The flash of a diplomatic passport at luxury-car dealers in the Washington area can mean discounts worth thousands of dollars on the purchase of some pricey automobiles.

Mercedes-Benz dealers say they slash their prices 10 percent for customers offering diplomatic credentials. BMW offers a 9 percent discount--a goodwill gesture, company officials say--to American or foreign diplomats who provide copies of their official passports.

But U.S. envoys who take advantage of carmakers' generosity may be violating a little-known and, according to dealers' accounts of recent sales, widely ignored 1994 ethics ruling that such discounts amount to forbidden gifts.

The problem, the ruling said, was accepting discounts available only to one category of government workers--those holding diplomatic or official passports--and not others.

The ethics ruling does not seem to have penetrated the bureaucracy at the State Department, however. A lawyer in the department's legal adviser's office said people there were aware of the ruling but were unaware that diplomats have been accepting the discounts. Future ethics training will include a reminder that such discounts are prohibited, the lawyer said.

Some local luxury-car dealers acknowledge that for years they have routinely offered discounts on cars to diplomats, World Bank officials and envoys for other international organizations. And some carmakers have been openly wooing potential American buyers for years in ads in the Foreign Service Journal.

"Diplomacy has its rewards," says a recent ad for a local Mercedes-Benz dealer. "That career in public service is suddenly about to get more rewarding," trumpets a Volvo ad. "Privilege," headlines a full-page color DaimlerChrysler ad on the back cover.

John Naland, vice president of the American Foreign Service Association, which represents about 10,000 foreign service officers, said: "I've been looking at those ads for 13 years. But it never sunk into me there was any real deal to be had."

The Mercedes-Benz discount plan has been real to Eric Granholm for years. The German native runs the diplomatic sales program for Mercedes at the American Service Center of Arlington. He said he sells about 65 cars a year to diplomats, about a quarter of them to Americans. He has three cars arriving now for U.S. diplomats returning home from overseas assignments, he added.

J.J. Sabater of the appropriately named Passport BMW in Marlow Heights said he delivered a car last week to an American diplomat. Jerry Griffin of Don Beyer Volvo in Falls Church said he sells about 100 cars a year under the program, about half of them to Americans.

Volvo discounts of up to $4,000 are available not only to diplomats but also to U.S. military personnel, Griffin said. "You can be an E2 [private], but you're probably not buying a $40,000 car," he noted.

Several years ago, a Long Island company named Overseas Military Sales Corp., which sells American cars to members of the military, started its own diplomatic purchase program. It offers Ford, General Motors and Chrysler products to diplomats at the "factory wholesale price," without the dealer markup, according to its Web site.

Timothy Mills, an attorney for the New York firm, said he believes his client structured its program to meet the ethics rules. The company makes the same price breaks available to diplomats, the military and American business people stationed overseas and doesn't require a copy of a passport. "We want to make sure we don't get people in trouble," he said.

Munich-based BMW has had a diplomatic discount program for at least three decades, according to Martha McKinley, a spokeswoman for BMW of North America. The rationale is that as "an international company, we want to be able to give back to people who work in the international arena," she said.

The company does not have a similar discount program for members of the American military serving overseas, she said.

Informed of the ethics ruling, McKinley said, "Certainly if government policy restricts what we're doing, we'd want to review the policy to see if it's appropriate."

BMW's discount program became an issue in 1985 when it was reported that Michael K. Deaver, a top aide to President Ronald Reagan, and some colleagues picked up nine BMWs at 25 percent discounts while in Bonn preparing for an economic summit meeting. A White House review determined Deaver had done nothing wrong.

At the time, a BMW spokesman said, the company approved about 75 such deals a year. Last year that total climbed to 450, McKinley said. She didn't know how many of those buyers were U.S. diplomats.

The State Department issued more than 17,000 diplomatic passports last year and more than 90,000 official passports, according to department records. Official passports are issued to employees of other government agencies who are posted overseas, often for short periods.

Major Japanese carmakers say they do not offer diplomatic discounts. "This is a conservative company, and this is just not something we wanted to put into effect," said Mary Skafidas, a spokeswoman for Toyota and Lexus, its entrant in the luxury market.

Nancy Nelle of Swedish carmaker Volvo's North American subsidiary said her company has sold 70 cars so far this year under the diplomatic discount plan, and 50 more to members of the military. It has sold about 700 cars to tourists picking them up in Europe. Last year Volvo sold about 110,000 cars in the United States, she added.

Donna Boland, a spokeswoman for Mercedes-Benz USA, which sold 170,000 cars here last year, said about 100 were sold to diplomats, most of them foreigners. She said the global program started more than 30 years ago when Mercedes were favorites of "high-profile figures, particularly diplomats." Because they moved around, Mercedes set up the discount program "as a courtesy."

Naland of the Foreign Service Association said his members should not get discounts if they are not offered widely to other federal employees.

"If there is an ethics ruling that identifies that we should not do this, I will tell you we will stop doing it," he said.