Counterfeit Parts – Save You Cash Today, Cost You Tomorrow?

Economic realities are forcing fleet managers to look at cost-saving alternatives in their operations that a few years ago simply weren’t worth the trouble for many. As profits narrow or disappear and maintenance costs rise due to older equipment, parts undoubtedly receive more attention.

While fleets reasonably might look at quality “will-fit” aftermarket parts as an alternative, some might be tempted to look the other way or not ask questions if they can save a few bucks on parts that are actual counterfeits – parts that don’t have a clear manufacturer standing behind them and instead are passed off as being name-brand items. But those fleets may be taking a shortcut to downtime, lost revenue, ruined warranties and – in a worst-case scenario – opening up the possibility of injuries or fatal highway accidents.

To be sure, large corporations keenly are interested in protecting their brand trademarks from knockoff producers. There is much at stake: According to the Federal Trade Commission, the proliferation of counterfeit parts is a $12 billion-a-year worldwide problem in the automotive industry, last year accounting for sales of $3 billion in the United States alone.

For corporations that have spent years – if not decades – building their brand reputations, counterfeiters threaten more than just their bank accounts: counterfeit automotive parts can erode global goodwill and lead to millions of dollars spent in the courts on false warranty claims and lawsuits or trying to shut down counterfeit part manufacturers.

From the fleet end of things, paying a drastically reduced price for a part most likely won’t pan out. The higher prices built into the cost of legitimate automotive parts includes many services that counterfeit part producers never would dream of providing, including warranty protection and technical support and education.

“I absolutely believe that counterfeit products cost fleets more in the long run, with increased repairs, lost warranty and costs associated with safety,” says Gloria Pliler, director of parts procurement for Phoenix-based Swift Transportation. “It would be unconscionable to save a dollar on an inferior part that resulted in an injury either to the technician who installed the part or to the motoring public.” In addition, the counterfeit organization is, in effect, stealing from the original manufacturer, which most likely will have to increase prices for original parts as a result, Pliler says.

Ground zero for fakes Brett Heavner, an attorney and partner at intellectual property law firm Finnegan, says old stories that somewhat legitimize counterfeit parts or downplay their darker side have been exposed as just that – stories that help to assuage the consciences of people who feed the demand for counterfeit products around the world.

“Historically, people thought it was kind of funny to go out and buy a fake Gucci purse or Rolex watch,” Heavner says. “But counterfeit replacement parts are quite dangerous and have the potential for some very serious damage to individuals and property.” Most of the money generated by counterfeit operations is going to organized crime or some other type of illegal activity, Heavner believes. “Terrorist groups will sometimes use counterfeit parts to finance their activities,” he says. “Most of these are people that you don’t want to help out by buying their products. There is some evidence that the 1993 attacks on the World Trade Center were financed by knockoff T-shirt sales.”

Heavner has spent 14 years studying counterfeit operations around the world and has determined that about 80 percent of all knockoff goods originate in China. The local spin to foreigners who inquire about fake products is that plants with a legitimate contract to produce Western goods simply run production lines a bit longer than authorized in order to make some extra money. So the products are legitimate, the story goes, but they can be sold at dramatically discounted prices because they have been made without the original manufacturer’s knowledge or permission.

In reality, Heavner says, what typically happens is that someone close to the manufacturing line, usually a line worker, will steal parts crucial to the making of the product in question – tools, dyes or proprietary components or features – and sell them to another distributor who will attempt to copy them for their own manufacturing efforts. Once the part has been studied and duplicated, it often will be returned to the original plant without the OEM ever knowing that it has been compromised.

Take a closer look The Chinese, Heavner says, have a long history of reverse-engineering Western products and technology. But today, with constantly-improving computers and the enhanced printing and imaging capabilities they offer, it’s a lot easier for these companies to make a high-quality counterfeit than it used to be – and therefore easier for end-use consumers to be fooled by those products, he says.

While the bogus part itself may be hard to differentiate from an OEM product, many times the bogus part will arrive in a plain, pasteboard white box without logos on it. And the part itself likely will lack any identification or serial numbers.

“There’s a reason for that,” says Kenneth Calhoun, vice president of operations and customer relations for Truck Centers of Arkansas, a Daimler Trucks dealership based in Little Rock. “The way our laws tend to be written, if there is a direct copying of trademarks and that sort of thing, then the OEM has a lot of additional leverage from a legal standpoint,” says Calhoun, a member of the Counterfeit Parts Task Force of the American Trucking Associations’ Technology & Maintenance Council. But if the fake only has been reverse-engineered to meet the measurement requirements and doesn’t have any markings on it, it’s a lot harder to land a favorable verdict in court, he says.

Still, more and more parts are showing up in packaging that at least approximates legitimate graphics and logos. And that has given OEMs an opening for combating counterfeits. Heavner says many companies soon will start offering packaging with hard-to-duplicate holograms, which will help technicians confirm the product’s integrity. In addition, individual parts soon may be encrypted with encoded microchips or global barcodes to help verify the part’s lineage.

