How are High End Manufacturers like the Beleagured Auto Industry?

By: Allen Wells

NOTE: I originally wrote this essay in January of 2006, it seems it is more applicable today than when first wrote it!

Two articles I’ve read in the past couple of days have caused me to reflect on a dilemma. On one hand, you have American auto manufacturers laying off tens of thousands of workers because they cannot compete in the global marketplace. You also have a world wide epidemic of counterfeit goods flooding the markets selling “knock offs” of products from Cartier to Rolex.

How are these two issues similar? A January 30, 2006 article in the WSJ discussed how the U.S. auto manufacturer Ford makes trucks at the company’s Thailand manufacturing facility (built at a lower cost using less expensive labor), but cannot sell these trucks produced at a lower cost in the United States due to U.S. tariffs on automobiles imported from Thailand. These trucks must be sold in Asia and Europe, barring U.S. consumers from the savings created by lower manufacturing costs.

On the other hand, counterfeiters are using low cost labor are importing high end watch “movements” and installing them in counterfeit watches to be sold worldwide at tremendous savings. For example, a Rolex watch that will cost you $2,500 at a retailer; while a counterfeit can be bought at $25 on the street. Here’s the interesting point. I once bought a $25 counterfeit Rolex and I now own an authentic Rolex. Guess which one keeps better time? You guessed it, the counterfeit.

The question arises, is the truck made in Thailand a poorer quality product than the truck made in the U.S? Most likely not. In a word the U.S. government is protecting us, not from a poorly built product but from savings of our own money.

I ask again, how are these two issues similar?

Perhaps in a wake up call to the manufacturers of high priced “high end goods”. How far will a name get you in the global economy? If nothing else is proven by the rapid increase in counterfeit luxury merchandise it is that having a high end brand name does not necessarily mean better quality. I’ve seen Gucci purses for sale on the streets of New York… the difference between the knock off and the original is not earth shattering. What is being proven is that the global economy is opening competition to a level never before considered. When “criminals” can make product that sells for 1/10th to 1/100th of the price of the original, the high end companies better wake up!

Where do the governments fit into all this? New laws are being passed daily to combat the continued proliferation of counterfeit rings. It is now being stated that profits from selling “knock off” watches can equal those of selling cocaine. Governments receive no tax revenues from the sale of illegal drugs, yet spend billions to combat the “problem”. By the same token, governments receive no tax revenues from the sale of counterfeit “knock offs” and are now committing to spend millions (maybe billions) to combat this “problem”.

Perhaps the problem is tariffs, taxation and overpaid union workers who are the last remaining vestiges of the former industrial age. Technology allows goods to be produced at a higher quality, more quickly and at a larger capacity than was ever anticipated in the past. All people must understand, counterfeiting is wrong. It is theft, the stealing of ideas, names and reputations. Counterfeiting undermines businesses that provide health and wealth to our societies. This is not a discussion of the moral ramifications of counterfeiting.

What this is (or is intended to be) is a wake up call to consumers, businesses and governments around the world. If a truck can be built in Thailand for a fraction of the cost of a truck built in the U.S., consumers will buy the truck built in Thailand. This is assuming your government will allow you to purchase this truck. If a consumer can purchase a Rolex watch for $2,500 plus 5% - 10% sales tax, or a knock off that is otherwise unidentifiable as a knock off for $25 without sales tax (which I might add, the cost of the knock off is less than the sales tax on the original product), which do you think they will buy?

Will stronger enforcement of counterfeiting laws put an end to this “problem”? If we use the illegal drug trade as an example, then the answer is a resounding “NO!” Corporations need to look inside, master efficiencies, bring down costs, and provide products at a more reasonable price. With today’s manufacturing processes we can build products at a fraction of the cost today, but are not doing so. Onerous government regulations, outdated taxation policies that do not favor capital spending for new equipment, union controls and overpaid workers along with import duties and quota’s destroy competition are keeping this from happening.

It is sad to say, but the very government(s) that we think are here to protect and serve us are actually keeping us from better products, at lower prices with more choices.