Shares in Magna International Inc. MG-T dropped Thursday after the auto parts giant said it was being investigated by the U.S. Justice Department on an antitrust matter in the auto tooling industry.
The company said Thursday that it was co-operating in the investigation, which centres on tooling contract bids by its Cosma International unit. Cosma produces vehicle body and chassis systems and provides vehicle engineering services.
On the Toronto Stock Exchange, Magna shares closed at $37.18, down $1.78 or 4.57 per cent.
Magna spokeswoman Tracy Fuerst said the company takes these matters “very seriously,” saying it was notified of the investigation “recently” and disclosed it “promptly.”
“We do not anticipate any interruption in providing our customers with the highest quality products and servicing the global automotive industry,” Ms. Fuerst said. Magna has never been investigated by the Justice Department before, but requests for information are “relatively common for companies in our industry,” she added.
She said she could not comment further, nor were any additional details released.
David Tyerman, an auto parts industry analyst with Genuity Capital, said it appears the Magna investigation is part of a broader Justice Department crackdown into anti-competitive activities in the auto parts industry that began in early 2010. “There are a number of players caught up,” he said.
The penalties can be severe – from millions of dollars in fines to jail time for executives.
The department has also investigated other well known auto parts suppliers, including Japanese companies involved in electronics, and safety companies such as TRW Automotive.
One of those companies, Furukawa Electric Co., entered into a plea bargain at the end of last month in which it was fined $200-million (U.S.) and had three executives sent to jail with terms ranging from a year and a day to 18 months. The Department of Justice said at the time that those were the first charges “as a result of its ongoing international cartel investigation of price fixing and bid rigging in the auto parts industry.”
It noted that such deals can lead to higher prices for auto parts in cars sold to consumers, adding that it will work to “ensure that these kinds of conspiracies are stopped.”
Accusations against Furukawa included the collusion between two parties to fix the price of contracts when selling parts to auto manufacturers. The Department of Justice also investigated the industry in 2007.
But even if Magna were to be found guilty on a similar accusation, Mr. Tyerman doesn’t see the repercussions as a long-term problem for the company, which is growing again after a painful period when its auto industry customers restructured their North American business.
“The way I would see this being problematic is if the fine was much larger than $200-million,” Mr. Tyerman said. “The only other thing is if there was systemic substantial bribery, fraud or whatever, throughout Magna and it reached through a lot of the organization, that could be a problem.”
Magna said in a release before stock markets opened that “the DOJ has requested documents related to various tooling bids, including a tooling program for which a subsidiary within our Cosma International operating unit acted as Tier 1 tooling supplier,”
A Tier 1 supplier is a company that sells directly to original equipment manufacturers, which include the big name automakers such as General Motors, Ford, Chrysler, Toyota and Honda, Volkswagen and others.
“Magna’s policy is to comply with all applicable laws, including antitrust and competition laws, and we are fully co-operating with the DOJ,” the company said.
Magna is Canada’s largest auto parts maker, with 104,000 employees in 26 countries. The Aurora, Ont.-based company and its subsidiaries manufacture advance systems, assemblies, modules and components, and engineer and assemble complete vehicles.
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The Canadian Press
