Aftermarket

How Counterfeiting Affects the Aftermarket

July 2015, TruckingInfo.com - Cover Story

by Denise Rondini, Aftermarket Contributing Editor - Also by this author

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Counterfeiting, gray market parts and intellectual property violations can make it hard to know what part is actually in the box you just bought.
Counterfeiting, gray market parts and intellectual property violations can make it hard to know what part is actually in the box you just bought.

When you think of counterfeiting, you probably envision the knock-off designer handbags and watches sold on the streets of every American city. But counterfeiting is not confined to consumer goods: The truck parts aftermarket has been victimized by counterfeiters.

The Federal Trade Commission and the World Customs Organization in Interpol estimate that counterfeiting costs the global motor vehicle parts industry $12 billion a year and $3 billion in the United States. That’s according to the Brand Protection Council of the Motor & Equipment Manufacturers Association’s special report, Understanding the flow of Counterfeit and Gray Market Goods through the U.S. Automotive and Commercial Vehicle Parts Marketplace.

Tim Kraus, president and chief operating officer of the Heavy Duty Manufacturers Association, says he hears estimates of $30 million to $50 million in the heavy-duty aftermarket.

Phillip Rotman has spent nine of 15 years he’s been with Dana Holding Corp. as its chief intellectual property counsel.

“We have dealt with hundreds of counterfeit matters over the past 15 years.” He says Dana is aggressive against counterfeiters, and “our goal primarily is to take those products out of the marketplace. It is not so much about the money or getting damages for the infringement, it is more about removing the product.”

Jane Clark, vice president of member services at NationaLease, believes new technologies have made it possible for counterfeiters to create fakes that are virtually indistinguishable from the real thing. “With the pressures today to control costs in the maintenance operations, everyone is looking for the best price. Both the supply and demand [for counterfeit parts] are there, which creates the problem.”

The problem is made worse by “lack of knowledge about parts specifics from the end use, too much emphasis on the cheapest price, and not enough on the part’s expected life cycle or performance,” explains Stephane Godbout, vice president of fleet management for location at Brossard NationaLease.

Rotman explains that Dana views counterfeiters as criminals. “We think of their organization and distribution of products similar to drugs.” And the motivation behind selling counterfeit parts is the same as the one behind selling illegal drugs — easy money. “Counterfeiters sell a product that people want to buy and they sell it at deeply discounted prices.” In the case of truck parts, Rotman says, the quality of the counterfeit parts is inconsistent and not up to brand name standards – but it is priced 50% to 60% less.

Sniffing out counterfeiters

Tips on counterfeit parts reach manufacturers and suppliers from a variety of sources. “We hope we get the information from our employees, suppliers, third parties or customers or other suppliers,” says Phillip Rotman, chief intellectual property counsel for Dana Corp. Distributor customers, for instance, call the company saying “somebody is selling a product cheaper than I am, and I thought I was the person in town you were dealing with.”

Aaron Bickford, director of brake and wheel end at Meritor, says distributors are quick to tell the company about problems.

“Our customers come to us anytime they see something wrong. If they are supporting proper genuine Meritor components and investing in inventory, marketing and a sales force, and they see somebody who is mucking up the brand and muck up the distribution, they are passionate about seeing something gets done to fix it.”

Companies may try to get a sample of the product and the packaging to examine and test.

“We look at it to decide whether it is our product or not,” Rotman explains. “Sometimes it’s easy to tell, because we will find that our brand name has been spelled wrong, the color is wrong, the orientation of certain features on the packaging is not right, or there are things that don’t make sense given how we date code or heat treat our products.”

When things aren’t as obvious, Rotman says, the suspect product is cut open to examine internal components. “If for example the product is a journal cross of a universal joint, we will pull off the bearing cup to inspect internal components. Typically we will find something missing,” he says.

The entrepreneurial nature of the truck parts market makes it ripe for counterfeiters, Kraus believes. “People see ways to sell things for a profit and identify niches in which they can sell.”

He says brake-related products seem to be a common target for counterfeiters. “That has major safety and liability issues,” he says. “Other [common] counterfeit parts are seals, bearing, filters, lighting and a range of appearance products.”

TJ Thomas, director of corporate marketing at Bendix Commercial Vehicle Systems, says counterfeiting is still a concern for Bendix, but not as big as it was five years ago. “We were aggressive in our actions [against counterfeiters],” he says. “Early on when we first saw it, we … targeted specific distributors that we saw were selling counterfeit parts.”

The company sent cease-and-desist letters and went so far as to shut down one distributor that was selling counterfeit parts at the SEMA/AAPEX show, with the support of show management. “Those actions put people on notice that they better be careful how they promote and sell Bendix-style products.”

Beyond counterfeiting

Outright counterfeiting is not the only way branded truck parts are misrepresented.

“We see instances where people have taken our parts and treated them, coated them or used cryogenics on them,” says Aaron Bickford, director of brake and wheel end at Meritor.

He explains there is a way to do this “that has a positive impact on the part and there is a way to do it where you have a destructive impact on a part where it becomes brittle.” He recalls an incident where the company heard about someone selling Meritor parts that it said had been treated. “What we discovered was some guy in an abandoned strip mall in Florida. They weren’t even our customers. They were buying our parts somewhere else and then ‘treating’ them.”

