Tyre manufacturer price-fixing case finally starts

The four major tyre manufacturers in South Africa allegedly held meetings and telephone conversations from 1999 until at least 2007 in contravention of the Competition Act to discuss and agree price increases and coordinate the timing of each increase, the Competition Tribunal heard on Monday.

Advocate Daniel Berger SC, appearing for the Competition Commission (CompCom), told the Competition Tribunal that these meetings were referred to as “coffee table discussions”, were informal and no minutes were kept.

Berger was addressing the tribunal on the first day of a scheduled 19-day hearing into alleged price fixing by Goodyear and Continental.

Goodyear and Continental have denied the allegations.

Bridgestone in September 2009 applied for and was subsequently granted conditional immunity from prosecution in terms of the commission’s corporate leniency policy.

Apollo Tyres, then known as Dunlop, thereafter finalised a settlement agreement with the commission in terms of which the company agreed to pay a R45 million fine. The tribunal confirmed this settlement agreement in December 2011.

Read: Bridgestone admits to collusion (Sept 2010)

Berger said that since Bridgestone is the leniency applicant and Dunlop has settled, this leaves only Goodyear, Continental and the SA Tyre Manufacturers Conference (STMC) as the remaining respondents who are opposing the CompCom’s case.

He told the hearing that more than 20 years ago in 1999, the four competitors held discussions and agreed to coordinate prices, initially for a price increase in the second half of 1999.

He said they also discussed which of them would lead the announcement of the price increases, the size or range of the increase and also the date from which the price increase would become effective.

Berger said these same four competitors met at OR Tambo International Airport on January 27 2000, with this meeting attended by the managing directors and chief executives of the companies.

“The meeting focused on the fact that manufacturing costs in South Africa were high, the tyre manufacturers were feeling the pressure of raw material costs and the drop in the exchange rate.

Collusive relationship

“It was proposed at that meeting that the companies should not fight each other [but] instead work together to get some sense of order and price stability in the market… It was then that Dunlop, Goodyear, Continental and Bridgestone formalised their collusive relationship,” he said.

Berger said agreement was reached to cooperate with each other, particularly in relation to price increases, and agreed on prices to be implemented in February 2000.

He said they further agreed:

• The implementation and operation details of their coordination going forward for other price increases would be handled by their sales and marketing representatives.

• To align the message that they gave to dealer customers as the rationale for each price increase so that the increase would be accepted in the market.

Berger said it was important for these competitors to agree on these matters because a price increase by one of them that was out of step with the prices of the others could result in a loss of sales and a loss of market share.

“The meetings and telephone conversations took place before and occasionally after a price increase was announced to the market.

“The four competitors took turns to arrange the meetings, usually by booking a room at the Johannesburg Airport, which was a convenient location for those representatives that had to fly in for the meeting. The meetings were informal, minutes were not taken,” he said.

Berger said the cartels are clandestine in nature and extremely difficult to detect and the tyre cartel may have gone undetected had it not been for one owner of a fleet of trucks, Parsons Transport, who came forward in October 2006 and brought this cartel to the attention of the commission.

He noted Parsons complained that the major tyre manufacturers worked with each other to set and manipulate the prices for their tyres in South Africa.

“The complaint was that the tyre manufacturers simultaneously adjusted their product prices as and when they liked on the same dates and for the same so-called reasons and that they used clever marketing structures and pricing techniques to disguise their price fixing,” he said.

Search and seizures 

The commission on April 4 2008, after obtaining a warrant, conducted search and seizure operations at the premises of Bridgestone, Dunlop and the SATMC.

Berger said the documents that were seized uncovered evidence that not only corroborated the complaint of Parsons Transport, but also revealed other collusive conduct between the tyre manufacturers.

He said the commission after investigating the complaint was of the view that the collusive conduct was not only about a price fixing contravention but it included division of markets, collusive tendering and the exchange of competitively sensitive information.

The commission’s investigation also pointed to discussions through the SATMC and the SATMC’s involvement in the cartel conduct, he said.

Berger added that the alleged collusive conduct not only related to the sale of replacement tyres but also to the sale of tyres to vehicle manufacturers and the government and tender price adjustments to be requested from the State Tender Board to ensure the tyre manufacturers received the same percentage increases from the State Tender Board.

He said that Bridgestone, in support of its leniency application, gave the commission information to corroborate the fact that collusive meetings and discussions had indeed taken place.

Berger noted that Bridgestone submitted further information to the commission in 2010 that not only confirmed the Parsons complaint but also provided the commission with evidence that the collusive pricing had started as far back as 1999.

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Bridgestone also included evidence regarding agreements to reduce list prices to reduce the size of the discounts that dealers were offering to customers and evidence of interactions between the tyre manufacturers regarding the supply of tyres to original equipment manufacturers (OEMs) and evidence regarding submissions to the State Tender Board.

The commission concluded that evidence of prohibited conduct had been established and referred the matter to the tribunal on August 31 2010.

Berger said that since the referral, the commission and Goodyear and Continental have been involved in litigation on preliminary issues until late October 2018.

“The matter is now finally before the tribunal for hearing, more than 10 years after its initiation and more than 20 years after that meeting in January 2000.”

“Although the prohibited conduct took place many years ago and obviously memories fade, it is fortunate that the commission has been able to obtain notes and diary entries that corroborate what the commission’s witnesses are saying,” he said.

Shaun Wustmann, the former divisional head of sales and marketing at Bridgestone and now retired, took the tribunal through his notes of meetings he attended with representatives of the other three tyre companies and at which he claimed the price increases and their coordination was discussed and agreed.