Sherman Act §1 and Auto Industry Plus Factors

A Sherman Act §1 violation in general consists of conscious parallel conduct along with one or more "Plus Factors." Plus Factors are economic actions and outcomes, above and beyond parallel conduct by oligopolistic firms, that are largely inconsistent with unilateral conduct but largely consistent with explicitly coordinated action. Below are four Plus Factors that have been standard operating procedure in conducting automobile manufacturing (except Tesla) for decades. Each will be substantiated with supporting data from Ford Motor Company. All manufacturers selling in the U. S. will have similar data except for Tesla.

Almost any part could be used to demonstrate the dishonesty of modern automobile manufacturing. The first choice will be the horn. Automobile horns are comprised of two individual horns which generate sound at slightly different pitches in order to produce a grating, attention-grabbing sound. Sometimes automobile “horns” are two individual units and sometimes they are one unit with two sound producing components which produce the two sounds. For simplicity no differentiation between the two is made here.

Plus Factor 2: Actions contrary to each defendant's economic self-interest unless pursued as part of a collective plan.

The production of numerous, proprietary, functionally identical but physically non-standard, non-interchangeable parts can be of no benefit to a manufacturing company unless all do it. Churning parts only increases costs. There has never been a study nor theory advanced claiming any legitimate economic benefit from the enormous production of multitudes of functionally identical but physically non-interchangeable components. Indeed, all teaching is to the contrary.

Group technology (GT) also facilitates standardization and rationalization (S&R), which helps control part proliferation and eliminates redundant part designs. It is common for a company to have many similar versions of the same part, such as a gear. When the company implements GT, similarities among gears can be identified, and it is possible to create standardized gears that are interchanged in a variety of applications and products. S&R such as this pays big dividends in that it simultaneously creates economies of scale by increasing part volume and economies of scope because the same gear can be used in a variety of applications. Rufe, Philip. Fundamentals of Manufacturing (2nd Edition). Society of Manufacturing Engineers (SME), 2002. Chapter 19: Product Design Tools, Part 4: Product Design, p. 165.

The Parts Churn manufacturing processes of the automobile industry decimates the long established concept of economy of scale and economy of scope. Parts Churn is an extremely harmful process to manufacturing efficiency and economy and, when practiced by an entire industry, is violative of Sherman §1.

There is no technological nor manufacturing justification for parts churn. In the horn example above, it is very difficult to argue for the need for more than one horn. If there were a case where a louder horn were needed, for example, two units operating together should be able to fill that need. Even if an argument could be made that some consumers like change just for change alone, there is no justification for such change in every vehicle. One economy vehicle could be manufactured without parts churn. If just one manufacturer were to use proper manufacturing principles, its costs would be dramatically reduced while concomitantly the quality would rise and vehicle recalls could be significantly reduced or eliminated.

Plus Factor 3. Concerted action on the part of the market players that is the only conceivable explanation for parallel conduct.

Parts churn provides to a monopoly or shared-monopoly the security of eliminating product competition and the power of monopoly pricing from the plethora of mini-monopoly parts discussed above in the Parts Churn section. The cost of components to both the consumer and manufacturers is higher while providing inferior products that the purchaser must buy or do without. The answer "let them buy a used car" is not sufficient. A used car without a supply of reasonably priced repair parts is not an alternative.

Plus Factor 4: Industry characteristics (product homogeneity, frequent transactions, readily observed price adjustments, high entry barriers, high concentration, and status as "Too Big To Fail") that are conducive to successful coordination.

The automobile industry in the United States has many characteristics of conduct in violation of the Sherman Act. The products are generally the same in regard to mechanical and electric designs. The risk involved in innovation is very high incentivizing eliminating innovation or reducing innovation to minor, low-risk changes. Even so, major problems arise as demonstrated by Ford's troubled PowerShift transmission. The barriers to market entry in the automobile industry are extremely high. Only one successful entry has occurred in decades. Presently there are only three (more or less) domestic manufacturers indicating extremely high concentration of manufacturers. Finally, the domestic manufacturers have been designated as too big to fail as demonstrated by the recent industry bailout.

Data

Automobile Horns 2008 - 2020 Ford Motor Company

Automobile Cruse Control Switches 2008 - 2020 Ford Motor Company

Airbag Inflator Modules 2008 - 2020 Ford Motor Company