Updated Jul 14, 2018 - Economy

What we’re reading: The car buyers who short-circuit China tariffs

An Audi car dealership.

Photo: Scott Olson/Getty Images

There's big money to be made in re-selling luxury vehicles to "China's gray market," according to one man who experienced it first-hand, Travis Simpkins.

The big picture: Simpkins writes in Car and Driver that "an enterprising individual can make $10,000 this month buying luxury cars. You need a heartbeat, a driver's license, and that's about it."

"The manufacturers and their dealers have worked to design a foolproof system that will prevent you from buying a car to export to another country. Foolproof never works, though, as it underestimates the ingenuity of the fool."
— Travis Simpkins in Car and Driver

How he did it

  • He bought vehicles from a San Diego company which fronted him the money, he writes.
  • He was a straw buyer — which "typically has the shelf life and career trajectory of a Trump appointee."
  • Simpkins writes: "A single car can earn a straw buyer anywhere from $500 to $7,000 in commission. ... At the beginning of 2014, I did receive a 1099 for $30,500 from the company in San Diego."

What's happening in China

  • Simpkins writes that China's 25% tariff on new-car imports, comined "with car companies charging steeper prices for luxury vehicles there than they do in the U.S....it is easy to see how exporters can turn a profit."
  • "For example, the current base price of a new Range Rover is $88,345 here, but it starts at 1,518,000 yuan in China, which is about $240,000."
  • In 2015, Simpkins writes, "the Chinese government endorsed the gray market by creating a program that makes it easier for Chinese dealers to bring in vehicles directly from foreign markets."

Be smart: It can't last forever. Simpkins writes that in 2015, a Land Rover dealer "refused to sell my mom a vehicle...because our last name set off a DEFCON warning. I haven't bought a car for export in almost two years."

  • The risk: While Simpkins was "lyin' and buyin'," federal authorities got involved at the request of car manufacturers.
  • "Secret Service and Homeland Security agents were using civil forfeiture statutes to impound cars and freeze bank accounts."

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