Seeing Red Over The Gray Market

EUROPE'S GRAY MARKET FOR cars, a chronic problem, is flourishing as never before. Reason: currency swings producing price gaps of up to 50% on individual models from one country to another.

Although the Italian lira's and the Spanish peseta's value has tumbled against other European currencies, carmakers such as Germany's Volkswagen and France's Peugeot haven't raised prices in Spain and Italy for fear of losing customers. So fleet-footed "re-importers" are legally snapping up autos in Italy and Spain, then shipping them to bargain-hungry buyers in Germany and France--at much lower prices than those of local dealers.

This sweet trade batters conventional dealers and puts pressure on auto companies' margins in Europe just as overall sales are softening. That's why carmakers are so keen on pushing through a monetary union, which would eliminate currency swings. However, that is not likely to happen by the scheduled 1999 deadline.

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