DI CLASSIC: High-Performance Industry’s Counterfeit Concerns
It came to Russell Stephens’ attention at MSD Ignition two or three years back. Steve Matusek of Aeromotive Fuel Systems noticed it for the first time nearly a decade ago, and the guys at Auto Meter, Dart Machinery, Edelbrock and Flowmaster have been fighting it for quite some time, too. Each of these leading U.S. high-performance parts manufacturers and a plethora of others are facing a serious R&D problem that doesn’t look like it’s going to go away any time soon.
“R&D—rip off and duplicate—that’s really the story in a nutshell,” says Stephens, president of MSD and Racepak Data Systems, as well as a board member for the Specialty Equipment Manufacturers Association (SEMA). “Counterfeiting parts has become a real problem. We have engaged the FBI and they did make an arrest and got a conviction of a Malaysian national in regard to this, but that’s just the mid-level distributor. We know it’s coming from China, but so far we haven’t been able to track it back to the source.”
Counterfeit products are nothing new, dating back to at least the mid-1970s for designer-label accessories like watches and purses. By the early-‘80s counterfeit consumer-grade auto parts had already been identified as illegally entering the United States.
“There’s counterfeiting across all the industries of the U.S., so that includes counterfeiting in the automotive aftermarket and specifically in the high-performance area,” SEMA Senior Director, Federal Government Affairs Stuart Gosswein confirms. “For a number of years, counterfeiting was something that besides being frowned upon, companies were concerned about talking about for fear it would chase consumers away. But over the last 10 or 15 years the companies and governments have been working hand-in-hand to try and be proactive, aggressive and shut down the counterfeit market.”
But while faked watches and purses may well be shoddy and cheap, they typically don’t pose much of a safety threat. However, globally there have been documented instances of counterfeit Chinese brake pads made from compressed grass, sawdust, and on one notable occasion, chicken excrement, as well as fake oil filters literally stuffed with old newspaper as the filtering element. It may sound ludicrous and even a little humorous at times, but in the case of speed parts, purchasing and using poorly made copies of high-quality components could very easily end as a fatal mistake.
“Think about our products; think about fuel,” Aeromotive president and founder Matusek says. “One of these counterfeits break and then you have a fire and burn your car down or burn yourself. But these people don’t care; they’re criminals and they’re cheap and the product they’re selling doesn’t have any integrity. It doesn’t have the engineering. They don’t understand why that product was developed in the first place and the problem it’s designed to solve. They’re just trying to knock it off and steal market share.”
Although obviously a factor, lost revenue through counterfeit part sales is really not the biggest concern for these companies and others like them. Even more troubling is the inestimable damage done to their reputations when copy-cat parts inevitably fail—or don’t even work in the first place.
“Typically in the performance aftermarket the consumer knows what he wants to buy before he buys it because he’s
educated himself; he’s done the research,” Matusek says. “Next they’re going to look for the lowest price, which I understand because they obviously want the best deal. But if what they find is too good to be true; well, it’s not true and it’s not going to be any good. Chances are it’s not a valid product, it’s counterfeit and designed by a knockoff artist, so all the research they’ve done and everything they’ve tried to accomplish to get a product to satisfy a requirement on their car has been wasted.
“But they don’t know that, so the next step is it hurts our brand because when someone buys a product that they think is an Aeromotive product and it really isn’t and then it fails, then they come back to us and they’re upset with us. They get on the online chat rooms and talk about how our product doesn’t have the durability and reliability they were expecting, and how it didn’t solve their problem. But the fact of the matter is it wasn’t even ours to begin with! It was just another product that was knocked off. So it’s a real problem and it’s becoming worse.”
Unfortunately, modern technology and the nature of an ever-growing global economy make creating and selling phony parts easier than ever for unscrupulous manufacturers and distributors. It’s not all that difficult to disassemble a true high-performance piece, then reverse engineer it using far-inferior components and mimic at least the exterior appearance of the real deal. Plus, modern computers, copiers, scanners and printers make it that much easier to replicate the look of legitimate packaging, a key part of the deception, while the World Wide Web of course provides an ideal marketplace for illegitimate dealers to operate in relative anonymity.
The primary source of concern for Stephens and MSD are cheap knockoffs of the MSD 6AL ignition control box, the company’s number-one seller since being introduced nearly 20 years ago. Stephens recalls the first time he realized the extent to which a counterfeiter would go to rip off his company.
