BMW, Mercedes grapple with unauthorized exports from U.S. to China

Thu Apr 2, 2015 12:52pm EDT
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By Joseph White

NEW YORK (Reuters) - Mercedes-Benz and BMW are probing unauthorized exports of luxury cars from the United States to China, which have recently surged and threaten profit in the world's largest auto market, senior executives said.

So-called gray imports to China have jumped since the country allowed dealers registered in Shanghai's free trade zone to import cars without the consent of foreign carmakers, exacerbating price pressure for German manufacturers.

As a result, Daimler AG (DAIGn.DE: Quote), which owns premium auto brand Mercedes-Benz, said it intensified efforts to clamp down on exports of U.S. models to China about a year ago.

"We got concerned when it hit 4,000," said Steve Cannon, head of Mercedes-Benz USA, referring to the number of vehicles being shipped to China from the United States.

Mercedes can penalize U.S. dealers who knowingly sell vehicles to so-called gray-market exporters, who operate through unauthorized channels.

As a first step it has encouraged dealers to vet buyers of exclusive models such as the GL large SUV, using online resources such as Zillow to check addresses of would-be buyers, and has discouraged cash payment for cars, Cannon said.

"We nipped it in the bud," Cannon said, referring to the ability of unauthorized buyers to acquire vehicles in the United States for immediate export to China. "We took it down to almost nothing."

China has had a gray market in auto sales for some time, centered around the northern port city of Tianjin, where about half of China's total car import deals are done. Together, Audi (VOWG_p.DE: Quote), BMW and Mercedes have about 70 to 80 percent market share in the premium segment.   Continued...

An employee holds a BMW logo on the production line of the BMW C evolution electric maxi-scooter at the BMW Berlin motorcycle plant February 23, 2015.  REUTERS/Fabrizio Bensch