Phony parts cost Ford $1B

By David Shepardson From Detroit News| Jan 24 2007
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Counterfeit auto parts cost Ford Motor Co. a staggering $1 billion annually, which has spurred the Dearborn automaker to mount an aggressive campaign worldwide to attack the problem.

The auto parts industry estimates counterfeit parts have become a $12 billion problem worldwide, with $3 billion in phony auto parts sold in the United States alone.

Ford's disclosure of the extent of its counterfeiting problems -- part of a U.S. Chamber of Commerce study that will be released Wednesday -- is the first by an automaker to give a specific figure on losses due to counterfeit and pirated parts.

"That figure is probably light," Joe Wiegand, Ford's global brand protection manager, said in an interview Friday.

The chamber is officially releasing the 23-page study Wednesday and distributing it to more than 1 million businesses to help them crack down on counterfeit parts.

"Many businesses, particularly small and medium-sized companies, do not fully appreciate the bottom-line cost of lax supply chain security," according to the report. "The growing problem of counterfeiting and piracy threatens businesses and consumers in nearly every region of the world."

Counterfeiting costs companies like Ford in two ways: They lose money on sales of legitimate parts; additionally, the company may have to replace faulty counterfeit parts that make it onto their vehicles through warranty repairs.

The study also looked at counterfeiting problems for Xerox, Merck, New Balance and Bendix, an auto supplier.

Bendix Commercial Vehicle Systems LLC loses millions to Bendix look-alike parts, said Anthony LaPlaca, the company's vice president and general counsel. Those parts put "drivers at risk with low durability, poor fit and inferior workmanship," he said.

The Motor and Equipment Manufacturers Association contends Chinese companies are responsible for 80 percent of fake auto parts in the United States.

Evidence keeps growing

Ford's Wiegand said the automaker continues to find growing evidence of counterfeiting. Ford conducts raids around the world -- especially in China and India -- seizing fake parts and trying to penetrate secretive markets that distribute them.

Ford has also seized a lot of phony parts in the United States. They include parts destined for Ford-made taxis and police cars in New York City, he said.

But the problem affects local consumers, too. Most consumers don't know when a repair shop is using a phony part. But Wiegand warned that if a shop offers to fix a problem for $75 -- when it should cost $200 -- the deal's probably too good to be true.

In the Chamber of Commerce study, Ford said it has a network of informants helping the company counter the problem. Wiegand said he would like to see governments do more, and he noted that organized crime and terrorists use counterfeiting as a revenue source.

"The simple fact is that counterfeiting and piracy typically are perceived as inconsequential white-collar crimes. Everyone else has something more important," he said.

GM: Problem is significant

General Motors Corp. dedicates significant resources to the problem around the world, but hasn't put a dollar amount on it.

"The counterfeiters are criminals. They don't file financial reports with us," spokesman Tom Henderson said Friday. "It's kind of hard to get an accurate number on this. We know it's significant."

GM has seized more than $250 million in counterfeit auto parts in the past two decades, shutting down hundreds of counterfeiting operations.

The FBI and U.S. Customs officials have taken an interest in stopping the flow of counterfeit parts. In 2005, the FBI held a briefing for the auto parts industry on the counterfeiting issue and has opened investigations into the sale of counterfeit auto parts.

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