“We got a 6AL return and I had it on my desk and it didn’t look quite right, but I didn’t have anything to compare it against so I wasn’t totally convinced that it wasn’t ours. I knew the wiring wasn’t our quality; I knew the connectors were not right, but I just couldn’t believe somebody went and did the case and all the other things,” he says. “So we went and got one of ours out of inventory and sure enough, once you put it next to the other one you could see the fin depth and fin width was different, the wire quality was different and the type of screws that they used was different. But if you just passed by it, you wouldn’t think twice.”
That was the first, but Stephens says of the dozen or so 6AL returns he’s seen over the last couple of years they all had one thing in common—well, two, considering each fake had an identical serial number to the others.
“We contacted everyone that sent one of these in for repair and inquired, where did you get it, where did you buy it? And every single one of them came off the Internet. None had been sold through any of our legitimate distributors. So the warning there is to be careful what you buy online. Buy from an authorized dealer; that’s the important thing to avoid getting bit by this.”
SEMA’s Gosswein explains the nature of how counterfeit parts enter the country has changed significantly from the late 20th century, when most interception efforts by U.S. Customs focused on examining large import shipments of air cargo or at seaports. Now it’s as much about what’s arriving as small cargo lots on a passenger plane or even in checked baggage.
“You’re finding it in the onesies and twosies that are being sold over the Internet,” he says. “In that case, it might be an individual who sat there and bought it on the Internet and is coming in with just those one or two items, or it might be some individual who’s sitting there buying a hundred or 20 or 10 and it’s coming in a box and then they’re going to try and resell.
“You’re always trying to get ahead, be one step ahead and also be aware of the changing dynamics. So in this instance, companies and the FBI have established monitoring programs and are sitting there looking at the Web sites. And you can sit there and do it individually or there are these companies in China or wherever and you go to their Web sites where you might be able to plug what you’re looking for into the software and it does a search and tells you where it’s being offered online,” Gosswein continues.
“So you sit there, you identify it and realize, ‘Hey, that’s my product and it’s being offered at 20 percent of what I sell
it for and it’s not going through an authorized dealer and it’s counterfeit.’ And so you’re sitting there thinking, what’s the company that’s selling it, how are they selling it, are they selling it through a third party like Alibaba or eBay or whatever? And then you use the resources that eBay, Alibaba and the other Web sites have to go ahead and shut down that market. You bring it to their attention and tell them this is counterfeit and they will shut down that site or that page.
“So to a certain extent we’ve gone through a period where it’s like whack-a-mole and so you spent a lot of energy looking at Web sites. But at the same time, the companies like Alibaba and eBay have been addressing this in a proactive fashion as well. And if they have, for example, a seller who has been red flagged a couple of times as having sold counterfeit product, then that seller is banned from that site.”
For Gosswein, that’s a good sign in the war against counterfeit products. Though clearing-house sites like eBay and Alibaba may be criticized for facilitating illegal sales, and there’s little vetting in place before the fact, they at least respond to the problem when it’s pointed out to them.
“That’s an example of everybody working together. You’ve got Customs in the United States, what we call the IPR Center, Intellectual Property Rights Center, which is sort of like the clearing house for all IP issues, and they’ve got Homeland Security, Customs, the FBI, the U.S. Patent and Trademark office, all those officials are networked. And then the companies and trade associations like SEMA work directly with them,” Gosswein says.
“So for example, at the SEMA show, we are very proactive. We’re going to have a representative from the IPR Center; we’re going to have an FBI special agent there to be talking to our folks, being there to field questions. And we have a very aggressive intellectual property protection policy in place that companies can exercise. So when they are aware of a problem, they bring it to our attention and we will try to help enforce.”
Matusek is a staunch SEMA supporter (he recently campaigned for a board position), so he appreciates the efforts of the organization and governments worldwide to combat the counterfeit problem. Still, he can’t help but resent having to become involved with counterfeiters, even in an adversarial role, especially since he believes not all of the blame for the recent escalation in counterfeit parts lies overseas.
“It’s a complex problem because what’s happening is years ago the lines became blurred between manufacturers, distributors and retailers. And by that I mean you’ll find some companies and retail outlets, online and otherwise, that are now taking their name to market with branded product. The problem with that is that they have the advantage of knowing the volume that can be generated from certain products that they’ve been selling from branded products, so they have taken some of those items overseas to get very-low-cost parts made so they can sell them for less money but enhance their margins,” Matusek explains.
