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Sunday, April 11, 2010

Fixing it on the cheap - Lebanese cars dealers feel the pinch as fake and second hand parts see a surge in sales

Executive magazine

Second  hand parts offer a cheap, legal alternative to branded goods, but lack  the safety guarantees of their more costly counterparts

The use of counterfeit spare car parts is a growing phenomenon in Lebanon due to the high number of luxury and used cars on the roads, coupled with the country’s low per capita income.

There are an estimated 1.646 million vehicles in Lebanon, of which 76.5 percent are more than 10 years old and a mere 3.7 percent were manufactured in the last three years, according to data compiled by research firm Information International. While the new car owners are provided with warranties that require them to service at dealerships — or void the warranty — used car owners have an open market to choose from: brand originals, certified parts from original equipment manufacturers (OEMs), cheap but still legal parts and outright counterfeits.

The value of the branded spare parts market is estimated at $70 million to $100 million, with dealerships and retailers dividing market share at 50 percent each, while the OEMs and other legal parts are valued at a further $100 million. Some estimates peg the fake parts market to be worth more than $10 million, while others put the figure at 20 to 30 percent of the market. The cost differences can be startling, with a pair of fake brake pads selling for as low as $11, compared to $66 at a dealership. On average, the price difference between real and fake parts is around 60 percent. But the difference in quality is equally alarming, especially in fast moving products related to safety.

“Everyone talks of pirated DVDs and fake medicine, but on the car side the situation is really gliding out of hand in Lebanon — the danger is high,” said Joachim Zeitler, after sales director at T. Gargour & Fils, distributor of Mercedes-Benz. “Everybody has a copied movie, but it’s not killing anyone. It’s wrong if you can’t cross a road because you’re worried about being hit by a guy who has saved $50 on his brakes.”

In addition to counterfeit, fast-moving products, everything else is available to fit out a car, from windshields and discs to shock absorbers and tires. “There is, amazingly, a lot of fake suspension items, and I even saw a fake hood. It was 1 millimeter less in width, definitely in thickness and maybe 50 percent cheaper,” said Ronald el-Khoury, quality manager at Rasamny Younis (Rymco), dealer for Nissan, GMC and Infiniti. The majority of fake parts that enter via the Beirut port are from China and Turkey, or are transported via the Gulf, where the goods are packaged for distribution throughout the Middle East.

‘Cut-n-shuts,’ made of opposite ends of different cars, are passed  off as genuine second-hand vehicles

Luxury fake

The Lebanese penchant for luxury cars, even if used, means brands like Mercedes and BMW are particularly affected in spare parts sales. Mercedes is the most popular brand in Lebanon, with more than 309,800 vehicles, or 18.9 percent of the total volume. Next is BMW with some 150,800 vehicles, or 9.2 percent of the total.

“We are selling the most, so that’s why we are affected the most, as Mercedes parts are not cheap,” said Zeitler. “In a market where a large part of the population has a low income yet is driving a luxury car, the risk is higher than elsewhere.”

Zeitler backed up his statement with research carried out by Mercedes in Lebanon, which showed some 60 percent of counterfeits are sold outside of Beirut.

It is not just parts that are counterfeit and increasingly sophisticated, at least in appearance. The quality of packaging has improved in recent years from bad spelling, copied holograms and other minor differences to near perfect copies that only the trained eye can see.

“Counterfeiters are very professional. It used to be easy to spot them, but not now,” said Zeitler. “They are even faking invoices from our company [which show] the parts were bought from us.” While fakes are dangerous, so are used car parts, which are increasingly coming onto the market. “The amount of competition here in spare parts, it’s unbelievable,” added Zeitler.

Rent-a-part

Curbing counterfeits is an uphill struggle, given minimal governmental oversight and insufficient punishment for offenders. “It is a business like organized crime, with a whole supply chain,” said Zeitler. “This is how it should be treated by the police as counterfeiting is highly profitable, but the risk of being punished is minor. Drugs have a lower profit margin, but if you’re caught with cocaine you are in big trouble.”

Fake and substandard parts are also not being checked during a vehicle’s annual roadworthiness test, the “mechanique.” Khoury said that it is easy to pass the test by renting spare parts from vendors nearby the inspection center, which are then returned after being given the green light by the mechanic for another year on the road. “And who is controlling cars driven in places like Faraya?” he queried.

