by competition authorities across the world.
The truck-maker fines exceed an initial 1.7 billion euro penalty for banks after the Libor scandal.
Paccar said in a securities filing that the fine is not tax-deductible. In the first quarter, it recorded a $942.6 million charge in anticipation of the fine, so it will now reverse $109.6 million of that charge, Paccar said.
Scania said in a statement that the company fully cooperated with the EU and can’t comment on what will happen next in the inquiry.
“The company doesn’t share the commission’s view on the findings of the investigation,” said Susanna Berlin, investor-relations manager at Scania.
MAN escaped fines for being the first to inform the EU of the cartel. It avoided a potential 1.2 billion euro fine, the EU said.
Starting in 1997 with a meeting of senior managers in a Brussels hotel, the companies set the factory price of trucks and coordinated the timing and the passing on of costs for new emissions technologies, the EU said.
The probe didn’t examine whether they avoided or manipulated compliance with pollution standards.
Huge fines for cartels are the Brussels-based commission’s ultimate weapon to punish companies that cheat by fixing prices. The regulator — which is still probing banks over foreign exchange manipulation — doled out massive penalties in 2013 for companies accused of rigging benchmark interest rates.
The truck settlement includes a 10 percent reduction for promising not to challenge the EU in court, on top of other discounts for cooperating with regulators.
Truck makers may still face lawsuits from customers seeking damages for overcharging.
“Daimler regrets these occurrences” and said the fine would be covered by its provision, according to an emailed statement.
Volvo’s fine exceeded its provision of 650 million euros. The extra 20 million euros will have a negative impact on operating income in the third quarter, the company said in a statement.
CNH Industrial declined to comment. The company had allocated $502 million for a fine for Iveco.
Answer this question: How and why does a competitive firm participate in an illegal price-fixing process? Discuss the pros and cons of giving VW no fine as a reward for their deliberate exposure of Cartel records.
Explanation / Answer
A competitive firm enters into the price fixing, because the fir wants to increase its profit, at the expense of consumers and for this purpose, join hands with the competitors. A competitive fir has to come up with the best products and services that create value for the consumers and earn profit and market share. Rather going through this, the firms take a shortcut and join hands among themselves to manipulate the customers and charge higher prices. It only benefits the firms and total welfare to the economy decreases. Firms do it by forming an illegal association among themselves. As a part of this agreement, they either distribute the area of operation and put their own prices, or put a higher prices collectively by all the firms. In this scenario, consumers have to pay the higher price and they suffer. Price fixing also happens in cartel that is illegitimate and illegal.
There are few pros of it. The first pro is that it will encourage other firms also come ahead and break the cartel by whistle blowing. It is an encouragement to them that their illegal behavior will be waved off. The second pro is that firms will find to get incentives of not getting punished if they come out of cartel. It will clean the business environment and consumers will be the ultimate beneficiaries.
Though there are cons also. Firms now know that they can escape the punishment after involvement in wrong-doings. It will set an example and more fir can enter into it to come out of cartel, later on. It acts as a disadvantage. The second con is that the decision regarding the not punishing the VW shows the leniency of the authorities. It does not give a right message. Laws should be equal for everyone even if somebody deliberately exposes it. Benefits of the whistle-blowing, should go to one or two person, but whole organization should not escape unpunished.
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