“It’s been very harmful to the aftermarket in numerous ways. Number one, now manufacturers are looking at distributors and there’s a lot of conflict there. Manufacturers that are very proficient and have built companies based on solving problems, developing products, testing product, qualifying product, all the money that goes into R&D and then finally getting a return on that product after years of selling the product, in order to reinvest into new products we are losing that pipeline now. We’re losing the ability to do that and we’re spending more time worried about our customers because our customer has become our competitor,” he continues. “That whole process has really constricted the growth of the aftermarket because nobody’s being creative anymore. Nobody’s creating innovative products. Everybody’s just fighting for the same piece of pie and the lines have become blurred between distribution and manufacturing.
“And the next level that has occurred that the distribution did not anticipate when they colluded with overseas manufacturers, when they said, ‘Hey, there is a market over here,’ is that now these overseas companies are going around everybody. They’re going around the manufacturer and now they’re going around the distributor, too.
“So that whole effort has caused our industry to lose margin and be constricted and not grow because again, the innovative companies that are out there that have really helped propel the growth in this industry are now worried about things that have nothing to do with new product development and manufacturing. They have more to do with issues that have been created strictly because of greed.”
In regards to the counterfeit parts issue, Matusek admits to having gone to bat for Aeromotive and other high-performance manufacturers on more than one occasion, especially once he realized how the supply chain had been circumvented at the expense of companies like his.
“So understanding then that we couldn’t control what they were going to do by going offshore and how it really hurt our industry, what we decided to do at Aeromotive was put our heads down and be so innovative and so far out front that nobody can catch us because they don’t understand what we’re doing or why we’re doing it. So by the time they try to knock off one of our products, we’re two or three steps ahead of them with more innovative product, with things that we’ve focused on creating ourselves,” Matusek states.
“And I’ve got to tell you, it’s been wildly successful for my business in these difficult years. We’ve been experiencing massive growth and it put us back in the game because it got us away from trying to control things that we can’t. Let’s face it, small companies cannot have a team of lawyers on staff to fight these things. The companies just aren’t big enough to be able to fund that. So we figured that all we could control is what we do and that’s what we’ve been focused on and it’s been very successful for us.”
Stephens, too, says MSD responded to the counterfeiters by releasing a revised, digital version of the 6AL box a couple of years ago and it’s been selling well. Even better, he says, “we have not seen a counterfeit version of it,” quickly adding, “yet.”
Matusek thinks some tough talk with the big distribution companies is called for, too.
“I care about the industry and I’d like to come together, bring distribution together with manufacturing, with sales reps, with retail outlets and talk about the state of our industry and say, ‘Look guys, this isn’t collusion; this is survival,’” he says. “I’d tell them, ‘You obviously started a distribution company for a specific reason and you love the sport and you love what’s happening and you obviously have a lot of problems with manufacturers that they’re maybe going around you and selling direct and let’s talk about those issues. And if that was the nexus for you to go overseas and knock them off, okay, let’s bring it out in the open and let’s try to figure some things out that ultimately are better for the industry because the things that are better for the industry is growth. And if you allow the inventors to invent and the manufactures to manufacture, you’re going to see growth in the industry and it’s good for everybody.’”
Still, while individual companies certainly can take steps to improve business relations, police their own counterfeiters (Aeromotive posts a regularly updated list of offenders to its Web site) and may even have success by making it more difficult for the rip-off artists to keep up, Gosswein cautions that counterfeiting is a worldwide problem with similarly wide-ranging challenges to overcome.
“It’s worth hundreds of billions of dollars; not in our industry, across the board, worldwide counterfeiting. So it’s significant,” he says while pointing out there may also be significant differences between being successful at keeping specific counterfeit products out of the U.S. marketplace when at the same time there remain other pockets of the world where they can be freely distributed.
“[Counterfeiters] may have more success selling the stuff made in China here and there because while countries do work collaboratively, but unfortunately they’re also on their own,” Gosswein says. “So the laws that are enacted in the U.S. are only enforceable in the U.S., and then we have to go over to China to work under Chinese laws to enforce. There’s no easy answer.”
This story originally appeared in Drag Illustrated Issue No. 90, the State of Drag Issue, in August of 2014.