Foreign Cars From ‘Gray Market’ Could Prove Costly
When investigators from the state Department of Motor Vehicles arrested a “gray market” automobile dealer from Van Nuys last week, they scraped the surface of a little-known but persistent problem: the importing of foreign cars that were never meant to be sold in the United States.
The dealer, Mark Frederick Segal, owner of Euro International Inc., was arrested on suspicion of violating state laws governing the sale of vehicles. He was charged by the city attorney’s office with 12 misdemeanor counts in connection with the sale of six Mercedes-Benz cars he imported from Germany, said Phil Chlopek, a DMV senior special investigator in the San Fernando Valley.
Investigators allege that Segal submitted falsified documents in an attempt to obtain California titles for the cars and failed to notify the state that he had sold them.
15 Gray Market Dealers in Valley
State investigators say Segal is one of about 15 gray market car dealers who sell foreign autos, primarily Mercedes-Benzes, in the Valley.
The term “gray market” is applied by the DMV to all non-franchise dealers who import cars into this country. It is taken from the term “black market,” in which goods are sold illegally. But gray market sales are legal as long as the dealers bring their cars up to U.S. standards before selling them.
The cars these dealers import are built for European customers and therefore are not equipped with federally mandated safety features and, in California, required smog control devices.
Not all the European cars shipped to California can be converted to meet the standards. For those that can be converted, the cost often runs from $5,000 to $7,000 and sometimes as high as $15,000, authorities said. However, sometimes the conversions are not done or are completed sloppily, they said.
Because the conversion is often done with cheaper parts--or sometimes not done at all--the prices gray market dealers charge “are consistently less than franchised dealers by several thousand dollars as a rule,” Chlopek said.
Problems for Consumers
Gray market dealers pose many more problems for consumers than authorized foreign car dealers, said Major Jenkins, a DMV senior special investigator in the Valley. He estimated that the Valley office receives 10 complaints about gray market dealers for every complaint lodged against an authorized dealer.
About 150 consumers call DMV offices in the metropolitan area every month with complaints about their gray market cars, he said.
More than half of the 30,000 cars being imported by the gray market in the United States each year are headed for California, said John Nelson, an automotive investigator with the National Highway Traffic Safety Administration in San Francisco.
Overwhelmingly, the most popular car Americans buy through the gray market throughout the country is the Mercedes-Benz. Nelson attributes the surge in gray market car imports since the late 1970s to the strength of the dollar, which makes imported goods proportionately cheaper.
The DMV recommends that consumers have the Bureau of Automotive Repairs check a car’s conversion before they buy. To meet the standards, headlights and bumpers must be replaced, doors must be reinforced and an unleaded-gas filler pipe must be added, among other additions.
The charges against Segal do not involve such issues, but investigators said they are continuing to study his business. They say they want to see if the cars he imported were converted, but they say the dealer refuses to divulge the locations of the cars except to say that three are out of the state and three were exported.
Segal runs a one-man dealership at 6433 Sepulveda Blvd., authorities said. In the Yellow Pages, under used-car dealers, Euro International advertises its “selected used Mercedes.” Segal also sells other foreign cars and domestic models.
Investigators said they became interested in Segal when he tried to obtain titles for six late-model Mercedes-Benzes. The vehicle identification numbers listed on his legal papers were incomplete; the year models were wrong, and a German government official’s name was substituted for the names of the previous German owners on the documents, authorities said.
Segal could not be reached for comment.
DMV officials said not all consumers understand that they are buying a car that differs from the models on the lots of authorized Mercedes-Benz dealers. Sometimes gray market car owners realize what they have bought only when they run into problems at the DMV counter as they attempt to register their cars. Even dealers are sometimes fooled.
Charles Stiegler of Auto Stiegler Inc., an authorized Mercedes-Benz dealership in Encino since 1958, says customers discover the gray market Mercedes is not what they expected.
To convert the car to American standards, mechanics often install a General Motors catalytic converter and other GM parts that do not really fit on the Mercedes, Stiegler said. He said customers complain that the hybrid is slower than the car Mercedes-Benz manufactures for export to the United States.
The Mercedes sold to German customers, Stiegler said, “is a beautiful car to drive on the Autobahn at speeds of 160 m.p.h, but when they put on a catalytic converter,” the car is irreparably changed.
If a European Mercedes needs repair, it could take four to six months to order the parts from Germany, and some American dealers do not want to service the cars, Stiegler said. In addition, the resale value for a gray market Mercedes is not holding up, and Mercedes dealerships will not accept the cars as trade-ins, he said.
