Buying Auto Parts on the Gray Market

Were these auto parts purchased legally?

Well, it’s a gray area.

In a previous post, we talked about the pros and cons of buying OEM versus aftermarket auto parts. Now we’re here to tell you that even if you thought you were buying OEM, you may not be. Well, not exactly. Brand name parts are being sold outside of regular channels in what is not quite the black market, but is at least a gray market. Although you may be surprised to learn about the existence of a gray market, you probably won’t be too shocked to learn that auto makers are none too thrilled about it.

How did this all get started?

Auto manufacturers contract with factories overseas to manufacture certain parts. These parts are then shipped to the auto maker stateside, which then distributes them to their dealerships for auto repairs. More specifically, dealerships are required by the terms of their franchise agreement to buy parts only from the manufacturer’s designated distributor.

But remember that overseas contractor? They may actually make more of the part than the manufacturer ordered. These “extra” parts are then sold through outside channels and make their way to independent repair centers, body shops, auto parts retailers, and even the dealerships themselves, who are only supposed to be buying “genuine” parts, i.e. parts purchased through their designated distributor.

The gray market is apparently big business. Automotive News recently reported on a shipment of over 10,000 counterfeit Nissan auto parts detained by U.S. Customs at the Port of Jacksonville back in 2016. In that case, the importer actually sued Nissan for saying the goods they purchased were counterfeit and was able to get its goods back from Customs, although the importer had to return a small number of the units back to a company in Oman. Importers complain that Customs is blindly taking the side of the auto maker by stopping shipments and detaining goods the importers claim were legally bought.

The gray market is not limited to auto parts but includes all sorts of consumer goods, and the issue has been litigated in court many times, including in the United State Supreme Court. Since the gray market is not illegal, these cases are typically resolved by looking at copyright infringement law, asking questions such as whether the products are identical or materially different, and whether they are likely to cause confusion in the marketplace. For instance, can products be considered identical if their warranties differ? What if the instruction manuals are printed in different languages, or if the serial numbers have been altered or effaced?

Manufacturers point out they have no way to assure quality control over products going out under their name. As a consumer, how confident are you when you walk out of the auto parts store that the genuine auto part you just bought will work in your vehicle?

It’s not so black and white, is it?