Copycats and Criminals

Imitation sometimes is called the sincerest form of flattery, but don't tell that to Ford Motor Co.

In addition to all its other woes, Ford says counterfeit replacement parts are costing it $1 billion annually in lost sales revenue around the world.

Ford hardly is alone. Thanks to new computer-aided technologies that make it easy to digitally scan and copy everything from shock absorber designs to the sheet metal of entire vehicles, auto makers from General Motors Corp. to BMW AG and Hyundai Motor Co. Ltd. now are seeing almost every aspect of their products and brand identities copied and stolen.

Increasingly brazen companies now have graduated from manufacturing fake brake pads made of sawdust or compressed grass to creating knockoffs of company logos, dealership designs and even entire vehicles.

Some are criminal enterprises making dangerous, substandard parts in order to earn a quick buck; others are merely copycats hoping a little brand equity will rub off. Either way, they are becoming a serious menace for global automotive brands.

“Manufacturers like Nike, Oakley and Coach, selling everything from tennis shoes to handbags and sunglasses, have been very in tune to counterfeiting,” says Joe Wiegand, Ford's manager of Global Brand Protection.

“The automotive industry now is starting to recognize the scope of the problem and is addressing it,” Wiegand says.

Auto makers and suppliers are reluctant to cite specifics, but all say they are implementing both legal and technology measures to thwart criminal counterfeiters and copycats.

The ultimate cost to the industry is huge, but difficult to quantify.

“The National Association of Manufacturers estimates that trade in counterfeit or pirated products accounts for 5% to 7% of world trade every year, which amounts to approximately $500 billion,” says a GM spokesman, adding the auto maker has seized almost $300 million worth of counterfeit parts since the mid-1980s.

“As the automotive industry is a large component of the manufacturing sector, the impact on our industry is certainly significant,” he adds.

The Motor and Equipment Manufacturers Assn. estimates automotive suppliers, alone, lose an estimated $12 billion in sales annually to counterfeit products.

But as the world's auto industry becomes ever more competitive, auto makers are becoming aware that imposters and poor-quality phony parts can severely damage their brand image long term in crucial emerging countries as well as in mature home markets.

In addition to lost profits, there is the concern that counterfeit parts don't come close to meeting OEM durability and safety standards, which could create dangerous driving conditions and possible lawsuits from customers who unwittingly have bogus parts installed on their vehicles.

Replacement fenders that rust prematurely, brake pads that crumble into dust after a few hundred miles or poor-quality imposter vehicles masquerading as another brand in a developing country full of first-time vehicle buyers all could have a devastating impact on how automotive brands are perceived by new consumers in the future.

Many countries are involved in the manufacture and export of counterfeit vehicle parts, including Brazil, Turkey, Taiwan, India, Malaysia and even the U.S. itself. However, experts say China is home to some of the largest and most flagrant violators.

As the No.1 producer in China, GM not surprisingly is a frequent target of counterfeiters and knockoff specialists.

The auto maker recently settled a legal action against Chery Automobile Co. Ltd. in which it charged the design of the Chinese auto maker's QQ minicar was a copy of GM's Chevy Spark. A GM spokesman says that matter now has been resolved, and that terms include an agreement to not discuss the settlement.

But just last November at the Beijing auto show, another Chinese auto maker, the Huanghai Auto unit of Liaoning SG Automotive Group based in Dandong, Liaoning province, showed off the Plutus DD 1020L, a pickup truck that bears a striking resemblance to the Chevy Colorado.

Auto makers typically are extremely sensitive about styling and brands. Chrysler Group once sued GM because its Hummer models had the same number of slots in their distinctive grilles as Jeeps.

Chrysler lost that trademark infringement suit, but it did prevail in another instance: A small restaurant called “Jeeps” changed its name following legal pressure from Chrysler.

However, GM declines to comment specifically on the Colorado knockoff, except to say in a statement to Ward's that “General Motors would seek to protect our intellectual property where appropriate.”

