Competition Heating Up

from here: http://www.iht.com/articles/2006/08/02/business/parts.php


A scandal in Europe over car parts
By James Kanter and Carter Dougherty International Herald Tribune

Published: August 2, 2006




PARIS The chief executive of a leading French auto parts supplier stepped down Wednesday amid charges by prosecutors that he was aware of bribes allegedly paid to Germany's top automakers to win their business.

Directors at Faurecia, one of the biggest European makers of automotive interiors, met late Wednesday and announced the resignation of Pierre Lévi, saying that his departure was "in the best interests of the group."

Prosecutors in Frankfurt had said last week that they were investigating Lévi in connection with up to €800,000, or $1 million, worth of bribes that they suspected were paid to managers at Volkswagen, Audi and BMW. Other investigations are under way into suppliers in Germany as well as Lear, which is based in the United States.

Faurecia is majority-owned by PSA Peugeot Citroën, a leading French car manufacturer, and employs 60,000 people worldwide.

The fresh allegations come as competition is stiffening in Europe's blue- chip - but scandal-marred - automotive industry. Parts makers have consolidated and are increasingly seeking contracts with big car manufacturers outside their home markets.

"We have seen a lot more business across European borders in a business that's long been characterized by German-to-German, French-to-French and Spanish-to-Spanish relationships," said Antonio Ferreira, a London-based manager for European component forecasts at CSM Worldwide, a consultancy. "The parts industry is growing smaller and smaller with fewer players, and the pressures are immense."

But instead of increasing transparency, that progress in cracking open national markets and fostering pan- European companies may have contributed to the seeming wave of corruption, other analysts said.

Faced with the prospect of losing a bid for a large order to a competitor in an increasingly cutthroat market, paying a bribe may have seemed like the cheapest way to secure a hefty chunk of business, according to Ferdinand Dudenhöffer, the director of the Center for Automotive Studies in Gelsenkirchen, Germany.

"The money one might pay to a customer is, in the end, a fraction of the cost of an overall shipment," Dudenhöffer said.

Caspar von Hauenschild, an executive board member of Transparency International Germany, a leading anti- corruption group, called the crackdown by German prosecutors overdue.

The wave of bribery investigations represents "a kind of paradigm shift," said von Hauenschild, who is also a nonexecutive director of some German companies. "Even chief executives are now worried because investors simply don't like scandals," he said, warning that disaffected shareholders could sell shares in companies that become involved in corruption investigations.

Von Hauenschild said that employees convicted of wrongdoing in Germany could face prison terms of up to five years under principles agreed to by member countries of the Organization for Economic Cooperation and Development, the Paris-based club of 30 wealthy countries. The problem in the latest cases, according to von Hauenschild, partly lay in the way car companies had drawn up codes of conduct forbidding such practices - yet failed to impress the importance of those rules upon managers.

"It was not enough," he said. "You have to let the people in the purchasing units know that there will zero tolerance for corruption and that if they don't adhere they will be fired."

Revelations that Frankfurt prosecutors were investigating several Volkswagen employees have already triggered a sharp reaction at the largest European automaker, which is still cleaning up a messy scandal from last year involving the use of company money to pay for leisure trips.

The chief executive of Volkswagen, Bernd Pischetsrieder, last week wrote Faurecia to say that the carmaker did not want to work with people involved in the scandal. A Volkswagen spokesman, Hartwig von Sass, declined to say whether the letter mentioned Lévi specifically.

Three employees of Volkswagen are allegedly involved in the Faurecia scandal. One employee, from its Audi division, is in custody while being investigated, and another is retired from Volkswagen. The third is still employed but has been suspended.

On Wednesday, prosecutors in Munich confirmed that they were also investigating possible bribery in transactions between Lear, a U.S. auto parts supplier based near Detroit, and BMW. In that case, a former BMW employee, accused of accepting payments in exchange for contracts, is in custody during the investigation.

Andrea Puchalsky, spokeswoman for Lear, said the company was cooperating in the investigation, but she said she was "not aware of any Lear employee being involved in any inappropriate conduct in connection with this matter."

In recent years other German carmakers - notably DaimlerChrysler - have tangled with prosecutors over allegations of corruption. Prosecutors in Stuttgart said last month they were examining whether improper payments were made in Poland and Ghana, a case in which Daimler's internal controls led it to suspend or dismiss several employees. Daimler has also informed the U.S. Securities and Exchange Commission that the payments may have violated German law or U.S. anti-bribery rules.

Von Hauenschild complimented the German authorities for putting pressure on companies to monitor their employees and stamp out wrongdoing.

The German prosecutors are "sending a message that there will be no escape once they open a case," he said.

Carter Dougherty reported from Frankfurt.