Antitrust fine VW's Truck Schizophrenia

The European Union could impose a €4 billion fine, its highest ever, on five truck manufacturers, including Volkswagen and Daimler. One VW truck maker, MAN, is cooperating with investigators while another, Scania, may be hit with a big penalty.
With Scania and MAN, Volkswagen finds itself increasingly in a yin-yang situation.

 

Volkswagen’s acquisition of Scania last year, as part of its push to challenge commercial vehicle market leader Daimler, could prove to be a pricey and dicey move.

Scania is one of five companies, including Daimler, facing possible cartel fines of more than €4 billion ($4.53 billion), Handelsblatt has learned from sources familiar with the case.

If that happened, the truck manufacturers would be paying the highest cartel fine ever imposed in Europe. All companies involved have declined to comment.

The penalties would deal a serious blow to VW and the other truck makers whose sales in Europe have been slumping for months. Fierce competition for customers has led in many cases to massive discounts that are certain to impact the companies’ bottom lines.

In November, the European Union sent charges to DAF, Iveco, Volvo and MAN, which is owned by Volkswagen, in addition to Daimler and Scania, accusing the European truck manufacturers of operating a long-running price-fixing cartel.

The case puts VW in a difficult position – and has created a daunting challenge for the new head of its truck division, Andreas Renschler, who has been tasked with combining the company’s truck manufacturers MAN and Scania.

The cartel scandal also has a personal dimension for Mr. Renschler.

The cartel was exposed in 2011 when MAN notified officials in Brussels, at the insistence of VW patriarch Ferdinand Piëch, the head of MAN's supervisory board.

In return for its testimony, the company was exempt from prosecution.

Scania, however, could feel the full brunt of cartel law. Apparently, Mr. Piëch had not given Scania Supervisory Board Chairman Martin Winterkorn any advance warning, even though the two men are considered close associates. A warning would have jeopardized MAN's exemption from prosecution.

The cartel scandal also has a personal dimension for Mr. Renschler, who was in charge of Daimler's truck division from 2004 to 2013. E.U. Competition Commissioner Margrethe Vestager has called him to Brussels as a witness.

Insiders say that the Commission’s burden of proof is overwhelming. In its letter to the various companies, it listed the ways it believes competition was systematically leveraged. The central issue was an agreement over delivery times and prices for major customers, according to industry insiders.

Unlike cars, trucks are usually customized for such uses as refrigerated transport or the construction industry, and not every manufacturer is capable of providing these custom features – something the industry apparently used to its advantage. For example, if a regular customer was unable to obtain the truck it had requested from its supplier right away, the competitors made sure that it would not be able to turn to other suppliers. Their aim was to reduce the scope of the competitive market in terms of both price and delivery time.

The decision to apply for witness protection and, therefore, to get the ball rolling is difficult and requires a careful weighing of corporate interests. Marc Besen,, Attorney with the Clifford Chance law firm

According to the letter from the Commission, the collusion began in 1999 and continued until 2011.

Munich-based MAN launched the case when internal investigators uncovered the cartel while investigating corruption allegations. When they informed the truck maker’s supervisory board about the alleged illegal activity among the truck manufacturers, the board decided to notify the authorities. MAN supplied the antitrust authorities with extensive material – and incriminated the entire industry as a result.

Armed with the information from MAN, investigators began searching offices in the spring of 2011, including those of Scania. The investigation by the competition authority apparently took the Swedes completely by surprise. Executives closed ranks at the VW Group, which held a stake in Scania at the time.

Video: MAN Truck Development Process.

MAN must have been pleased over the turn of events, which probably triggered resentment at Scania. The trip to Brussels would prove to be worthwhile for MAN, which, unlike Scania, was given exemption from prosecution in return for its testimony.

A leniency application is tempting for companies that have violated cartel law. "The decision to apply for witness protection and, therefore, to get the ball rolling is difficult and requires a careful weighing of corporate interests," said Marc Besen of the Clifford Chance law firm. "However, if the request for witness protection results in the complete exemption from fines, management will usually have made the right decision."

The European Commission can impose draconian penalties for serious violations, including fines of up to 10 percent of a company's annual revenues. In the case of truck makers with revenues in the billions, the fines could be substantial.

Volvo and Daimler followed MAN's lead and admitted to their involvement. They, too, have supplied the Commission with substantial amounts of material, in return for the prospect of leniency. Companies that provide the authorities with information about the cartel, but are not the first to do so, can expect a potential reduction in their penalties by 30 to 50 percent.

Still, the companies are preparing for stiff penalties. Industry leader Daimler has already established a reserve of close to a €1 billion for possible fines, and competitor Volvo, the second-largest player in the market, has set aside €400 million.

According to industry insiders, the fines could end up being even higher. Talks are currently underway between E.U. authorities and the companies.

The fact that the two heavyweights have already set aside €1.5 billion for potential fines highlights the magnitude of the case. Iveco, DAF and Scania, for their part, are unlikely to receive any leniency and could face the maximum penalties.

All five companies, which have declined to comment on the investigations, have until April to respond to the charges. According to industry insiders, the European Commission will likely set the fines this year.

 

Markus Fasse covers the auto and aviation industries. Martin Murphy reports on the auto, defense and steel sectors. To contact the authors: [email protected], [email protected]