The statement adds that the Chinese government recognizes the need for intellectual property protection and is “responsively and proactively addressing the issue.”

In the meantime, GM says it is not overly worried about losing market share in China to imposters because Chinese car buyers are discerning enough to understand that GM products meet global standards in safety, design and quality, while the faux brands likely do not.

Even so, downward pricing pressure is increasing in China, which works to the counterfeiter's advantage.

BMW is no stranger to copycats, either. It deals with more than 1,000 cases a year in which companies try to copy the German auto maker or use confusing or similar styles for trademarks, says Jan Ehlen, group communications manager-BMW of North America LLC.

One such copycat is BYD Auto, a subsidiary of BYD Company Ltd., based in China. It has a logo similar to BMW's, that it positions on its product hoods in a comparable fashion.

Looking at BYD's website, Ehlen says the architecture of its dealerships and the way the logo is displayed in front of the stores also are akin to BMW's.

“We are talking about not just copying logos, but copying whole brand experiences,” Ehlen says, adding BYD has applied to register its logo in the U.S. as well as several other countries.

BMW has objected to all applications to register the BYD logo. “We think there is a very big potential of confusing or misleading the customer,” Ehlen says.

Knock-offs of the new Hyundai Santa Fe and Kia Sorento SUVs also now are on sale in China.

“We are examining our legal options against the counterfeiters of these products because they are damaging the reputation of the Hyundai and Kia brands,” says a Hyundai spokesman.

“Counterfeiting of after market Hyundai and Kia parts, of course, is also a growing problem.”

To protect itself in the future, the spokesman says Hyundai now legally registers its designs.

That is something the auto maker has not done in the past and which could have encouraged counterfeiters to copy its products, he adds.

Beginning with the recently launched Veracruz SUV, Hyundai now is registering the body design as well as the design of parts and components in order to have a solid legal basis for defending itself in Chinese courts in the future.

In the case of aftermarket parts, Hyundai also is taking steps to increase customer education,so they understand the danger to life and limb of using counterfeit parts and the importance of using Hyundai/Kia authorized service centers, the spokesman says.

So far, Ford's Wiegand says the auto maker has not had any of its vehicles copied. However, its famous blue oval trademark is a favorite of counterfeiters. Pirates sometimes reproduce perfect forgeries of the logo on a part or in packaging materials. Other times, they use cleverly designed misspellings, such as “Matorcraft” instead of “Motorcraft” aimed at tricking less-sophisticated foreign consumers into thinking it is a true OEM part.

However, Weigand points out consumer education programs only can go so far because end users frequently never even see them; they are installed — wittingly or unwittingly — by garages and repair shops.

“It's pretty easy to find fake Coach purses, but you frequently are not choosing the replacement parts that are going on your vehicle,” Weigand says.

Special identification technologies can help in some circumstances, he adds.

Auto makers are reluctant to discuss the technologies they are using to protect their intellectual property, but insiders say there are numerous overt and covert ways for distinguishing fakes from the real McCoy by marking parts with special inks, barcodes or even embedded computer chips.

In the meantime, MEMA says the “Stop Counterfeiting in Manufactured Goods Act” (H.R. 32) was passed by Congress and signed into law by president Bush last year. That act extends federal seizure authority to include not only counterfeit products but also the tooling and supplies used to make them.

This year, MEMA says it is lobbying for increased federal law enforcement to improve border inspections. It also is raising standards of intellectual property protection at trade shows and encouraging greater use of “alternative criminal statutes” against counterfeiters, such as money laundering or tax evasion charges.

Weigand and his 18-member Ford Global Brand Protection team will continue going to trade shows, searching websites and working with U.S. Customs and other government agencies to catch counterfeiters and have their fake products destroyed, he says.

It is not an easy job. It's difficult to catch the counterfeiters, and even tougher to get local authorities to put them in jail, Weigand says. However, because safety issues are involved with faulty car parts, government agencies are starting to take the counterfeiting issue more seriously.

But in China, the situation promises to get much worse before it gets better.