Bickford also says Meritor sees some issues with gray market parts. “This is where people are bringing in parts from other markets that are similar in form, fit and function but are not designed for use in our markets.”

Another big problem Bickford sees is people not respecting Meritor’s intellectual property. “Someone will take our [intellectual property], create a product [for] a less developed market, and then people in North America will pick up on it because they shop [on the Internet.]”

Rotman says violations of intellectual property cause confusion in the market. Companies seek IP protection through patents and trademarks because “they come up with a unique idea, and when we are granted a patent no one else can make the product the same way we do.”

Product vs. package

Counterfeiters are not likely to violate patents, because they are not interested in making the large investments required to copy sophisticated parts. Patent violations are more likely to be made by companies already in the industry using their own brand.

Counterfeiters will, however, copy packaging in an attempt to make their products appear legitimate, and that could be a violation of “trade dress,” a form of trademark.

The product and packaging are often created separately, according to Dana’s Rotman. A counterfeiter will often reverse-engineer and produce the copied product without markings or packaging.

“They recreate the packaging, go to a printer and ask them to make the package,” he says. “A product without any markings isn’t a counterfeit product yet. It is just an unmarked product. It may look like Dana’s and may not infringe our patents.”

He adds, “You are allowed to reverse engineer a product, make it and sell it as long as it does not infringe a patent and does not contain brand name markings.” But when the packaging and product are brought together and sold as the original branded product, that is when it becomes counterfeiting.

Packaging from India (center, right) tries to make customers think they are buying Dana’s SVL Drivetrain products brand (left). 
Packaging from India (center, right) tries to make customers think they are buying Dana’s SVL Drivetrain products brand (left).
8 ways to protect yourself from inferior parts

While it is not always possible to tell the difference between a genuine part and a counterfeit part simply by looking at it, there are things you can do to protect yourself.

1. Check for markings: One way to ensure you are getting a genuine part, according to William Fouch, aftermarket marketing manager, transmissions at Eaton Corp., is to look for markings on the part. “In our case they all should say Eaton or Fuller on the gears and shafts.”

TJ Thomas, director of corporate marketing at Bendix Commercial Vehicle Systems, says to look beyond the visual aspects of the part to see if it is the same as the one you are replacing or not. “Does it have branding? Is it the same color?”

2. Be aware of price: The old adage “if it’s too good to be true, it probably is” applies to truck parts prices, according to Aaron Bickford, director of brake and wheel end at Meritor. “The markets for our parts are incredibly competitive; there is not a lot of excess profit,” adding that “if someone comes to you selling friction at 25-30% below what you usually pay,” be suspicious.

Stephane Godbout, vice president of fleet management for location at Brossard NationaLease, urges fleets to focus on lowest cost per mile or total cost of ownership.

3. Know your supplier: “Purchase from reputable suppliers that understand what your fleet transports,” says Lloyd Hair, director of fleet maintenance at Keen Transport. “Develop a network of suppliers and make sure all your shops are purchasing through those programs. Stay away from white boxes; if they do not have the manufacturer’s name on it, take warning.”

John Devany, sales manager for Betts Truck Parts & Services, says, “The ultimate assurance is to only purchase genuine branded parts from authorized distribution. Carefully review proposals. Verify the accuracy of part numbers. Solicit quotes from multiple sources.”

Phillip Rotman, chief intellectual property counsel for Dana Holding Corp., adds, “If you buy on eBay, Amazon or Alibaba, you don’t know what you’re getting. It may be genuine, but it might not be unless you know the vendor.” He recommends buying from vendors you know and trust.

4. Investigate new suppliers: When looking for a new supplier, look for a distributor with a long business history, says Devany. See what trade associations they belong to. Ask if they offer genuine brands, and confirm that by looking them up on the manufacturers’ websites to determine their authorized status.

5. Ask for what you want: Thomas urges fleets to request the parts they want by brand name. “Request it by name and say ‘I am looking for genuine Bendix.’”

6. Check the part over: Pay very close attention to the details of the part, “especially if the country of origin is different than what you would expect,” says Jane Clark, vice president of member services at NationaLease. “Does the product feel too light or too heavy? Is the color correct? Does the company logo look slightly different than normal? Make sure to check the part numbers.”

Devany suggests looking at the packaging first to determine if “typical and customary packaging standards and disclosures have been followed.” Make sure the country of origin is disclosed. “Handle and inspect the part. Does the workmanship reflect first quality parts? Is workmanship consistent from part to part? Is the part number close to but not the same as the genuine part?”

7. Watch installation issues: If the product looks right but is difficult to install and does not fit the way it is supposed to, be suspicious, Clark says.

8. Contact the supplier or manufacturer: When in doubt about a part, contact the supplier or manufacturer and ask for their assistance.

Devany says fleet managers should contact the OE manufacturer and report when they find counterfeit parts, including the source of distribution.

If you discover that you’ve inadvertently purchased counterfeit parts, take all of them off the shelf, according to Godbout. “Recall all equipped vehicles back to the shop to get retrofitted; schedule a visit at the distributor’s to inquire about their knowledge of it.”

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