What do diesel pickups and Swedish grandmothers have in common?
I like to tell this story because it’s a clear illustration of how North American products are excluded from markets where they are in demand. It begins in November 2008, when I listed a 1979 Chrysler Cordoba on eBay. I began receiving questions about the car from buyers throughout northern Europe. Ultimately, my top-bidder was from Sweden. Buyers usually want their purchases shipped immediately, so I was surprised when he asked if I would wait until January 2009 to ship the vehicle. I told him it wouldn’t be a problem; not only had he already paid, but I received a price far above what I could have expected to receive in the United States. However, I was curious why he wanted to wait.
He explained that importing into Europe from the United States was far less costly if the vehicle was at least 30-years-old. Imported cars are subject to a 10% Tariff (22% for trucks) + a 25% Value Added Tax (VAT).1 The VAT is applied to all vehicles, but the difference in how it’s calculated especially penalizes items made in the USA which already have local taxes included in the MSRP.
However, once a vehicle is more than 30-years-old, (and perhaps no longer a competitive threat) these taxes are waived. Having learned something new about foreign tariffs, I waited until New Year’s Day to drive the car to a warehouse near Chicago. From there it would travel by rail; then container ship to a pampered life in Sweden.
Upon arrival at the warehouse I met the person who would be shipping the vehicle. I’ll call him “Hans”. He waved me inside and directed me to park behind a row of 5 brand new Dodge Trucks. These weren’t low-bid specials; rather they were top-of-the-line, $50,000 trucks. It was easy to tell… They still had MSRP stickers in the window. I asked where the trucks were headed and Hans replied, “Sweden, then other places in Europe.” I said, “American pickups in Europe? But…” He cut me off, “Don’t you think we have farms and construction sites in Europe?” So I said, “But the mileage? What about the taxes?”
Then he smiled and said, “Diesel. As for the taxes, Europeans who stay in the US for a year can import their vehicles back home without paying VAT and the tariffs." Dripping with sarcasm he said "This truck is owned by my grandmother, this one by my grandfather, this one by my uncle…” (This loophole is called a “Tax reduction on a Removal Vehicle”2). In other words, Hans would be shipping vehicles in the names of virtually anyone who could show they’d been in the US for a year, regardless if his grandmother could even climb into these behemoths.
Hans isn’t doing this for charity’s sake, so add his cut and cross-continent shipping to the MSRP. He’s not financing; you’d better have cash. These vehicles aren’t offered in Europe, so you’re on your own for service and parts. No warranties either. So why are they popular? Because a European truck with similar capability is considered a commercial vehicle. Not only do they start over the equivalent of $100,000, they require commercial licenses and insurance. And they’re about as comfortable and appealing as a medieval oxcart. It makes you wonder how many more American vehicles might be sold if the market wasn’t driven underground.
1 Compilation of Foreign Motor Vehicle Import Requirements, US Dept. of Commerce