One of my British colleagues forwarded me this Bloomberg article about several German automotive original equipment manufacturers — including BMW, Volkswagen, Robert Bosch, ZF Friedrichshafen and Daimler — who were apparently “raided” by a German regulator for creating a steel buying cartel.
Funny thing is, here in the States, we call these groups “buying groups” or “group purchasing organizations.” For the life of me, I can’t figure out how a GPO extracts pricing that would somehow harm a consumer. What would they do? Pass on too much of their savings to their customers?
The details appear quite scant: in June, a raid occurred at six automotive OEMs and at least two Tier 1 suppliers (Tier 1 companies are direct suppliers to OEMs). According to Bloomberg, “antitrust rules may have been violated.”
The activity centered on steel purchasing. Yes, you got that right, steel purchasing and not selling, which is the typical context in which one associates steel price fixing or, really, any type of price fixing.
Regulator Clams Up
Though MetalMiner did not interview any of the companies allegedly involved in the raids, no information appeared on the topic of a steel buying raid on the Bundeskartellamt website. The Bloomberg article quoted Kay Weidner — a spokesman for Germany’s Federal Cartel Office, also known as the Bundeskartellamt which is an independent “higher federal authority” established to protect competition in Germany — as saying the raids happened.
Under what conditions could a buying group be considered a cartel? The only possible scenario we can think of is this: perhaps all six companies decided that they would collude to extract steel price concessions from Germany’s largest steelmaker ThyssenKrupp AG, leaving ThyssenKrupp without a home for all of that hot-dipped galvanized steel it’s trying to sell to automakers. That seems highly unlikely. Where would Germany’s automakers go for all of their steel? To ArcelorMittal Bremen? To China where steelmakers are legion?
Somehow, we doubt BMW or Daimler, let alone all of the other raided companies, would move all of their demand to only those two sources. It’s hard to envision that scenario.
A second part of this story troubles me. How do you have collusion with different tiers of a supply chain, such as OEM and Tier 1, all purchasing steel from yet another part of the supply chain, Tier 2 companies (which are key suppliers to Tier 1s)?
Collusion typically involves agreeing to a “higher” price than would be received in a properly functioning market, not a “lower” price. Who is harmed when OEMs and Tier 1s extract lower prices for steel? Are the steel producers harmed? I suppose that may be where the Bundeskartellamt has focused their efforts, but that argument seems weak as German automakers likely need a substantial portion of their domestic steel industry’s capacity.
What is a Cartel?
That leaves the definition of a cartel which, according to the Bundeskartellamt site is, “If several competitors coordinate their market conduct with the object of restricting or eliminating competition, this is called a cartel. Anti-competitive agreements between companies can take different forms. Particularly serious are agreements between competitors on prices or product quantities and on the allocation of sales areas or customer groups (so-called hardcore cartels). However, the ban on cartels is also generally applicable to other agreements between competitors such as cooperations or market information systems.”
German steel supply is far more concentrated than that of American or Chinese steel supply. That could magnify the impact of the case.
Regardless of what transpired — or what transpires — there’s another angle to the story, and one that those who voted in favor of Brexit will likely get a chuckle over. That is, of course, the long arm of European regulatory overreach, which appears to be alive and well in the E.U., whether it comes from Berlin or Brussels.