U.S. Rules Against Taiwanese AM Auto-parts Makers

Taiwanese makers of aftermarket (AM) auto parts are big players in the lucrative American market. Their activities in the United States are earning them not only profits, however, but also patent lawsuits by automakers and anti-trust litigation by lawyers and consumer groups.

The latest example of such problems is provided by the Depo Auto Parts Ind. Co., a leading Taiwanese automotive-lighting manufacturer, which recently reported that its wholly owned U.S. subsidiary Maxzone Auto Parts Co. had reached an initial settlement in a class-action lawsuit that requires Maxzone to pay out US$25 million. The company is also involved in a criminal case, and at least one Maxzone official is serving a jail sentence in the U.S.

A senior official at TYC Brothers Industrial Co., another major domestic auto-lamp maker and co-defendant in the case, said that he was very surprised by this outcome and would look to his company lawyers for a better understanding of the case.

Industry sources report that the case originated in 2008 when American auto-parts companies, including Sabry Lee, filed a class-action suit against three automotive lighting manufacturers in Taiwan—Eagle Eyes Traffic Ind. Co, in addition to Depo and TYC—charging them with unlawfully conspiring to fix prices and divide up the AM automotive lighting market among themselves.

The industry sources noted that sales of Taiwan-made AM auto parts in the U.S. have continued to grow in recent years, thanks to their good quality and competitive prices (less than half those of original manufacturer parts), with the growth being especially notable during the recent economic downturn. Insurance companies, in particular, are using Taiwan-made parts to repair the vehicles they insure.

Taiwan-made AM collision replacement parts such as auto lamps (which make up the largest share of the total amount), bumpers, engine hoods, mirrors, and grills are estimated to supply approximately 90% of the U.S. AM auto-parts market.

Profit Impact
Depo is expected to list the US$25 million settlement as a one-time cost in its third-quarter financial report, leading to a loss-per-share of NT$4.35 (US$0.15). In the most recent three years, the company has reported earnings per share (EPS) of NT$6.01 to NT$6.78 (US$0.2 to US$0.23).

This year the company is suffering from the effects of the ongoing appreciation of the NT dollar against the U.S. greenback as well as the weak recovery of the U.S. economy. This year's EPS is expected to fall below NT$2 (US$0.07).

Collision parts have constituted a major portion of Taiwan's auto-parts exports to the U.S. for many years, and that country—the world's biggest market for AM parts—has kept hundreds of Taiwanese parts makers going. American anti-trust regulation, however, is forcing them away from cooperation with each other and back into their old price-competition ways.

Industry insiders say that the settlement against Depo is just the tip of the iceberg, and that similar settlements are expected to continue affecting Taiwan's parts industry in the future—even, perhaps, leading to structural changes. This fact is making the island's AM auto-parts makers intensely nervous about the U.S. market.