Ford Muscle Chimes in on knockoff problem!

posted by Pete on January 31st, 2007

Well finally time for a real post… this one comes from Ford Muscle. It’s an interesting read. I know it’s been evident for some time but for those who don’t know…. knockoffs are not only for imports but American muscle too. Hopefully true enthusiasts live and learn and support AUTHENTIC!

Article by: by Chirag Asaravala

SOURCE: http://www.fordmuscle.com/archives/2006/02/EditorsCorner/index.php

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 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.

Counterfeit auto parts being steam rolled in the Philippines.

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.

While the visceral reaction to the idea of copycat products is to be angry at overseas workers, it is important to realize the knock-offs wouldn’t exist without key players within the US.

Professional Products is a US based company producing intake manifolds in China which many say resemble all too much the Edelbrock design. Their Typhoon intake for EFI 5.0L engines has a retail value of about $365, while the Edelbrock Performer 5.0L manifold costs $499. Similarly, Specialty Auto Parts USA, which markets products under the ProForm brand, offers a 5.0L electric fan which outfits like Jeg’s sell for $107, while the Flex-a-Lite original sells for nearly twice the price.

With price differences that wide, it is no wonder that many auto enthusiasts are asking what are we paying for?

Flex-a-lite’s VP and General Manager Lisa Chissus explained to us that their pricing reflects R&D expenses, customer support, and the cost of being an American business. These are in fact the reasons given to us by all of the companies we spoke with. It costs money to research a concept, design products properly, and then provide support for them. It also costs money to provide health care and benefits to American employees, something many foreign companies do not do nor have to do.

However, the contrary argument is that it is the choice of these companies to manufacture in the US, and therefore to carry the burden of high labor wages, healthcare and retirement benefit costs. “By producing offshore we’re able to bring the price down for the consumer, and that is a fair way to compete,” says an anonymous source.

Mike McClelland of Professional Products tell us that while his company started out as a copier, or “design enhancer” as he prefers to call it, they did so because the aftermarket wanted it. “We wouldn’t exist if the jobbers and distributors weren’t buying these products, and there is a reason they are. Distributors could not make any money off the prices the big companies were charging, and our products gave them some margins.” As a result of their success over the years they have since evolved into designing and innovating new products. They are the only company to have produced an aftermarket 4.6L 2V intake manifold (introduced at SEMA last year), something the Mustang enthusiasts have been asking for since the late 90’s. McClelland told us the first few years they displayed their products at SEMA people would come up to their booth ready to fight. “They’d accuse us of ripping off another company. Keep in mind those companies copied the OEM designs, and none of this stuff is litigatable. Everything is a copy of something else, and we’re not making anybody buy it.” He says that now guys come up to the booth wanting to know if and when a particular product will be designed, like the 4.6L 2V manifold. Enthusiasts are coming to know and accept that Professional Products will go out and R&D something from the ground up, if there is a demand.

Patent Protection
It is not the competition that bothers the companies being copied. They feel it is the blatant disregard for their innovation and intellectual property which gets under their skin. This would seem easily addressed by obtaining the appropriate patents and trademarks. “It’s not as simple as that,” says Lisa Chissus. “Design patents cost $2000 and utility patents run $6 to 10k for each country the product is sold in. And that doesn’t stop anyone from copying you. You still have to go to court and you have to prove lost sales.” The legal process can be far more expensive and laborious than simply taking the hit from lost sales, especially for a 80 person company like Flex-a-lite.

Other companies, perhaps with greater financial resources, are however pursuing more patents and legal action. Autotronics Controls Corp, the parent company of MSD Igniton and Superchips, indicated they are increasing the number of patent filings on their products. They have also taken legal action to prevent companies from making blatant copies of their designs.

Is it ultimately the hobbyist’s choice?
All of these companies stated or implied that the consumer should make the ethical decision. They feel you should buy American and buy from the companies that are spending the money to innovate and develop new products. However, is that a reasonable approach considering the internet is borderless? After all, the web is where today’s enthusiasts are going for information before buying their speed parts.

Some say the internet is a great equalizer of the brand biases that exist in print or television. In those mediums only companies that can afford to advertise get exposure, and there is little or no feedback mechanisms for the consumer who purchases those products. On the internet virtually all players can obtain some level of advertising, and even if they are not paying for it directly their products are exposed, for good or bad, by their consumers via an endless supply of enthusiast communities and forums. Tiny companies with a single product can make it big if their product meets the criteria of the consumer, while large companies can fall hard if they fail to meet expectations.

Unfortunately many of the industry veterans have been slow to acknowledge the reality of the internet. The internet may be to them what the ice age was to the dinosaurs. Their only hope is to realize their customer is no longer primarily motivated by what is passively fed to them in the print medium, but rather is buying based on what they are actively finding in the digital realm. The big players like Holley and Edelbrock, both relatively sight-unseen on the internet, stand to be the hardest hit by this evolution. While they have the mass and capability to make a big change, they are predictably slow movers and easily outpaced by the smaller indiscernible outfits that use only the internet to promote their goods. It is quite possible that their knockoff competitors, like Pro-Comp Electronics will gain considerable market share and momentum simply because they are at the end of a user’s search end query for information.

Is a solution necessary?
It’s not surprising that in an industry rooted in racing and horsepower that most of these companies don’t feel threatened but rather challenged. All of the companies were open to our interview and shed some interesting light on how they plan to win the race. (Edelbrock, however, was the only company that declined to talk to us about this subject.)

Some of the companies are actively working with local and federal politicians. They want to urge the government to develop more legislation protecting the intellectual property of American companies and curbing knock off products from being produced. Companies like MSD have taken a “fight fire with fire” approach, and have added a line of low-priced ignition parts to their catalogs. While these products are also produced overseas, MSD’s Todd Ryden states, “We still put in the same amount of development and quality as our high end parts. In fact we even put our high-quality gears on the Street Fire distributors because the overseas ones just don’t meet our specification.” And in a case of “if you cant beat ‘em, join em”, Autometer, upon learning their competitor was knocking off one of their popular tachometers, purportedly helped the offending company redesign it to look unique enough where it didn’t bother Autometer. Companies such as Aeroquip simply, and perhaps profoundly, look to qualified media to show the consumer the pro’s and con’s of supporting knock-off products.

We perhaps connected most with the efforts of companies like Performance Distributors, who know that while they aren’t giants with endless resources, they can make giant strides by maintaining the personable customer service that made them who they are. With simple touches like custom curving each distributor they sell and being there to answer tech questions, they have created an un-patentable approach that others should knockoff but don’t.

The predominant sentiment expressed by all of these companies when asked how they plan to keep their consumers brand-loyal was by continuing to innovate and build their brands. Ironically, the knockoff companies said exactly the same thing. -FORDMUSCLE