U.S. Targets Buyers of China-Bound Luxury Cars

http://mobile.nytimes.com/blogs/dealbook/2014/02/11/u-s-targets-buyers-of-china-bound-luxury-cars/?nl=business&emc=edit_dlbkam_20140212

by JumpCrisscross • 12 years ago

34 47 12 years ago

mobile.nytimes.com

sschueller• 12 years ago

I don't understand this.

Why would the manufactures not just directly send those cars over to china and sell them?

Why is it illegal to export them other than undercutting prices of a dealer in China (but that would be dealt with by restrictions on import)?

That Americans would be deprived of owning such cars because there was a shortage is a load of crap. Car manufactures are in the business to make money that's it.

Also why are we wasting tax payer money on this?

josefresco• 12 years ago

Nothing to understand here legally as it's simply a money-grab by automakers who are quite obviously lobbying the feds to crack down on a business that is eating into their profits.

And you're right, not a single person in the US is having a hard time finding or buying a Mercedes, Land Rover or any other luxury automobile. I can't believe there are government officials wasting time pursuing this so called crime.

This is lobbying to protect business interests at it's purest.

Edit: I just realized my comment was basically re-stating/agreeing with yours without adding too much to the conversation and for that I apologize. I think your observation was spot on.

twoodfin3• 12 years ago

Why would the manufactures not just directly send those cars over to China and sell them?

Presumably because they make about the same amount of money either way: If they distributed more cars into the Chinese market, prices would drop in China as supply caught up with demand. Obviously that leaves room for a competitor to undercut you, but these luxury brands can, for now, demand premiums for their cachet.

In the meantime, selling cars with competitive supply (and competitive price) in America plays some part in keeping that cachet alive. You want movie stars and pro athletes driving Mercedes. Not to mention it would be a huge mistake to abandon competition in the U.S. market just because China is huge right now. If China tails off, it's expensive to rebuild your brand image, dealer network, ...

abcd_f3• 12 years ago

Forget China, look at Canada.

Virtually identical certification requirements, virtually identical cars (sans MP/H vs KM/H and F vs C), but high-end Audi like S6 used to cost 100% more than in the US. They enforced this by forbidding US dealerships to sell to Canadians, by voiding the warranty and forcing to go through expensive re-certification.

There's nothing to understand. In theory, there's free trade, but "it's not here in particular".

fennecfoxen• 12 years ago

... auto manufacturers like Mercedes-Benz and BMW, which try to keep tight control over sales to domestic dealers and to foreign countries.

The Law of One Price strikes again!

irv• 12 years ago

this is similar to the case brought in the UK against CDWOW http://news.bbc.co.uk/1/hi/entertainment/6471863.stm

Isn't free trade and globalisation great (as long as you're a multi-billion dollar corporation)

preinheimer2• 12 years ago

What happened to first sale doctrine?

That student who was charged for reselling books he bought overseas was eventually vindicated: http://arstechnica.com/tech-policy/2013/03/thai-student-prot...

rayiner2• 12 years ago

The textbook case was about first sale doctrine, which is a copyright concept. This is about import/export restrictions. You do not, in general, have a right to ship whatever you want in and out of the country. Once something crosses the U.S. border, it becomes the subject of U.S. customs and trade regulations. It's very different than buying something within the U.S. and reselling it within the U.S., or validly importing something from abroad and reselling within the U.S.

I happen to think these particular regulations are stupid, but I also don't know the rationale behind them. They could very well be something we conceded to Germany (we won't let people reexport cars imported into the U.S. from Germany) in return for them conceding something else in a trade agreement. It's easy to blame "lobbying by industry <X>" for anything and everything, but think about it: what the hell do we care about profits that wind up in Germany anyway? Germany is the government with the strong interest in BMW/Mercedes/Audi's profits, not the U.S.

preinheimer2• 12 years ago

Thanks for clarifying.

So, when tourists enter the US, do they need permission to leave with souvenirs?

I was (falsely?) under the impression that once you purchased something you were able to do with it what you please. So the manufacturer of an item wouldn't be able to stop you from reselling it, domestically or otherwise.

lini• 12 years ago

I know of several businesses here (Europe) that specialize in importing cars from the USA. It is ridiculous how much more expensive a similar Mercedes Benz or a BMW is, compared to the USA. What they do is buy cars that have a couple of thousand miles on them and are ~6 months old. This makes them "second hand" and not new so they fall under different legislation. The cars are shipped inside containers on ships and even after all taxes are paid they still cost much less than the same car (similar mileage and age) bought from here. The only problem these companies face is legalizing the cars in Europe - e.g. blinkers here must be yellow. However, this is also relatively easy to fix by buying the needed parts here and installing them on the cars before registration.

