
U.S. Targets Buyers of China-Bound Luxury Cars - JumpCrisscross
http://mobile.nytimes.com/blogs/dealbook/2014/02/11/u-s-targets-buyers-of-china-bound-luxury-cars/?nl=business&emc=edit_dlbkam_20140212
======
CaptainZapp
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.

~~~
BetterLateThan
>> subvert the free market by manufacturers

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

~~~
pradocchia
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...](http://www.aei-ideas.org/2013/06/milton-friedman-on-the-difference-
between-being-pro-free-enterprise-from-being-pro-business/)

------
lini
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.

~~~
yardie
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
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.

~~~
yardie
No, euro models have even better trim.

I just checked the BMW site, 535i starts at 57000euros TTC, and $60000 without
sales tax; Germany and US, respectively. Remove 20% VAT and its 45000 euros
($60000). Take it to a location where almost new, luxury cars with low mileage
are a rare breed (like an airbase in North Dakota, Alaska, etc.) and 30%
depreciation isn't a factor.

If there is any tall tale reselling a car back in its export market is one.
Containers cost money, shipping a car costs a lot of money, duties and taxes
costs lots of money.

------
netcan
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
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](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.

~~~
netcan
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).

------
sschueller
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
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.

------
preinheimer
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...](http://arstechnica.com/tech-policy/2013/03/thai-student-
protected-by-first-sale-supreme-court-rules/)

~~~
rayiner
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.

~~~
preinheimer
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.

~~~
twoodfin
_So, when tourists enter the US, do they need permission to leave with
souvenirs?_

It depends on the export restrictions. A couple of decades ago, if your
"souvenir" was a device capable of encrypting data with a key larger than a
few dozen bits, yes, you would need permission to leave with it.

------
downandout
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.

------
gambiting
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.

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

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

~~~
toomuchtodo
Wow. And I thought my Tundra with a 5.7 V8 had bad mileage (15 city/18
highway).

------
rahimnathwani
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.

------
Fuxy
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.

~~~
brg
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.

------
ck2
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
[http://www.census.gov/foreign-
trade/balance/c5700.html](http://www.census.gov/foreign-
trade/balance/c5700.html)

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

~~~
ck2
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-...](http://www.ibtimes.com/us-exports-china-have-
grown-294-over-past-decade-1338693)

------
jnbiche
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.

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

------
brg
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?

------
pjc50
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?

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

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

------
fennecfoxen
> ... 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!

------
higherpurpose
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?

------
vaadu
Excellent use of my taxes.

