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Justice Department Reviews Paint CompaniesPosted 7/16/2001By Robert L. Redding, Jr.
The U.S. Justice Department is investigating several major automotive paint refinishing companies to determine any improper conduct. As of this writing, a grand jury was still deliberating. The parties involved are reluctant to comment until the grand jury completes its work. MSNBC reported that Sherwin-Williams Co., DuPont, PPG Industries and BASF AG have been subpoenaed. Akzo Nobel later confirmed that it too was involved in the investigation. News reports outlined the grand jury investigation as including “whether there was unlawful conduct in the sale of automotive refinishing products during the last five years.” Akzo was involved in a Justice Department price fixing investigation several years ago. Two subsidiaries of the Dutch company were fined $10 million by the department. Akzo pleaded guilty to participating in an international conspiracy to fix the price and allocate market shares worldwide for an industrial cleaner called sodium gluconate. The felony cases identified two Akzo executives that agreed with other manufacturers to “suppress and eliminate competition in the sodium gluconate market from August 1993 to June 1995,” according to Justice Department records. The department alleged that the two executives along with their co-conspirators sought to set prices and allocate market share. The Justice Department brought the charges based on violations of the Sherman Act. Price-fixing arrangements lie at the core of the Sherman Act's prohibitions. Although one can only speculate as to the stimulus for the investigation, clearly the final product will shed much light on the relationships of automotive paint companies and their customers. Automotive repairers have spent so much time in improving their plight with the automotive insurance industry, relationships with automotive paint companies have been almost second tier. Although various analyses have been conducted on paint issues in the last few years, there has not been a serious industry effort at paint policy reform. Relationships with paint companies reach further than pricing concerns. The Justice Department investigation is quite novel in that federal regulators have been reluctant to pursue any major paint industry reforms. The Akzo case was very limited in scope and did not involve an automotive refinishing product. During the development of the national volatile organic compound (VOC) regulation by the U.S. Environmental Protection Agency (EPA), regulators went out of their way not to offend paint manufacturers. The Automotive Service Association (ASA) took a team of collision repairers to meet with federal regulators in Washington, North Carolina and at the International Autobody Congress and Exposition (NACE) to discuss broadening the scope of the proposed rule - all to no avail. Continuing the focus on environmental concerns, the EPA's national refinishing workgroup met for years about regulating the use of automotive paint products without producing any new regulations or formal recommendations to the agency. Paint companies were opposed to limiting the sale of paint. Ironically, the workgroup originated to advance protections for painters. The Occupational Safety and Health Administration (OSHA) and the National Institute for Occupational Safety and Health (NIOSH) both participated in the discussions, but failed to stand behind limiting paint sales to repairers with proper training and equipment. Recently, ASA analyzed automotive paint product laws in all 50 states to determine the scope of paint product regulation. Surprisingly, very few states focus on controlling the use of automotive paint products. Pennsylvania collision repairers tested policymakers in Pennsylvania on this very issue. In state air quality advisory committees, Philadelphia and Pittsburgh areas, repairers were able to include language in the report to the governor that encouraged the control of paint products. The state Department of Environmental Protection headed a public/private sector committee to develop paint sale restrictions. After months of a very convoluted regulatory process, the regulation was approved. Unfortunately, it had been quite diluted. California has several advanced regulations controlling paint but most states are limited in regulations beyond what federal laws now require. The national VOC rule did little to encourage states to advance their own paint product control procedures. Spray gun and training requirements have surfaced in a few states, but little thoughtful, long-term automotive paint policy is in place. It is unfortunate that the paint companies are involved in the Justice Department investigation. But it is inevitable that more issues relative to automotive paint regulation will surface in the media and quite possibly in the investigation. In an unrelated recent crash parts investigation by the General Accounting Office, unbiased information was provided for the industry by the investigators. This will probably be the case in the paint product situation. ASA is most interested in a level playing field for repairers. Part of the problem in our relationship with insurers has been the lack of federal intervention and almost a complete void of state enforcement of current law. Paint policy will now move to the front of the line.
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