The car manufacturers need to understand that we live in a global economy and what they experience now is something that film distributors already went through more than 10 years ago with DVD region codes. If its profitable to ship something from another part of the world where it is legally bought then people are going to do it.

rdl2• 12 years ago

It would be kind of hilarious to buy a BMW as "European Delivery", pick it up in Europe, drive it for the maximum period there, then send it back to the USA (cost included), drive it (or store it) for 6 months, then ship it back to Europe. I wonder for which models this actually makes sense.

(US doesn't get many nice models like the 550d, though)

abcd_f3• 12 years ago

There are import taxes, there is a cost of shipping it back to Europe and there's a cost of re-certification to European standards. It still makes sense $-ly, but it's a hassle.

yardie2• 12 years ago

That doesn't make any sense. BMW and MB are much cheaper in Germany than the US, if you exclude VAT. I know this because some friends stationed near Bitburger bought 2 5-series, had them prepped with NTSB bumpers and lights. Then shipped them, on the Air Force's dime, to the US. 2 years later, they sold them for more than they paid. Duty was 1.5%, sales tax was 4.5%

Unless the cars were built in the US, like the X5, there is no logical way to make it less expensive to re-import into the EU.

Car manufacturers are way ahead of film distributors in the global economy. Outside of luxury cars, most are manufactured in the country they are destined for. Or they setup a bilateral trade agreement (like Mazda and Ford) where carA is made in CountryA, carB is made in CountryB and both cars are sold in both markets.

If its profitable to ship something from another part of the world where it is legally bought then people are going to do it.

You've never had your cargo held up in customs I assume. Airports don't count.

sk5t• 12 years ago

Well, BMW/MB might be cheaper in Europe if you get cheaper models and trim levels that aren't available in the US.

As for being cost effective enough to overcome 30% depreciation in two years, frankly it sounds like a bit of a tall tale and I'd like to hear the specifics.

oneguynick• 12 years ago

Bitburg Baron checking in. Didn't expect to see Bitburg mentioned in this thread. True that many an Airman bought cars and shipped them

jnbiche• 12 years ago

This is what our civil courts are for -- not our criminal courts, which send people to prisons with gulag conditions.

Typical big business/big government regulatory capture.

rahimnathwani• 12 years ago

If they really want to stop this, they should double the US price of the cars, and compensate the price hike with a mail-in rebate. This is how it seems to work with electronics: many newegg deals posted on slickdeals involve small mail-in rebates, which I presume are there to prevent the retailer from selling them abroad in bulk.

That said, I don't believe the car companies have a right to separate markets in this way. It's much simpler with services (e.g. child vs. adult cinema tickets), but if you're really selling goods you shouldn't expect to be able to maintain such large price discrimination, and certainly shouldn't expect government support for it.

ck22• 12 years ago

I think the real news here is we are selling something to China for a change, which I have never heard of.

Half the parts in those cars or at least their raw materials probably came from China.

maxerickson• 12 years ago

http://www.census.gov/foreign-trade/balance/c5700.html

Billions of dollars of exports to China, month after month after month after month.

ck22• 12 years ago

I was going to guess that most of that is food and fuel, heavily subsidized industries in the USA (ie. indirect taxpayer assistance to China).

This article claims there is more:

http://www.ibtimes.com/us-exports-china-have-grown-294-over-...

gambiting2• 12 years ago

This is stupid. I had my car imported to Poland from the US, and paid at least $20,000 less than I would here for a brand new Land Rover Discovery 3 V8. That's including all taxes,import duties and legalization for European roads. If Land Rover wants to sell more cars outside the US, then they should offer similar prices - I find car companies trying to control the market through the government to be disgusting.

pistle2• 12 years ago

What kind of mpg or kmpg do you get with that thing?

gambiting2• 12 years ago

roughly 17-20l per 100km so 11.7MPG(US gallons).

iwwr• 12 years ago

Soon enough you will not own the car you buy, but just a license to use it in limited ways.

twoodfin3• 12 years ago

This already exists: It's called a lease and it's how about a quarter of American cars are 'sold'.

CaptainZapp• 12 years ago

That's where the EU is actually great.

Car manufacturers (notably VW and BMW) where punished with 100s M Euro fines for enforcing that their Italian dealerships do not sell to Swiss customers, even though Switzerland is not part of the EU.

The situation is, of course, exactly the opposite in that Swiss customers profited from cheaper Italian prices.

The EU commission takes a very dim view on attempts to subvert the free market by manufacturers.

This seems exactly the opposite from the US, where big business is protected, but not the customer.

danmaz74• 12 years ago

Yes... and then the Swiss voted to keep EU people out of their country...

rayiner2• 12 years ago

Switzerland isn't part of the EU, but it does participate in the European Union's "single market." It has entered into a series of trade agreements that make a large portion of EU law applicable in Switzerland in return for participation in the single market: http://en.wikipedia.org/wiki/Switzerland%E2%80%93European_Un....

This is no different than the U.S. The federal government has historically cracked down quite strongly when states have attempted to burden interstate commerce.

abcd_f3• 12 years ago

† Prices are lower, not cheaper.

