At MIDA Cars on Bangkok's busy Petchburi Road, a sign in an upper-story window advertises Mercedes-Benz cars for sale.
The street-level windows are hidden from the road by half a dozen Toyota Granvias, a RAV4 and a couple of Hondas parked on the forecourt, also for sale. Other marques also are advertised, for the dealership is an independent importer. Here, as at dozens of similar businesses in Thailand, the gray market competes with franchised dealers and official distributors.
This is a city of strange alliances. In one showroom, one can find Chevrolets and Saabs. In another, a Cadillac shares floor space with a Lotus and a Maserati.
The Toyotas at the MIDA store are the latest versions of models not officially available in Thailand. That is, Toyota Motor Thailand does not import those models, nor does it produce them here. One Toyota executive who asked not to be named suggested it was a happy arrangement. The gray importer saves Toyota the need to ship a variety of niche models and parts to Thailand. Officially, Toyota does not condone gray imports, but privately, it believes they are not so bad.
But the Mercedes models are on sale through official channels, and the gray imports are causing problems at DaimlerChrysler's Bangkok headquarters. The company has launched a campaign to promote its dealer network and discourage gray imports. DaimlerChrysler says the campaign is working. But gray importers claim they have hardly been hurt.
Gray sales boom
At the peak of Thailand's economic boom in 1996, an unprecedented 10,000 Mercedes-Benz units were sold. That same year, gray importers sold an additional 3,000 cars, says DaimlerChrysler Thailand President Karl-Heinz Heckhausen. DaimlerChrysler's local importer, Thonburi Automobile, had 100 dealers but was unable to stop the independent importers.
The reason was fairly simple: Consumers welcomed the discounts. In the mid-1990s - before the collapse of Thailand's currency - an SL 600 in an official Mercedes showroom might have cost $450,000. Independent importers had considerable room to underprice official imports.
More recently, Mercedes has moderated its prices. For example, the new C class is cheaper than the old. One can buy a C200 Kompressor for $67,000; previously, one might expect to pay $84,000.
When Heckhausen arrived in 1999, DaimlerChrysler began to fight gray imports. 'These operators do not have my sympathy,' says Heckhausen. He is determined to portray his campaign not as a war against gray importers but as an attempt to promote his own network.
First, he tightened control of Thonburi, which handles sales and production in Thailand. Initially, DaimlerChrysler threatened to take over production, but Thonburi retained its knock-down assembly plant near Bangkok after promising to improve quality. But Thonburi lost most of its dealerships as DaimlerChrysler cut its network to 40 outlets.
Having established its control, DaimlerChrysler allowed Thonburi to produce the E-, S- and C-class cars. Having upgraded production and distribution, Heckhausen launched a $100,000 media campaign to encourage car buyers to visit DaimlerChrysler's official dealers.
GRAY IMPORT FIGHTER
The man responsible for Mercedes' campaign against gray imports has worked around the world. Heckhausen ran a used-car lot in Germany for Mercedes-Benz, for whom he has worked since he was 18. He was a general manager of Freightliner Corp. in the United States and worked in South Africa.
Heckhausen jumped at the opportunity to merge the operations of Mercedes-Benz and Chrysler in Thailand, where he plans to stay. He married a Thai woman. The Formula One fan staged his wedding ceremony at the Malaysian Grand Prix.
Heckhausen has had some impact on the gray market, but independent importers will not be scared by an advertising campaign. The SEC Group, the leading gray market importer in Thailand, sells more than 1,200 vehicles per year through five outlets in Bangkok. As many as 30 percent of them are Mercedes-Benzes. The organization gets its cars from Great Britain.
If asked, SEC can order any car from Japan, Europe or the United States. The most popular models are minivans such as the Granvia or Lexus IS 200 and LX 470. Sompong Wittayaraksan - SEC's owner - admits that DaimlerChrysler's campaign has hurt his Mercedes sales somewhat. But he insists that the impact has been mild, although he refuses to give sales statistics.
'Customers come to us because we are able to deliver the cars to them much faster than the official distributor,' Wittayaraksan says. 'Cars that we sell are fully equipped top-range models that are not available through the local distributor. Here is where we can step in and provide our service.'
In fact, SEC is the official Thai distributor for Brabus, a leading German conversion company specializing in Mercedes-Benz. But these cars are not allowed to wear the three-pointed star, Heckhausen says.
Demand seems to be the reason customers choose independent dealers. When sales peaked in 1996, Mercedes was unable to fill all orders from Thai customers. The bulk of those 3,000 gray cars were simply unavailable worldwide - except, it would seem, in the United Kingdom.
Entrepreneurs bought the cars, shipped them to Thailand and sold them to people who craved the cachet of owning an exclusive model.
'Many of our customers use the car for only a short time before buying a new model,' says Chin Mongkolyos, managing director of a gray operation called Sun Auto Import.
But the gray importers are unable to provide the service and repairs that official Mercedes dealers offer.
Heckhausen says gray importers cannot get the diagnostic equipment and tools needed to repair Mercedes vehicles. They sometimes find spares slow to find as well, leading to stories of cars being in the repair shop for weeks.
SEC's Sompong counters: 'Our customers are not dependent on only one car. They are not too worried if a particular repair takes a bit of time to be completed. They have other cars they can use.'
Other automakers also suffer. Volkswagen offered only 100 New Beetles for sale in Thailand last year. Demand was so great that the automaker resorted to an Internet auction to sell them. Not surprisingly, Sun Auto makes big profits selling that model, as well as Toyota's Granvia.
After observing Mercedes' struggle to curtail gray imports, BMW AG made plans in 1999 to make all BMW models available through the official dealer network. A former BMW executive in Thailand says Mercedes' problems were self-inflicted. 'They were overpricing their cars here for years.' Thus, gray importers were able to undercut Mercedes' prices.
Sun's Chin agrees. 'It's a known fact that cars sold by franchised dealerships are more expensive because they have a higher operating cost than ours.'
Heckhausen disputes this but admits that consumers perceive that authorized imports are expensive. To solve this problem, he has introduced menu pricing to educate customers about the cost of dealership services. But he insists that a shortage of cars five years ago was the chief reason for the gray market.
'It was a great chance for the gray market,' he says. 'Thonburi could not fulfill the demand.' The gray market was largely a Mercedes problem because BMW and others could supply cars through official channels. 'It is now our responsibility here to watch the market very closely,' Heckhausen says. 'We have to get our inventories right and provide the niche vehicles.'
But the ultimate weapon against gray imports is local production. Automakers are opening assembly plants in Thailand, and that cuts demand for gray imports.
What does the future hold? At the top of a lane in downtown Bangkok, there is an abandoned, tiny showroom. Last year, it housed a Lotus Elise and a Mercedes-Benz W203 C class. Interest in that car was high until Thonburi announced plans to produce the C class for Mercedes. Soon afterward, the cars were driven away, and the building was padlocked. Score one for the automaker.
But the glittering showroom at SEC still is busy. As Heckhausen admits, the gray market 'is never entirely under control.'
E-mail writer John Boley at [email protected]