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.
