Luxury car dealerships are targets of growing multi-million dollar export businesses
Published Friday, April 14, two thousand seventeen Ten:52AM EDT
When buying a car, most customers know their salesperson is working on commission. But what if it was the other way around, and the customer is the one being paid to strike a deal?
It’s a growing problem that many luxury dealerships across Canada are now facing. And now they’re on the lookout for the fresh kind of secret shopper – patrons that never intend to own the car they’re purchasing.
Mercedes-Benz Edmonton West car dealer Barry Johnson has a name for such clients: straw buyers. “Someone who purchases a vehicle to resell to someone else,” he said, adding he deals “with it every day. “
The brand-new cars are resold to small-time exporters, minutes after driving off the lot.
The business model is built on a legal loophole: Most automotive brands restrict dealers from selling inventory to exporters. To get around it, a middle man is hired to buy the car.
“They look like legitimate car buyers,” Johnson said. “They attempt to skirt the system.”
CTV Edmonton investigated numerous ads posted on public job sites that suggest thousands of dollars in commission to outsource cars at dealerships using exporter cash.
The job requirements: a driver’s licence and good credit history.
CTV Edmonton spoke with one unidentified exporter over the phone, who said that it’s about affordability. A Mercedes in China, he said, is “double or triple” the price of one purchased in Canada.
Canadian vehicles are evidently shipped to China to be resold, reports CTV Edmonton’s Jonathan Glasgow.
According to Johnson, “They’ll truck it to the port and then in the port on a container ship and then straight to China.”
The vehicles are headed to a market where the supply of luxury brands is limited, and buyers pay a premium. The more popular the model, the more commission is paid.
“For Mercedes, the most commission we will give you, like Mercedes GLS450, we can give you like ($8,000 or $9,000),” said the unidentified exporter.
A Mercedes GLS starts at $82,000 in Canada. It sells for more than dual that in China. With a five hundred twenty four per cent markup overseas, the Porsche Cayenne may be the jackpot sell.
CTV Edmonton’s Jonathan Glasgow visited an apparent exporter with a listed Edmonton address. Speaking at the front door, Hao Jiang claimed to be an international student from China. He said his friend is running a car-exporting business under his address.
In terms of legality, Jiang said it is a “grey gap.”
“It’s undoubtedly not illegal, because if it was illegal the dealership would go the legal way to deal with this, but they can’t,” Jiang said.
While “it’s not criminally wrong, to sell these” Johnson said it is “wrong that they’re making money and they’re not paying tax on it.”
Dealers say selling to an exporter is bad for business because it violates their manufacturer agreement, which could lead to stiff fines. They also don’t get a repeat buyer or any profits from parts and service.
According to Vancouver’s port authority, shipping units carrying cars are enhancing in number every year.
Dealers tell CTV Edmonton that Canada Revenue Agency is investigating suspected “middle” car purchasers.
“There are lots of crimson flags and if we even have any inkling that (a prospective buyer) is going to export this vehicle, we just tell them to leave the dealership,” Johnson said, adding that his team is “adamant” that the vehicles stay in “our market area and don’t go offshore.”
With overseas exports enlargening, dealers are compelled to police the problem. According to Johnson, dealers in Vancouver, where shipping ports are located right in the city, are taking deposits of a whopping $50,000, on top of the purchase price.
The customer may only get their cash back if they prove they still own the car up to a year later. But even an extra $50,000 isn’t enough to stop the buyer from walking away in some instances, Johnson said.
Since the matter is an increasingly greater challenge to enforce, for the legitimate buyers it means answering more questions before taking their next fresh vehicle off the dealership lot.
With an report by CTV Edmonton’s Jonathan Glasgow
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