US tire price class action: more details

US tire price class action: more details
US tire price class action: more details

A few days after the European Commission has announced that it is investigating on some of the major tire manufacturers in relation to allegations of price fixing, the companies themselves have become the subject of aSimilar class action lawsuit in the United States. Our colleagues at Tyrepress they looked into the matter further and interesting insights emerged.

First, anyone wondering who prosecuted the case might be interested to know that Rena Sampayan, a resident of the State of California, is named as plaintiff. Court documents add that she personally “purchased tires in the State of California directly from defendant Goodyear”according to legal documents.

Cutting to the chase, collective action is about “…tire purchases within four years before the class action was filed”, given that it clearly refers to a potentially huge number of tires, considering the US market. The investigation fundamentally alleges that the named tire manufacturers engaged in a cartel, conspiring to raise and maintain higher prices, and that this action was at least in part facilitated through public communications. The tire manufacturers mentioned have already denied price fixing and declared their compliance with the law and their cooperation with investigations in connection with the European Commission’s investigation.

The US lawsuit names both the European headquarters and their North American legal entities. Specifically, “Continental Aktiengesellschaft; Continental Tire the Americas, LLC; Compagnie Générale des Établissements; Michelin North America, Inc.; Nokian Tires plc; Nokian Tires Inc; Nokian Tires US Operations LLC; The Goodyear Tire & Rubber Company; Pirelli & CSpA; Pirelli Tire LLC; Bridgestone Corporation; Bridgestone Americas, Inc.” are all named in the lawsuit. Of course, Goodyear is the only company in the lawsuit that does not have both its corporate headquarters and U.S. division named, as Goodyear is based in Akron, Ohio, USA.

The case adds further details to the more general information released by the European Commission relating to its investigation. Specifically, the case alleges that the named tire manufacturers and potentially other “unidentified Doe defendants” entered into “illegal agreements” For “artificially increase and fix the prices of new replacement tires for cars, vans, trucks and buses” sold in the United States.

Furthermore, a relatively small detail of the European case is brought to the fore in the US archives. Now we know that the accusation is that the defendants “they coordinated price increases, including through public communications”. Of course, this does not exclude other means, but this wording is the clearest suggestion of the specific accusation that the price increases were somehow managed through public communications.

The logic of the US case is that the defendants coordinated “sudden and dramatic parallel price increases, which in the absence of a price-fixing conspiracy, went against their economic interests” as well as “the high level of concentration of the tire market”.

The second tranche of arguments against tire manufacturers appears rather circumstantial. For example, the lawsuit mentions “significant barriers to entry” it’s a “lack of economical replacements for tires”, as well as the “standardization of tires with a high degree of interchangeability” And “the myriad opportunities defendants’ employees had to conspire” could potentially be described as opportunity and perhaps as motive, but such arguments alone do not explicitly prove that alleged collusion took place.

Further details on the charges

Photographing the scenario, the case describes the US tire market as “oligopolistic” and states that in 2022, sales of Bridgestone, Michelin and Goodyear accounted for 64% of the total replacement tire market (see pie chart), given that according to the plaintiff it leads the market to be “more susceptible to cartelisation”.

Turning to the facts, the case focuses on the sharp increase in tire prices that many international markets have experienced in recent years. At the US level, the investigation specifically suggests that increases in US tire prices have been driven by “price increases blocked” by the tire manufacturers mentioned.

Furthermore, the investigation claims that tire prices are too high and have increased too quickly: “Between 2021 and 2023, the average tire price increased by 21.4%, a growth rate more than 70% higher than core inflation”. The case also suggests that “Tire prices remained high despite easing inflation and dissipating the effects of the COVID-19 pandemic.”

In addition to criticizing the rate of increase in tire prices in the United States, the survey is also suspicious about the sales volumes of tire units: “Sales volume also did not suffer due to price increases, which you would normally see with a price increase in a competitive market.”

Citing Continental as an example, Case claims that sales volume increased by 19.3% in 2022. Their annual report from that year indicates that “The agreements reached with customers on price adjustments and to compensate for the effects of inflation have had a positive impact on sales in the automotive group sector.”

In another example, the plaintiff cites Goodyear’s first-quarter 2022 report in which then-chief financial officer, Darren Wells, told investors “the increase [di Goodyear] of replacement tire prices more than offset the [suoi] costs”.

In summary, with allegations sparked by tire price increase circumstances common in several regions of the world, how tire manufacturers communicated price information increases appears to be the focus of the U.S. investigation. It remains to be seen how the plaintiff will demonstrate that the rapid increase in prices, in the age of online work and digital technology, alone is enough to speak of collusion.

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published on 02/13/2024

 
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