“Only 500,000 cars go through the mechanique every year, so 40 percent or less of all cars on the road,” said Walid Rasamny, chairman and chief executive officer of Century Motor Company, dealership for Hyundai. “The government is being lax in enforcing inspection,” he added.

While enforcement is lackluster, there have been raids of late. Three illegal businesses were shut down, there were 12 nationwide raids on warehouses and mechanics, five shipments containing counterfeit parts were seized at the Beirut port, and 933 windshields and windowpanes were confiscated and destroyed.

“In the last three years there has been progress,” said Zeitler. “The customs has a special department for spotting fakes, and they are really good.”

Affordability vs. safety

“It is impossible to stop counterfeits in a free market – they can be smuggled in, and it can’t be controlled. Car dealers should have competitive prices to have higher customer retention,” said Farid Homsi, general manager of IMPEX, distributor for GM, Chevrolet, Cadillac, Hummer and Isuzu.

Automotive dealers feel the pinch as thrifty motorists turn to fake  and second hand parts over their expensive official alternatives

Many dealerships share Homsi’s view that lower prices for original parts could drive down sales of fakes, while dealers such as IMPEX buy parts in bulk to lower costs. Dealers are also developing service “menus” for customers with a variety of options and prices.

“We mark down and don’t overcharge,” said Rasamny, who added that fake spare parts had not overly affected the South Korean-based Hyundai brand. “Japanese brands are very affected, as I think they mark down the price of the vehicle and make up the difference in spare parts, by maybe 20 to 30 percent. What’s encouraging the grey market is the fact that distributors mark up; they should be more competitive.”

Luxury car dealers, however, point to the fact that significant amounts of research and development go into manufacturing the original parts, and have embarked on publicity campaigns to inform consumers about the safety risks of fakes.

Revoking a car’s warranty if fake parts are used is another policy.

“The only fighting point we have is to relay to the customer that you have to preserve the warranty,” said Khoury. “But manufacturers must also revise prices. A difference of 20 percent is acceptable, but not 50 or 60 percent.”

Curbing the number of used cars in Lebanon is a further policy that dealers want enforced, which would be a boon not only for sales of original parts but also new car sales.

Counterfeit car part sales distribution in Lebanon

“Much more serious [than fake parts] are the wrecked cars coming into Lebanon. You have cases of a car with a back-end collision and a car with a front-end collision, and the cars are split apart then welded together. Innocent customers believe they are buying an average used car,” said Rasamny. “Eight year old cars should not be allowed to be imported, as we get all the junk of Europe and the United States, especially as neighboring countries and the Gulf don’t allow imports of used cars,” he added.

7 comments:

Charles said...

I actually enjoyed reading through this posting.Many thanks

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Samuel said...

That's right fake auto parts can create an big problems for consumers, if those fake parts are related to brakes or safety related then it's a bigger impact on the user. so buying the branded parts are the a best way, but branded companies also do something from their end by reducing the parts cost, increasing the consumers awareness by media etc.. will save lot many lives.

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joana_dagher said...
This comment has been removed by the author.
joana_dagher said...

It is true that people complain of branded company's parts prices, but they shouldn't forget they are buying quality as well as insurane in the originality of the part! companies like peugeot, mitsubishi and etcc.. are working on discounts to loyal customers like peugeot and citroen are currently doing as well as a period of 50% off like mitsubishi already did for a month! still people are not aware of the counterfitting outside branded companies! don't forget that the high prices of the branded companies' parts mnay be due to foreign currency high rates like the Euro for european cars and Yen for japanese ones.. This makes the parts more expensive and you can't really do something bout it!

David said...

that's right Joana, their are many things come into the picture when we are talking about branded parts, like currency is one, other one branded company always like to standardize the price of parts across the world, if they not this may became another issue, which creates smuggling the parts from low cost nation to high cost nations so they might need to think some work around to reduce the price across the world.

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Jock Thompson said...

That is right fake auto parts can create an big problems for consumers, if those fake parts are related to brakes or safety related then it is a bigger impact on the user.We are among the best car dismantlers of the city.Get the most reasonable Second Hand Car Parts from us.

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