First it was a $70,000 Mercedes-Benz GL350. Then another one, followed by a BMW X6 and a Porsche Cayenne. All were paid for in cash.
Jane Goss, the town clerk and tax collector in tiny Sanbornton, N.H., realized something was fishy after a local man started coming into her office every few weeks to register high-end SUVs.
"I knew that he didn't have the means to pay for these cars fully," said Goss, who also noticed that the man never drove any of the vehicles to her office. "I don't know of anybody in Sanbornton who can do that. By the fifth one, I said, 'No, I can't register this car.'"
Federal authorities say the man unwittingly had become part of a scheme that illegally exported thousands of luxury vehicles to China. In what has become a burgeoning black-market industry, exporters typically hire straw buyers in the United States and send vehicles overseas by claiming them as used on customs declarations. The buyers often never see the vehicles they claim to be purchasing for personal use.
High prices and heavy demand for luxury cars and SUVs in China, caused in part by 25 percent tariffs on imported new vehicles, mean scammers can often sell the vehicles for at least double what they would get in the United States. A new BMW X6 costs more than 1 million yuan in China, or about $171,500, compared with a U.S. starting price of $60,725; the Porsche Cayenne has a base price of 922,000 yuan, or about $148,750, in China, and $50,575 at U.S. dealerships.
Even after factoring in considerable shipping costs and other expenses, the exporters can make a huge profit on each vehicle by undercutting legitimate dealerships in China.
The schemes can cause big financial problems for U.S. dealerships, which are contractually prohibited from selling new vehicles to anyone who intends to export them and can be penalized by the automakers for doing so -- even if they do so unwittingly.
Dealerships that sell to exporters may be forced to pay charge-backs, have incentives revoked and receive fewer vehicles from the factory in the future. Widespread fraudulent registrations also hurt dealerships that do not sell to exporters because such registrations understate the dealerships' actual market shares, making it appear they are falling short of sales targets. That can affect bonuses paid by automakers as well as future allocations.