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Automakers Penalized $422M by Competition Commission of India

Zacks Equity Research

The Competition Commission of India (CCI) has levied a fine of around $422 million on 14 automakers on charges of inappropriate pricing practices prevailing in the industry. The regulatory body reported that the auto manufacturers have violated the trade norms and have failed to maintain fair competition in the spare-parts and after-sale service market.

The companies which have been fined include Maruti Suzuki, Tata Motors Limited (TTM), Honda Motor Co.’s (HMC) Honda Siel Cars India, Volkswagen AG’s (VLKAY) Indian unit, Fiat S.p.A (FIATY) India, BMW India, Ford Motor Co.’s (F) Indian unit, General Motors Co.’s (GM) Indian unit, Hindustan Motors, Mahindra & Mahindra, Daimler AG's (DDAIF) Mercedes-Benz India, Nissan Motor Co. Ltd.’s (NSANY) Indian unit, Skoda Auto India and Toyota Motor Corporation’s (TM) Kirloskar Motor. Notably, Tata Motors – which currently sports a Zacks Rank #1 (Strong Buy) – was charged the highest fine of about $222 million.

The commission reported that the automakers did not provide the independent repairers with the branded spare parts and diagnostic tools. As a result, the repairers were unable to provide proper repair and maintenance to vehicles. The supervisory body pointed out that this limitation on availability of spare parts allowed automakers to charge high prices for repair and maintenance from consumers.

The penalty constituted about 2% of the average annual turnover in India for the three years ended 2010. Importantly, the penalty amount needs to be deposited within 60 days of receipt of the order. Moreover, the commission is undertaking strategic measures to end monopolistic practices in the industry and encourage effective operations of independent repair companies.

The commission further stated that the safety regulation in India’s automobile industry is not up to the mark as domestic vehicles fail to match up to international standards.

Recently, China’s National and Development Reform Commission’s (:NDRC) antitrust probe into the Chinese auto industry revealed that 12 Japanese auto parts manufacturers indulged in price fixing in the nation. Thus the supervisory body charged a fine of 1.24 billion yuan ($200 million).

The automakers bearing the penalty include Toyota, Audi, BMW, Daimler's Mercedes-Benz, Jaguar Land Rover, Chrysler and Honda. As a result, the auto manufacturers have slashed the price of their vehicles or spare parts.

Toyota and Nissan currently carry a Zacks Rank #2 (Buy), while Ford, Honda and General Motors sport a Zacks Rank #3 (Hold). Daimler carries a Zacks Rank #4 (Sell) and Volkswagen Holds a Zacks Rank #5 (Strong Sell).

Read the Full Research Report on F
Read the Full Research Report on HMC
Read the Full Research Report on TM
Read the Full Research Report on DDAIF
Read the Full Research Report on NSANY
Read the Full Research Report on FIATY
Read the Full Research Report on GM
Read the Full Research Report on TTM
Read the Full Research Report on VLKAY


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