The Lucrative, Barely Legal Business of Shipping Luxury Cars to China
The help-wanted ad was sketchy and the man who placed it was even sketchier.
Tucked away on a Craigslist talent gigs page in Southern California was a listing for “Assistant to an Exporter Broker Part Time Flex.” Details were scarce, aside from requesting that candidates possess strong communications skills, perhaps even acting experience. Applicants were to send a text message if interested.
I called three days later this past June, and the man immediately opened with a barrage of perks. The money! The hours! No office! Missing from his gushing pitch to me was an explanation of the job itself.
Finally, after prodding, he got to the point: You buy cars for people in China. I front the money. Dealerships don’t want to—
“Wait, is this illegal?”
“Oh, no, no!” he insisted. “It’s totally legal!”
I said I’d take the long weekend to think it over and call him back.
“By the way, what’s your name?”
There was a lengthy pause, followed by a voice begging for air quotes.
* * *
The black Jaguar F-type S convertible parked in front of a Pasadena, California, dealership sells for $89,000—but it can go for quadruple the price in China thanks to high demand for everything luxury, especially cars.
California is a megamall of this gray market, with easy access to shipping facilities and proximity to China’s nouveau riche.
The staggering price differential presents American entrepreneurs a splendid prospect: Buy low in the United States, sell high overseas, reap the profits. These brokers, knowing manufacturers zealously protect their foreign markets, often purchase cars with straw buyers (some found on Craigslist) plunking down cash; occasionally, the brokers’ subterfuge dips into outright fraud.
In years past, automakers successfully enlisted federal authorities as their enforcers against people taking advantage of this arbitrage opportunity.
For example, a 2013 bust of Virginia-based Mayrock Group netted nearly 60 vehicles, including BMW X5s, Ford F150s, and Porsche Cayennes, with assets in bank accounts frozen.
The prosecution’s forfeiture complaint featured a woman, who had opened bank accounts on Mayrock’s behalf, telling a U.S. Secret Service investigator she hired “agents” to find vehicles worth purchasing and wired them the cash to buy cars, which then went to China-bound ports.
But a few months ago, the feds released Mayrock’s vehicles—plus close to $380,000—as prosecutors cleared individuals who legitimately bought luxury cars off U.S. lots and just as legitimately sold them to foreigners.
“I don’t think any sort of law enforcement in the U.S. wants to enforce something just to help luxury manufacturers,” said Anthony Dukes, an associate professor of marketing at the University of Southern California’s Marshall School of Business.
Dukes added that the typical luxury goods snapped up by rich Chinese are watches and handbags. “Those are easier to import,” he dryly noted.
Without the feds to stop exporters, automakers are telling dealers to stop them, which means selling fewer cars.
“While franchised new-car dealers generally have very good relations with their manufacturer business partners, why is it that the carmakers damage those relationships by requiring dealers to become cops when enforcing manufacturer export policies?” asked the president of the California New Car Dealers Association, Brian Maas.
Dealerships say they feel pressured by automakers to ask shoppers questions that are pointed, personal—and perhaps illegal—to ensure the car won’t be sold to a straw buyer, e.g. Are you really the kind of person who throws down cash to drive off in a sweet ride?
That type of questioning begs for a lawsuit: Under California’s Unruh Act, all persons are entitled to full and equal accommodations, advantages, facilities, privileges, or services in all business establishments.
To avoid asking such excessively personal questions, auto insiders say dealers sometimes are reduced to stalking prospective buyers’ accounts on Facebook, Twitter, and the like.
And if a car bought in the U.S. ends up on the streets of, say, Shanghai, manufacturers can punish dealers in a number of ways: fines, fiddling with the inventory sent to a dealer (no popular vehicles or perhaps a bushel of lemons), or even terminating the business relationship altogether.
Industry experts named Jaguar Land Rover as the manufacturer threatening to take the most punitive measures against dealers.
Jaguar Land Rover North America spokesman Stuart Schorr said the company accepts that some vehicles always will slip through the anti-export net, no matter how diligent retailers’ efforts. To that end, JLRNA has told dealerships it’s allowable to have 3 percent of sales end up overseas; anything above that, and a dealer may face the automaker’s wrath.
“The far majority of our retailers have exports under this threshold,” Schorr said. “And since put in place, we have seen a significant, two-thirds, reduction in exports.”
Daniel J. Gage, spokesman for the Alliance of Automobile Manufacturers, says such steps are necessary because these exports harm dealer networks overseas while causing environmental and safety compliance issues in the foreign countries because the vehicles aren’t modified to operate there. Manufacturers’ brands and reputations are placed at risk, he said.
While the automakers reserve the right to punish the sellers of cars that find their way overseas, Gage said the manufacturers would rather not, noting that Jaguar Land Rover has yet to act upon its policies.
Maas, representing dealers, said they understand automakers’ concerns but are being unfairly punished.
“But why is it the responsibility of dealers to address this?” he asked. “The dealers’ responsibility is to sell cars to qualified customers; dealers should not be asked to convert the car-buying process into an inquisition.”
But how do the brokers’ straw buyers evade the dealers’ dragnet? For one, as “James,” explained to me, it was important to spread car-buying trips among different lots.
Yet that was the only detail I could glean from “James,” as after our initial conversation he did not return further calls and texts, eventually disconnecting his phone number.
Correction, 8/17/15 7:09 AM: A previous version of this article said Jing Song pleaded guilty. She did not.