| Leading international automotive economist Prof Garel Rhys has been looking behind the scenes of the latest price fixing by major lorry makers and its implications for all of us, with some shocking fines for the truck makers |
The medium and heavy commercial vehicle makers in the European Union enjoy considerable tariff protection of around 22% in comparison to the car makers 9.7%.
As if this was not protection enough, from the free play of market forces it has just come to light that leading European truck makers rigged the market from 1997 to 2011. These two arrangements have resulted in a considerable reduction in consumer economic welfare because of monopolistic pricing.
The European owned MAN, Daimler Benz, Volvo and Iveco, and the US controlled DAF which has one of its plants in the UK, have been fined €3 Billion by the EU. This is the highest ever for a price fixing cartel in Europe. The tariff on buses and coaches is only 10%. This combined with very knowledgeable customers who tend to buy direct from manufactorers precludes a cartel even though many of these vehicles are supplied by the truck maker.
By admitting wrongdoing the companies had a 10% cut in their penalties whilst as the whistle blower MAN avoided a €1.2 Billion fine. Scania has refused to settle and will continue to be investigated. This might seem to be curious as both firms are controlled by Volkswagen. Volvo owns Renault Trucks, Iveco is part of the Fiat Group and Daf is owned by PACCER Corporation of the USA.
Not only do these firms make almost 100% of the trucks in Europe, but Volvo and Daimler in particular are the largest global players in the medium and heavy truck industry.
This is particularly true n North America where they are joined by Paccar, the owners of Daf. The reaction of the fiercesome anti-monopoly authorities in the USA has yet to emerge.
The truck makers’ cosy cartel not only increased prices above the free market level, which had already been inflated by the high duties, but also delayed environmental measures.
Given the VW diesel-gate scandal the negative impact on the corporate image of these truck makers can only be wondered at.
The combination of high tariffs and market rigging revealed the competitive deficit within the EU with producers riding roughshod over the interest of private and corporate consumers.
The current structure of the EU truck industry was conducive to the establishment of a tight cartel. In 1950 there were 85 significant truck producers in Western Europe. By 1975 this had fallen but was still 25, in 1994 the figure was ten but by 2016 only five larger groups remain.
A cartel of five is very straightforward to administer, but such a structure is not a sufficient condition for collusion, there still has to be the will to do so.
Many highly concentrated industries have avoided the temptation to rig the market. Indeed, the bus industry is a good example of a concentrated competitive market.
It is clear that the European authorities will closely monitor the European tuck industry as it will take some time for trust to be restored.
Any further illegal behaviour could provoke the EU’s anti monopoly authorizes to consider breaking up truck firms to protect competition.
In the European truck industry the status quo had come to represent massive tariff protection behind which the companies could engage in non competitive behaviour. Clearly this could not continue.
Brexit means that a UK in control of its own tariffs could set them to undermine any tendency to anti competitive behaviour by vehicle makers. There is still a question of different regulations but that’s always there. In other words, the UK could set very low or indeed zero tariffs on import of medium and heavy commercial vehicles, after all apart form DAF the UK market is dominated by imports.
Hopefully, there have been no examples of the vehicle producers trying to exert market dominance over their supply chain. But this is something the EU authorities would want to keep a close eye on.
In conclusion it’s important to establish some facts. Within the EU the UK is the second largest car market but it vies with France to be the biggest for Commercial Vehicles. As a result the UK is a major buyer of the highly protected truck industry and suffers from this, and of course the market-rigging cartel. As the UK freight market is truck dominated the welfare loss is not just to vehicle operators but to the wider economy as well because it suffers from inflated transport costs.
In addition, given that the truck industry in Europe is relatively more dominant globally than the car side it could be assumed that truck making was an EU comparative advantage in the global motor industry.
However, events suggest otherwise. The massive tariff protection together with market rigging suggests an industry unsure of its capabilities or its future in a free market – rather suggestive of the EU itself.
© Professor Garel Rhys CBE is
Professor Emeritus & President of the Centre for
Automotive Industry Research Cardiff University.
