Factories punish rogue exporters

As the weak dollar continues to make U.S. goods a bargain, automakers are cracking down on U.S. dealers who are exporting a growing number of new cars and trucks to foreign customers on the gray market.

In some cases, though, dealers say they're unwitting and unwilling participants who have no idea the vehicles they sell are going overseas.

Last month Mercedes-Benz warned its 344 U.S. dealers that it is raising financial penalties and cutting allocations for dealers who sell more than 2 percent of their vehicles to exporters, states a letter obtained by Automotive News.

The punishments apply even if dealers did not know that buyers planned to export the vehicles.

Mercedes-Benz spokeswoman Tracy Darchini said last week: “We are confident that there is a "home' here in the U.S. for every vehicle that we are allocated.”

Gray-market exports are a growth industry. According to the North American Automobile Trade Association, 60,000 new gray-market vehicles were exported from the United States last year, up 68 percent from 2006.

Werner Schumacher, a major Mercedes-Benz dealer in Phoenix, was penalized $18,000 after his dealership sold a dozen new vehicles that later were exported. Schumacher, who chaired Mercedes' dealer council last year, says he didn't know the vehicles had gone to foreign buyers. Exporters hired straw purchasers, he says.

“Some customers said they wanted to register their car in California because their mother or sister lives there,” Schumacher says. “They looked like nice people, but they were lying through their teeth.”

Schumacher says he now requires out-of-state buyers to register their vehicles through his dealership.

Other dealers are protecting themselves from export penalties by demanding written agreements from buyers that they won't resell vehicles outside the United States. Dealers also are lobbying for state laws to limit the factories' ability to punish them.

Exporters typically buy vehicles from a U.S. dealer, then ship them to foreign clients or to brokers. Those foreign consumers often can import new vehicles from the United States more cheaply than they can buy them at home.

About two-thirds of last year's gray-market vehicles went to Canada, says Brian Osler, president of the North American Automobile Trade Association, an organization of dealers involved in importing and exporting.

Other hot markets are China, Russia, Saudi Arabia and South America. The greatest demand, say dealers and exporters, is for European-brand luxury vehicles.

Nearly all automakers forbid U.S. dealers to sell new vehicles for export, citing warranty concerns and their own sales plans. Automakers work with customs officials to track unauthorized exports, using vehicle identification numbers to determine which dealerships sold the vehicles.

Manufacturers' penalties include charge-backs against dealerships' retail and fleet incentives and holdback allowances. Last month, Mercedes raised the “administrative fee” it charges dealers for unauthorized exports by 20 percent, to $300 per vehicle.

Dealers say other automakers are stiffening export restrictions.

Jack Fitzgerald owns 13 dealerships, most of them in the Washington, D.C. area, that sell 19 brands. Fitzgerald notes that Chrysler LLC now charges an export penalty of $3,000 a vehicle. Fitzgerald says his five dealerships that sell Chrysler brands have not had to pay penalties.

Mike Charapp, a lawyer in suburban Washington who represents dealers, says several clients are appealing factory charges and other penalties — some amounting to hundreds of thousands of dollars.

“It's a big problem,” he says. “With the dollar weak, there is a lot of money to be made by these brokers.”

One exporter, who asked not to be named because he fears factory retribution, says he provides a legal service.

“A Mercedes-Benz in China sells for four times what it costs in the U.S.,” he says. “We have people from Europe buying European cars in the U.S. Because of the value of the euro vs. the dollar, it is like getting 50 percent off.”

But because of the factory restrictions, he says, he expects to export no more than seven or eight new vehicles this year, down from as many as 100 in his best years.

The exporter concedes that he sometimes resorts to “subterfuge” to buy vehicles from dealers because of factory prohibitions against exports.

“What if all of the BMW dealers in Chicago decided it was OK to export new vehicles?” he says. “The factory couldn't do anything about it.”

The American Automotive Shippers Association Inc., a group of 37 exporters, is considering a trade-restraint lawsuit against automakers over export restrictions, says association President Max Ruefenacht, an exporter in Rockaway, N.J.

Dealers are taking steps to protect themselves against sales that could lead to export penalties. Joel Weinberger, an Audi dealer in suburban Chicago, just posted a notice on the dealership's Web site: “Persons interested in purchasing vehicles for export are kindly asked to refrain from contacting us.”

Says Weinberger: “We turn them all away. We don't want to play that game.”

Other dealers demand that customers pledge in writing not to export vehicles. A Chicago Mercedes dealership owned by megadealer Fletcher Jones requires buyers to sign an agreement to pay the dealership $10,000 for each vehicle they export.

Last year, a Nevada exporter sued Mercedes-Benz of Laguna Niguel in Southern California over a similar contract with a $7,500 charge per export. Aaron Jacoby, a lawyer for the dealership, says an out-of-court settlement favored his client.

Meanwhile, dealers in several states seek protection in franchise laws against factory export penalties.

New York, Florida and Virginia prohibit automakers from penalizing dealers who can show they did not know the new vehicles they sold would be exported. A measure before Florida's legislature would ban penalties if an exported vehicle is titled or registered in the United States.

Dealer Schumacher says the export problem will disappear on its own once the dollar strengthens. “When it does not make economic sense anymore,” he says, “that will be the end of it.” 

Harry Stoffer contributed to this report