Evaluating the Issue of Counterfeit Parts
The illegal production and worldwide sale of counterfeit parts and accessories has increased substantially in recent years. Roughly $45 billion in counterfeit auto parts were sold and manufactured in 2014, according to Havocscope, a black market and intelligence assessment site. In the collision repair industry, counterfeit airbags, windshields, brake pads and seat belts have become increasingly problematic.
To help stop the distribution of counterfeit parts, manufacturers have created brand protection programs, as well as invested in programs such as the Verify platform, a chain of custody and compliance systems. Michael Howe, CEO of Verify Corporation, recently discussed why repairers need to pay attention to the issue of counterfeit parts and what Verify is doing about it.
Can you explain the issue of counterfeit parts? What is happening and why is it a problem?
What’s causing it is an economic opportunity for people to manufacture and market products under a brand with which they’re not authorized to perform. You’ll have people manufacturing auto parts and selling them under a brand they have no relation or authorization to sell. It creates a product that’s on the market that does not meet the quality expectations that the brand is setting. If that economic value is going to the illegitimate manufacturer, that means the legitimate manufacturer is losing some of its revenue.
It’s a huge problem and one that’s getting attention from governments all over the world. To bring it home, one of the problems with the counterfeit auto parts is that it can put shops at risk of liability. If a counterfeit part is unknowingly put into a repair and that repair happens to cause an accident, there is a risk the shop can be held liable for that.
The top reason this is becoming a more common problem is greed. It’s an opportunity for people to make money. In addition, globalization is also at fault. As you separate the manufacturing of the product from the brand that has designed the product, you increase the risk of abusing the manufacturing. You also get into an issue of cultures that are not as diligent as the U.S. culture is around intellectual property.
I think there are also economic impacts in that people are hanging on to their cars longer. There’s more need for repair work and parts that have to be replaced. That market has become very strong in the last 12–15 years. The opportunity for these criminal activities, in terms of counterfeit parts, becomes very lucrative. And the risk of being caught is relatively low. That’s because a lot of these manufacturers are not building systems where an end user or a shop owner can very easily authenticate that the product is real.
—Michael Howe, CEO, Verify Corporation
How are counterfeit parts different from an aftermarket or OEM part?
Typically what happens is that they’re not manufactured to the same level of quality. It can also be a number of different things. You can have an authorized manufacturer running additional parts that they don’t report into the brand they’re manufacturing for and then selling them off on one side. They can have products that have been manufactured and reviewed for conforming to spec, don’t meet the spec and are not properly destroyed, which can get into the counterfeit black market.
They have gotten very good at making the parts look authentic. It’s difficult but not impossible to put a counterfeit and a real product next to each other and tell which is which without some form of chain of custody software. But you will find some experience with counterfeit products being slightly off. There might be too much give in a product when it’s installed or it doesn’t quite line up perfectly. It’s close enough to be usable but you can tell something is off.
How common is it that a shop would run into a counterfeit part?
They can run into counterfeit parts in legitimate and illegitimate ways. We have one brand that has a national retailer that sells their product and somehow got counterfeit products. That can happen to these shops. It can also happen that shop owners are under pressure to make profit, and someone comes up and says, “I have four extra parts added to the shipment, I’ll sell them to you for half price.” Those will often times be counterfeit. They will feign they got extra parts and don’t want to take the time to send them back, so they’re willing to sell them at a reduced price. Or they’re trying to close out an inventory because they’re not going to be carrying this brand anymore. If you’re being offered something at a significant discount, you have to suspect that it’s not the quality product you think it is.
What are manufacturers doing to stop the distribution of counterfeit parts?
As manufacturers start to understand the impact these counterfeits are having, they are starting to move toward these programs, like the Verify system, of marking the legitimate parts with a unique identifier which can be human readable or scannable. The end user, such as the shop owner, can then very simply go online, input the human readable code and our database will come back and tell if it’s a legitimate part or not. At every point the product is being touched in the distribution system, the brand is scanning these unique codes and these codes are sent back to our software database and we maintain a complete chain of custody. That process is gaining strength but not nearly as fast as it should.
The Group of Twenty (G20) member countries estimates there are about 3,000 deaths a year that can be attributed back to counterfeit products. Within the auto industry, at $45 billion of lost revenue, the manufacturers are starting to look at this and saying, “We can’t tolerate it.” You are seeing organizations like the International AntiCounterfeiting Coalition doing more educational efforts. You’ve got the government stepping in and being much more of a watchdog. It’s important to be active and raise this as an issue with your manufacturer.