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Gray skies ahead for the gray market

Want a good deal on a Mercedes or BMW automobile? Thousands of new-car buyers are shouting a vigorous yes. What they're doing is skirting the standard imported new-car dealerships and buying their cars on the ``gray market.''

If the National Highway Traffic Safety Administration (NHTSA), however, establishes a new antitheft rule later this year, it could either slow down or stop in its tracks the ``gray-market express.''

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Gray-market cars are cars either bought overseas by an individual and shipped to the United States or else purchased from scores of small entrepreneurial companies in the US that operate outside the normal factory-supplied import dealerships. The cars may not meet all US safety and emissions standards and may not carry a full manufacturer's warranty.

The impending NHTSA rule would require overseas manufacturers to impress the vehicle identification number (VIN) on 14 vehicle components, but only on cars being shipped to the manufacturers' own dealership outlets in the US.

It is expected that the gray-market importers would be unable to get their hands on those cars. Presumably they would not be available except through the manufacturers themselves. Cars which lacked the component-marked VIN numbers would be stopped at the ports of entry in the US.

Meanwhile, the tug of war over gray-market cars in the United States continues. Both houses of Congress are debating gray-market legislation, even though the Department of Transportation objects to an outright ban.

Out of an estimated influx of 50,000 such cars in 1984, Gunter Kramer figures that about 4,000 were BMWs. And that worries the American head of the Munich-based West German car company a lot.

``It's becoming a second import channel,'' he laments.

This year the total figure could move up to 60,000, according to Mercedes-Benz of North America, compared with only a few thousand in 1980.

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Gray-market regulations were originally written for returning GIs and business people, as well as diplomats and other government officials who had been based overseas and were returning to the United States.

What bothers the official importers, besides the lost profit, is that gray-market standards are far less onerous than the safety and emissions rules imposed on the car manufacturers themselves.

To prepare a car for sale in the United States, says Mr. Kramer, a manufacturer spends millions of dollars on engineering and crash testing as well as emissions certification to meet the dozens of standards that are enforced by the US. The emissions system, for example, has to satisfy the law for 50,000 miles.

All the gray-market importer has to do, he charges, is make a few changes and install a catalytic converter which may or may not last for 50,000 miles of operation on the road.

According to a survey conducted by the National Automobile Dealers Association, some of these vehicles had improper emission modifications that could cause vehicle fires. The Environmental Protection Agency is expected to issue a final rule later this year.

``We will continue to work for legislation or regulatory enforcement that imposes the same rules on the gray market as on official importers,'' asserts Mr. Kramer of BMW.

Among those opposing the ban is the Automobile Importers Compliance Association, headed by two former EPA officials, which calls for a self-policing inspection program, including reports to the NHTSA as well as the EPA on vehicles that do not comply with the law.

``We're not opposed to someone bringing in one car for personal use,'' says Mr. Kramer. ``The problem is the wholesale influx of cars for sale to US buyers. ``It's a distressing and growing problem,'' he says with a frown.

Indeed, car buyers themselves stand to lose out as well, according to Mercedes-Benz, because they may not be able to get the parts and service they require, as the warranty may not be worth the paper it's printed on. As a result, the resale value of the vehicle can be affected.

Diane Steed, director of NHTSA, says gray-market cars are outside the agency's safety-recall procedure, because the manufacturers may have no way of locating them.

At least one insurance company, State Farm, will not write a policy on a gray-market car without ensuring that it fully complies with both the safety and emissions laws as specified for a manufacturer.

To counter the problem, Ms. Steed says, the federal agency is spot-checking imported cars at four points of entry to ensure that they comply with the law.

In a random emissions test last fall by the EPA and the California Air Resources Board, all but one of 27 gray-market cars failed to qualify.

A survey of 400 Mercedes-Benz, BMW, Porsche, and Jaguar dealers found that only 5 percent of the gray-market cars brought to these dealerships were in full compliance with US emissions standards, and only 1 percent could meet all American auto-safety standards.

A recent NHTSA survey, however, reports that there may be only minimal changes between the ``official imports'' and the gray-market kind. Even so, modifications of the gray-market cars are inconsistent, says NHTSA, and policing of the market is poor.

The import firms themselves may be contributing to the problem because of the high prices they charge for their cars in the US, compared with the price at which they sell in the home market. Yet Mercedes-Benz sells every car it can get from the factory. Some of the gray-market cars aren't available through normal import channels at any price.

Car importers are pressing the federal government to close the loophole, while opponents of a ban are pressing just as hard to preserve the status quo.

Charles E. Dole is the Monitor's automotive editor.

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