BetterLateThan• 12 years ago

> subvert the free market by manufacturers

Whatever people (in this case, manufacturers) do IS free market. Regulation is subversion.

pradocchia• 12 years ago

Well, by that token regulation is also the free market, by virtue of regulatory capture, and words cease to mean anything at all.

Fact is, as his high holiness Milton Friedman himself argued, business is not a friend of the free market:

Almost every businessman is in favor of free enterprise for everybody else, but special privilege and special government protection for himself. As a result, they have been a major force in undermining the free enterprise system. Stop kidding yourself into thinking you can use the business community as a way to promote free enterprise. Unfortunately, most of them are not our friends in that respect.

http://www.aei-ideas.org/2013/06/milton-friedman-on-the-diff...

vaadu• 12 years ago

Excellent use of my taxes.

pjc50• 12 years ago

What part of this is 'illegal', exactly? Is it a violation of the export law, or what? Or is it just that you get to say what the law is in the US if you have enough money?

Fuxy• 12 years ago

Lol this is the market correcting itself and what do the Americans do when they see this happening? They make it illegal.

Typical American double standard the market will take care of itself but we won't allow it to correct itself it it's not in America.

Unsurprisingly this bares a remarking similarity to the problem copyright holders of movies, books and the like are complaining about when they make it more expensive or inaccessible in certain countries only in their case it just gets pirated and they get none of the money.

brg2• 12 years ago

American's are not making it illegal, they are on both sides of this issue. Some are buying up the vehicles and exporting them, others are attempting to corrupt the right of personal property by prosecuting them.

netcan2• 12 years ago

I really don't have any expertise on these things but it sounds to me like there are some funky facts missing from this article.

"Once in China, the cars, which typically retail for $55,000 to $75,000 in the United States, can be resold for as much as three times those prices."

That doesn't add up, not without some more explaining. Maybe there are import quotas that these guys are using up & limiting the manufacturers ability to import into China. The auto industries tend to have the most thorough history of trade "regulation" and there are complicated vestiges of old import/export policies, WTO penalties & such. It can be hairy.

I get that this is the NYTimes blog, but this is where a journalist (or blogger, why not?) should be contacting neutral knowledgeable people. An economist and/or lawyer familiar with the auto industry trade stuff. Where's the meat?!

genericuser• 12 years ago

My understanding from reading about the issue of car prices in China earlier when the Tesla story about its China price came up (http://www.teslamotors.com/blog/fair-price) was that luxury car manufacturers have managed to create a market in china where they can sell their cars at largely marked up prices (relative to U.S. for instance) and profit from most of that price increase.

These luxury cars being by definition a luxury good, fall into they type of luxury good known as a Veblen good, in which the exclusivity associated with the high price is part of what makes these cars desirable. While this is seen in most markets for these cars, apparently early auto manufacturers selling luxury cars in China decided to go for a higher price point in China than in other markets. This created a market where new manufacturers who entered would be forced to choose between selling their luxury cars at lower prices (relative to the established luxury cars) therefore less exclusive and less desirable (sometimes even considered of lower quality) or selling them at similar mark ups and making extra money.

netcan2• 12 years ago

As I said, I'm no expert. But, I doubt these price discrepancies can be fully explained in this way. Rolls Royces (a common example) is a common example, but these are pretty supply limited being hand built cars. A unique situation. I can't imagine that manufacturers genuinely get away with a >50% profit margin. It also doesn't explain why export is being limited (presumably from other countries, not just the US).

higherpurpose• 12 years ago

Isn't this sort of protectionism that caused GM to slack and become non-competitive over the long haul, the first time around, too? Why repeat the mistake?

downandout• 12 years ago

This is either the result of bored prosecutors or outright corruption. Either way, these prosecutors need to find a new line of work. They are using US taxpayer resources to protect price discrepancies for foreign auto manufacturers in foreign countries. I have seen rather transparent attempts to use our laws to enforce the will of large corporations before (SOPA etc) but this seems to take it to new extremes.

Car manufacturers cannot impose restrictions on what we do with cars once we own them. We purchase them - there is no car license agreement. It is not fraud to buy a car and then choose to sell it a few days later, and we have no legal obligation to tell the dealer what we plan to do with the car. I cannot imagine that the government would actually prevail at trial on any of these cases. They may get a few intimidation-based guilty pleas, but I don't see these cases having a ton of legal merit.

brg2• 12 years ago

I find this an extremely chilling story. It speaks to the erosion of personal property rights in the US. It is horrible to see the complicity of the US in the outright rent seeking on the part of foreign auto manufacturers is stunning.

One telling statement is the articles is made by US prosecutor for the case. He remarks that his persecution of this business is justified because its practitioners are simply out to make a quick buck. However where in the law is it the goal of the government to determine the economic value of the distribution of luxury goods on the international market? Why is it even a question anyone in the federal government is considering?

U.S. Targets Buyers of China-Bound Luxury Cars

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