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by Chirag Asaravala
Global economy, off-shoring, and free trade are all terms
generating intense debate these days. While they seem to be
the headaches of big auto manufacturers, dot-coms, and software
companies, you might be surprised to learn that businesses
in our own hobby are right in the mix of this economic evolution.
You need look no further than your own project car. More and
more performance, restoration, and replacement parts are being
produced in places like China, Mexico and the Phillipines.
From bumpers to cylinder heads your project could contain
just as many parts manufactured by foreign labor as those
built by American workers. Is that necessarily a problem?
Bill Ford Jr. recently commented that is simply not realistic
to manufacturer a new vehicle entirely in the United States.
Various parts, from electronics to interior fabrics, must
be sourced from overseas in order to take advantage of cheaper
labor and materials pricing. This is often the only way a
domestic company can produce the product the market wants
at the price it is willing to bear.
The fact that American companies can source goods and services
from all over the world is arguably the very definition of
America's free market economy. While we may dislike the idea
of products once sourced within our own borders that are now
being purchased overseas, we have to respect that this is
indeed what capitalism is all about. In the short term the
loss of American blue collar jobs seems to be a problem, however,
many economists and sociologists surmise that in the long
run the net impact on American jobs will be nill. Factory
workers who are displaced will be inclined to learn new skills.
Today's iron worker may be tomorrow's CAD designer. Clearly
a new breed of "blue collar" worker will evolve.
Real Issues
The globalization of America's supply chain is not free of
some real challenges however. While many American companies
legitimately use offshore resources to produce their products,
there are a new crop of companies who use cheap labor and
weak overseas regulations to gain what some say is an unethical,
and often illegal, business advantage. Knock-off products
and counterfeit goods are a very profitable business
Counterfeit auto parts being steam
rolled in the Philippines. |
because they come without R&D expenses and large overhead. While perhaps
the notion of counterfeit goods brings up images of fake Rolex
watches being crushed on a Manhattan street by a steam roller,
the same tactics are now being used to make all sorts of performance
automotive parts.
The distinction between counterfeit and knock-off, while often
lumped into the same category of "fake", is actually
fairly clear cut. A counterfeit product is one that is deliberately
made to look and deceive the consumer. These are products that
come packaged and labeled no differently than the original part.
However the product is almost always made from inferior materials
and far from original specifications. Be it watches or brake
pads, the authentic companies and the consumer both suffer from
counterfeiting.
The economic damages to the automotive aftermarket industry
from counterfeiting are massive. MEMA
estimated last year that US Companies such as Federal Mogul
suffered $3 billion in lost revenue and costs associated with
fighting counterfeiting. These products also pose a danger to
the public. In Canada a bus carrying fifteen people plunged
off a cliff as a result of the counterfeit brake linings made
from sawdust. A mother and child died in Saudi Arabia when the
counterfeit brake pads, made from compressed grass, failed to
stop their car. The examples are countless and horrific.
The trade in counterfeit goods is a legal issue, one which the
US and other countries have been tackling vigorously post 9/11.
The Federal Government has established STOP (Strategy Targeting
Organized Piracy) and the agency's website, http://stopfakes.gov,
offers ways to report counterfeit products of all types, not
just automotive. The automotive industry has also been successful
at lobbying politicians to take action. Mike Rogers, a Michigan
Congressmen, has made several powerful
speeches on the lack of fair trade by countries such as
China, who he feels have been turning a blind eye to counterfeit
products being exported from their countries.
Knock-off's
 Knock-off
products are a much harder problem to grasp. In fact, it isn't
even agreed there is a problem. A knock-off product
is one where a company reproduces the original company's product
and sells it as their own. The company is not attempting to
outwardly deceive the customer into thinking they are buying
the original product, but is usually marketing the product
as "the same as" or "equivalent to" at
a substantially lower price. Often times the knock-off company
will copy everything down to the part numbers and instructions,
only changing the brand name to their own (see side bar.)
These companies are banking on the prospect that consumers
will be willing to pay less for something that appears to
be just as good as the original.
Quite often with knock-offs the end user may not even be aware
they have purchased a fake. In the case of automotive products
distributors and jobbers make the situation murkier. A customer
may drop a car off asking for a brand name electric fan. The
jobber may instead order the cheaper knock-off fan and pocket
a decent margin from the sale. He can even win the customer
over by giving him a price lower than he was expecting to
pay for the original.
These schemes work well until there is a problem with the
knock-off. Often times the customer then calls the original
company's techline, since he assumes his mechanic put in the
original part. After some investigation and possibly shipping
the item back under a warranty claim the company and the consumer
both learn that his product is in fact not the real deal.
Companies like Flowmaster (shown)
perform extensive R&D and testing on their products.
Any defects are backed up by warranty, not often the case
with the knock-off companies. |
What are you paying for?
"Just because knock-off products look the same doesn't
mean they are", comments Bill Tichenor of Holley Performance
Products. They often are produced with inferior materials,
sub-standard quality control, and often come with no support
or warranty. Furthermore, the companies we talked to say the
knock-off companies have no desire to support the enthusiast.
You won't see them putting money into developing more products
or supporting the hobby via racing programs or contingency
money. Tichenor says about Holley, "We put significant
profits back into contingency money to pay customers for using
our products. Our carburetors are the ones winning every Sunday
in Cup cars, not the knock-off versions."
 Whether
it is performance automotive parts or digital cameras, the
knock-off business mentality is identical. These companies
watch their respective markets for popular products then work
with an overseas company to reproduce it. Since they haven't
had to spend significant research and development costs, and
are using cheaper labor and materials, the products can be
produced for significantly less than the original. Most of
this is passed on to the consumer, but they still make high
margins. It's a tactic often termed as "last to market",
and in many industries has turned the tables on the perceived
leaders.
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