On the 24th, the Fair Trade Commission announced that it had decided to impose a correction order and a penalty of 8,429 billion won on four parts manufacturers, including Hwaseung, Dongil, Ayia, and Yuil. Hwaseung and Dongil, which led the collusion, were charged 31.557 billion won and 42.399 million won, respectively. Aia and the only were fined 4.562 billion won and 3.92 billion won respectively.
According to the Fair Trade Commission, they won 81 contracts by fixing 99 auto parts purchase bids conducted by Hyundai Motor Company and Kia for 12 years from 2007 to 2018. The parts that were subject to collusion were automobile glass runs and weather strips. It is a rubber product that prevents outside noise or rainwater from entering the car. The glass run is mounted on the window, and the weather strip is mounted on the car door and the body, respectively.
There were several principles behind their collusion. First of all, when Hyundai Motor Company and Kia develop a new model for an existing car model, the company that supplied the parts for the existing model pushed it so that the company could win the quantity. For example, when Hyundai Motor Company developed the Granger IG, the next-generation model of the Granger HG, Dongil, which supplied Glass Run for the Granger HG model, was decided as a prospective bidder for the Granger IG parts bidding. Similarly, when Kia developed a new JF model for the K5, Hwaseung, which was also supplying the weather strip for the K5 TF, which was also the previous model, was selected as a prospective bidder.
On the contrary, when a new vehicle model was developed that was not previously available, or when there was a business operator suffering from a decrease in sales or a decrease in the factory utilization rate, a separate agreement was made to determine the bidders. For example, when Hyundai Motor Company developed the Palisade, a sports utility vehicle (SUV), Hwaseung took part, and when Kia introduced the Seltos, Ayia took part.
These four companies agreed in advance, not only the bid price, but also the discount option, which is an important factor in deciding whether to make a successful bid. In bids to purchase glass runs and weather strips from Hyundai Motor and Kia, operators must write down the discount rate to be applied from the second year of delivery. This is a rate at which parts prices are discounted year-on-year from the second year to the next three years, and the lower the discount rate, the higher the profits of suppliers. They benefited from pre-consensus by maintaining a lower discount rate than normal competition.
According to the FTC, collusion was triggered as competition intensified in the parts market related to Hyundai Motor and Kia in 2006. Hwaseung, which was the number one in the industry at the time, fell to 48.8%, down 6 percentage points from the previous year, and Dongil, which was second in the industry, increased 4.3 percentage points to 35.4% and was in close pursuit of Hwaseung. In response, Hwaseung proposed collusion to avoid competition, and Dongil accepted it, and the two companies’ response system began in 2007. Despite the collusion between the 1st and 2nd largest operators, Hwaseung and Dongil attracted them to collusion since 2010 as the industry’s third place Aia and the fourth place only low-cost bidding intensified price competition. The market share of these four companies is practically close to 100%.
The FTC will continue to strengthen monitoring of collusion in the intermediate goods market, which deteriorates industrial competitiveness. Sang-Hoon Jeon, head of the Cartel Research Division of the Fair Trade Commission, said, “It is expected to contribute to strengthening the competitiveness of the entire automobile industry while ringing an alarm in the automobile parts industry.”
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