The collapse of the retail sector has been underlined by a leaked report from the Hong Kong Motor Traders Association revealing luxury car sales plunged 42 per cent in the two months to February. The non-profit body polled all 30 authorised Hong Kong dealers and found sales of Mercedes Benz, BMW and Lexus cars - considered key indicators - were down sharply. In the first two months of this year, sales of Mercedes Benz - distributed in Hong Kong by sole agent Jardine International Motor Holdings - plunged 54 per cent to just 43 units. Sales of BMWs dropped 37 per cent to 54, while Lexus cars fared slightly better with a 16 per cent fall to 31 units. The leaked survey indicates the downturn - highlighted by a government report on the luxury sector released last week - is continuing. The government survey said sales tumbled 33 per cent in volume in January from the same month last year. 'Confidence has been weakened significantly by the economic slowdown,' an industry insider said. The source also said official sales were being undermined by grey-market car dealers. 'During the past five months, at least five out of every 10 Mercedes sold was handled by grey market traders,' he said. Within the luxury car sector, only Jaguar and Daimler survived the downturn with 4 per cent growth in sales to 26 units. Jaguar Cars Exports (Far East) regional manager Steve Watts said: 'We did relatively well because our pricing is competitive and we launched new models last October.' He said the profitability of authorised traders was under pressure as manufacturers - including the Japanese - were dumping low-priced cars in Hong Kong. 'Competition is also intense as unauthorised traders are offering up to 40 per cent discounts. This is good for consumers, but bad for authorised distributors,' Mr Watts said. He said excess Mercedes stock had flooded Thailand since last October and was then dumped by Thai distributors to other markets such as Hong Kong through unauthorised traders. Grey-market trader Car Boy Motor general manager Dickson Mak said the company sold 400 cars in the past two months. His company sources Mercedes, BMW and Lexus cars from overseas dealers and sells them at an average 30 per cent below authorised dealers' prices.