Gamble for fleets Obviously, using a counterfeit part on a commercial truck is a huge gamble, with lower prices on one side of the ledger and engine/vehicle damage and safety concerns on the other. Heavner has many stories about the damage counterfeit parts have caused on vehicles, and they’re enough to raise the hair on the back of any fleet manager’s neck.

Heavner recounts what he describes as “a famous incident” that happened in Africa: A technician fitted a bus with counterfeit pads that used compressed grass as the pad material. “Of course, this grass failed, and the bus overturned with a large loss of life,” says Heavner, who also cites cases in the United States where counterfeit pads were made with compressed sawdust instead of asbestos or proper materials. “We’ve seen oil filters where the filter element has been replaced with rags or shredded newspapers,” he says. “Not surprisingly, these filters ended up causing fires and severe engine damage to the vehicles they were used on.”

Even seemingly benign counterfeit parts have the potential to cause catastrophic injuries, Calhoun says. “We recently looked at the case of a fuel tank cap which had been counterfeited. When you look closely at it, it was clear this part had been designed with a lot of care, to the point that it was virtually an exact copy of the OEM cap.”

But the legitimate OEM cap was fitted with plastic plugs designed to melt quickly in the event of a vehicle fire and allow the fuel tank to vent, Calhoun says. “When the manufacturer tested this counterfeit cap, they discovered that its vent plugs didn’t let go until they’d reached temperatures of around 600 degrees,” he says. “So any vehicle with that cap on the fuel tank that catches fire is suddenly transformed into a giant bomb.”

Given the increasing sophistication of counterfeit parts, it’s possible for anyone to be fooled by a bad component these days. But Heavner warns that knowingly putting a counterfeit part on a truck or trailer opens fleets up to a wide range of legal actions should that part fail and injure someone.

“You’re a lot more likely to be held liable by anybody injured in that accident,” he says. Instead of being the victim of a bad part, the claimant will allege that the fleet committed an intentional tort, or some sort of negligence at the least. The prosecuting attorney will argue that the fleet would not expect a counterfeit part to have the same standard of quality and safety as a genuine part. “So those actions could make things a lot worse if you were ever to be sued by anyoneinjured in an accident,” Heavner says.

What to do? Given the dangers of counterfeit parts, what should a fleet do if it thinks it’s been sold a bogus part or suspects one is to blame for a vehicle failure? First, immediately replace the part installed on all trucks with genuine parts and remove any stock remaining on the shelves, Pliler says. Next, ascertain where the product was purchased in order to educate the supplier to the fleet’s zero-toleration stance for the purchase and use of counterfeit products. Last, notify the OEM so it can address the problem legally.

“Increasingly, original equipment manufacturers are getting set up to process counterfeit parts information and help you out,” Heavner says. Online forms or a hotline number often are available to tell OEMs about the part and where it was purchased, and where to send them a picture of the fake. “You may not get your money back, but you can at least help put a stop to that particular stream of counterfeit parts,” he says.

Perhaps a fleet’s best defense against counterfeit parts is simply to be vigilant on the front end of the acquisition process. “It sounds like a cliché, but I constantly preach common sense when it comes to counterfeit parts,” Calhoun says. “If something doesn’t look quite right, or if a deal seems too good to be true, odds are it is. If somebody is having a fire sale, or a special inventory reduction deal, ask yourself some questions.” Is this really a current issue product? If it is, is there really a good reason for somebody to have such a clearance sale? “If the answer is no, then you probably need to ask some more questions,” he says.

Spotting the fakes

Poor packaging and craftsmanship, low price are giveaways.

Brett Heavner, an attorney and partner at intellectual property law firm Finnegan, lists five basic points he feels any fleet manager should consider if he suspects he has a counterfeit part on his hands:

  • Look carefully at the packaging. If the packaging is flimsy, or if its color or layout is not quite the same as the product you usually buy, or if there is an insert or instructions that usually are included in the packaging that is missing from the part you’ve bought, those are all good signs that the product probably is counterfeit.
  • Be wary of parts that don’t look right. If there are installation difficulties, or if the paint isn’t quite as neat or a little sloppy, those are good signs you’ve got a knockoff.
  • Be wary of online purchases, swap meets or a guy you don’t know who says they’ve got a great overrun deal. You generally can’t go wrong buying parts from legitimate, wellknown and reputable dealers.
  • If the deal seems too good to be true, it probably is. Say you’re getting it at 10 percent of the price you normally pay for the part. That’s a good sign something is not right.
  • Consider the type of parts you’re purchasing. Studies show that parts sold in volume -such as oil filters, air filters, brake pads, belts, hoses and spark plugs – are the ones counterfeiters typically target for production, compared to smaller-volume parts that do not get replaced as frequently and are not as profitable for these companies to produce.

(NOTE: Article first published in the June, 2009 issue of CCJ Magazine)

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