WHEN a Japanese carmaker issued a tender for shock absorbers a few years ago for a model it planned to sell in Indonesia, two suppliers came back with bids that were “so obviously coordinated,” said an executive at the automaker.

    One supplier put in a slightly lower bid for front shock absorbers than its rival and a slightly higher bid for rear shocks, while its rival did the opposite. The intent was clear, recalled the carmaker’s former parts procurement chief for Indonesia who is now back in Japan and didn’t want to be named because of the sensitivity of the issue: they were dividing the contracts between them.

    A few weeks later, he came across the two rival suppliers’ chiefs playing golf together in Jakarta, and summoned them to his office for an explanation. The upshot: the automaker asked the parts suppliers to re-bid.

    The account helps illustrate how some auto parts makers, in particular those from Japan, have colluded for years to inflate parts prices for automakers, dealers and repair shops in a global market with annual sales of over 80 million vehicles, and which are now being exposed in a worldwide sweep by regulators.

    For the past five years, competition watchdogs — from the United States, Europe and across Asia — have moved in, handing out record fines in some cases, and calling time out on a business model that has served parts makers well.

    That model essentially sees parts makers collude to keep prices relatively high for new components they supply to car manufacturers, and then charge even more for the same parts supplied as replacements to dealerships and repair shops.

    Denso Corp., Japan’s leading auto electronics parts supplier had a higher operating profit margin of 9.2 percent than Toyota Motor Corp. in the year to March, while Aisin Seiki Co.’s 6.1 percent margin topped Nissan Motor Co.’s 5.3 percent.

    In South Korea, Hyundai Mobis, a leading Hyundai Motor supplier, had a margin of around 6 percent on parts and component systems sales to automakers last year, but 21 percent on replacement parts sales, according to its filing with the stock exchange.

    Some Japanese parts suppliers have evidently taken that business model further.

    “To secure high profitability, those suppliers often coordinate bids for a supply contract when they can, and come to automakers with mostly identical bids,” the auto executive said in an interview at his firm’s procurement office in Japan.

    As well as colluding to push up prices for new car parts, they also charge multiple times — sometimes as much as 10 times — the price when they make the exact same components available as replacement parts in the aftermarket marketplace.

    “In other words, they’re doubling dipping to beef up and maximize their profit margins,” the executive said. “This is the kind of cartel you deal with in Southeast Asia with Japanese suppliers, and that’s not the exception, but the typical business condition we deal with routinely around the world.”

    For parts suppliers now, the answer may be to go back to business basics, industry officials and experts say.

    (SD-Agencies)