The Chinese order in

The Chinese auto market is the world’s largest, but it’s not at all satisfied with its wide array of workaday wagons and such:

China’s new money crowd has an insatiable appetite for luxury status symbols to show off their riches. And there is no excess more glorious than a hyperspeed SUV to sit in during the regular multi-day traffic jams near Beijing or Shanghai. There is a triple whammy of taxation at the point of sale for such vehicles; the standard sales tax first (17%), then another hit for expensive imported vehicles (10%), and yet again on engines displacing over 4 liters (20%), which means buying a glammed up, twin-turbo, V8 big-daddy-wagon can cost nearly 50% more than it would in most other countries due to the government’s cut alone. But Porsche, Mercedes, Land Rover, and BMW all want to cash in on the spending spree, so they jack up the pre-tax MSRP’s at local Chinese dealerships by DOUBLE or TRIPLE what we pay here in the U.S., ending up with a low-option Porsche Cayenne Turbo costing well north of $250,000 USD equivalent before taxes.

The solution to this, from their point of view, might seem to be obvious. From ours, not so much:

Buy brand new cars low in the US, sell high in China. The question is: is it legal? Exporting dealers thought so until 2014. They called it a “Grey Market.” The first headlines on the legality of the issue appeared in June of that year when feds cracked down on a few shipments, including one containing forty-seven baller status SUVs being transported by Efans Trading Co. All of the cars were seized. Confiscating millions of dollars of cars would seem like a government response to an illegal act, and since the raid was led by U.S. Customs, that appeared to confirm it. Before the seizure three years ago, it was estimated that 35,000 brand new high end cars and SUVs were being shipped from US ports to China each year.

Well, that was easy: blame the Feds.

Wait, what? We shouldn’t blame the Feds?

New Car Dealers themselves cannot sell cars for export because it undercuts factory margins in other countries, especially ones with 200% markup, like China. The OEMs put clauses in the dealer contracts which specifically prohibit this act. Any attempt to sell directly abroad or to any known exporter not only violates the terms of the dealer-OEM contract, but can also result in huge financial penalties from the manufacturer, withholding of inventory, and perhaps even termination of the entire franchise. Without the sticky franchise violations getting in the way, several high line stores have said they could easily move their entire multi-million dollar inventory in a week to exporters. Instead, they are turning them away in droves.

This is where the Craigslist job shopper comes in. What the exporters have realized (all of which are set up as licensed USED car dealers, even though they are selling the cars as NEW in China) is that the only way to get their sweet, juicy profits is to recruit and train an army of fresh-faced U.S. new car buyers, who are unknown to the new car dealerships.

Ingenious, if you can get it to work. And if you can get it to work more than once, you should have been up for the Golden Globes this year.

Oh, and Efans got back all 47 of its confiscated cars.





3 comments »

  1. Jay »

    11 January 2018 · 6:03 pm

    50% tax? China is becoming more consumer friendly. Late 80’s / early 90’s, new car tax was 100% of the sales price. Government types were driven around in black Russian limos. Taxis seemed to be little more than Yugo knockoffs. Other than bicycles, nothing else was on the roads during the day, and the roads in Beijing were empty at night. Shanghai had some traffic, but not much. Only Hong Kong had traffic.

  2. CABob »

    14 January 2018 · 12:11 pm

    They’re called “straw buyers.” And since when is it illegal to sell something you own? I’ve bought and sold several cars over my lifetime, most people do, and there’s nothing illegal about it.

  3. CGHill »

    14 January 2018 · 12:54 pm

    Nor should there be. But automakers are anxious to plug this little hole in the distribution matrix.

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