My friend Manuel Antelo, creator of Argentina’s Car One but who lives in Spain, was toying with the idea of releasing a Car One for the Spanish set. Unlike in the United States, in Spain there’s no such thing as a used-car hypermarket with thousands of cars in stock, therefore making this an opportunity with major potential. Used cars in Spain are sold out of small dealerships with extremely high buyer-seller price differentials.

After giving the topic some thought, I wonder if perhaps the opportunity for profit is not only in creating a hypermarket of used cars, but rather in bringing those same European cars back to be marketed in Europe. Researching some prices on the Internet, that is precisely what I found. Clearly no two used cars are identical, and my examples may exaggerate the differences slightly, but I’ve tried to be as fair as possible by checking out both American and Spanish sites for the same cars, then comparing.

table autos.JPG

So why are European cars so much cheaper in America? The simple answer is because European the American car market is the most competitive market in the world. The dollar is very weak and European car makers are probably not making much money in the States now. Still this does seem to be an enormous arbitrage opportunity.

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Jens on May 1, 2007  · 

Cars in the USA are cheaper for many reasons I guess. One I know, which I would like to stress here as one that most people wouldn’t think of, is inferior quality.

Cars get produced in different qualities for different focus markets. Living in Germany we are getting cars at the highest level of quality from car manufacturer (I don’t know if there is a spread of quality within the EU). Why? Because in Germany there is no general autobahn speed limit (over 50% of the autobahn has actually speed limits). That means cars need better brakes, better gears, better transmission etc. because of the higher speed, higher breaking forces and all the other higher stress factors. I guess that is one big difference in the price.

Well, here is an example. The Mazda 350Z has a huge quality difference (read price difference) when you compare the US and German version. All the above mentioned parts are of cheaper quality when you buy the US version. That causes the car to get instable while traveling at higher speed at the autobahn and the brakes under perform.
Also brands like Mercedes (used to) produce cars in lower quality (at least) for the US market.

I am sure the automobile industry is not the only industry that sells the “same” product worldwide but actually underneath the surface there are big differences. As a consumer I don’t like that. I would like to have the same quality product other consumers around the globe get (also if I might not need the extra quality). It feels a bit like being cheated. I guess that is one big reason why these technical/quality differences never get officially announced.


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Eric N on May 1, 2007  · 

I am sure that there are a bunch of different reasons. Here are a few possibilities:

Like the MIDAs commercial in the US, “I’m not going to pay a lot for this muffler”. In the US, people simply are not used to paying such high prices for cars, and Europeans are. This means that there must be some form of price discrimination between the two markets. Americans are simply not willing to pay so much for a car. Hence, in order to sell a car in the US, prices must be lower.

Turnover. In the US, (and I don’t have the statistics), Americans change cars something like once every 5 years. In Europe, people stay with the same car for longer. This means that Americans will not pay more for a vehicle when its apparent life span is shorter.

Turnerover + used cars. Because people change cars more often and there is a huge market for used cars, new cars compete with fairly new used cars. This drives the price of new cars down.

Leasing. In the US, leasing a vehicle is much more common than in Europe. At in Spain (which I know better), people purchase cars just like the buy houses instead of renting them. People do take loans, which ends up making prices higher. For very little money in the States, you can lease a vehicle.

Taxes and utility. In the US, cars are essential necessities. No car, no mobility, no livelihood. Not so in Europe where you can easily move about with public transportation. Futhermore, Americans hate taxes. Besides the fact that consumer taxes are generally double or more in Europe than in the US, no politician would ever survive in the US by increasing the taxes on cars and gasoline.

Volume. More people buying more cars and more brands (greater competition) means that with a higher volume of sales, lower prices.

Finally, currency. The weak dollar is great for the US and in some ways for Europe as well. With a weak dollar, US exports are cheaper for Europeans to buy. Also, oil which is quoted in dollars, keeps gas afforded to Europeans a long as the dollar is weak. Unfortunately, European exports suffer as the Euro is more expensive. Thus, European manufacturers must lower the prices in order to avoid losing market share.

Anyways, these are some of my off-the-top-of-my-head guesses. I am sure there is one simple answer.

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Juergen on May 1, 2007  · 

Competition…or the lack of in Europe, keeping Japanese car manufacturers out through high barriers to entry! Open your markets Europe!

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steven on May 1, 2007  · 

Ask yourself the following question…
why does a new Nokia model takes 8 months to get in the USA without import.
The other way…Why does Europe still have no “Zune” microsoft mp3 player?

We do have such “hypermarkets” in Europe…
I believe “Cardoen” is one of them…
it’s using “parallel import” … the European car you buy there …is not the “belgian model” of eg a “Volkswagen Golf” but more likely a “turkish model”… if you watch closely the Turkish model 2006 is more like the Belgian version of 2004 or so…

and I guess they don’t have “the latest” european version of the car in the USA as well?

Extra problems of using “old” models is that parts are hard to get and…expensive…
I’ve got a friend who was into “american” cars…so he has this chevrolet… but it takes almost a month to get something fixed… the parts have to come from the USA…
and offcoarse… a part of the cargo is now for LPG (Gas) hence the American Motor does spend a lot of … gasoline…

That’s why Asian cars are getting bought more&more in the USA than American (General Motors) cars… even there the price of gasoline is still raising

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Antoin O Lachtnain on May 1, 2007  · 

TAx. There is 30 percent tax on cars in Spain.

News to me if there is an issue importing Japanese cars into Europe. We have loads of Japanese second hand imports in Ireland. Many second hand Japanese cars are imported into Ireland for instance (although I have heard it said that the Japan side of this business is somewhat shady.) A number of Japanese marques are manufactured in Europe.

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mossel on May 20, 2007  · 

Different qualities? that’s very interesting. I did hear that Coca-Cola tastes different in different countries. They adjust the flavour to the local climate and taste.

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