Buying your car in Canada costs less
By Doron Levin
Bloomberg News Service
SOUTHFIELD, Mich. — The Honda Odyssey minivan that a U.S. dealer sells for $26,750 costs about $4,000 less in Canada.
A used 2001 Ford Mustang GT convertible fetches $22,000 to $23,000 in the United States; in Canada, you might pay $18,700.
No, these aren't trick numbers. The comparisons are all in U.S. dollars.
Automakers price models for less in Canada than in the United States because Canadians won't — or can't — pay more, said Ron Sobrero, General Motors Corp.'s manager of dealer planning.
"We can't have the same pricing as in the U.S. without losing (market) share," said Sobrero. "My issue is doing what it takes so that GM doesn't lose share."
High Canadian taxes and the weak Canadian dollar help make for lower personal incomes up north. The subsequent disparity in car prices has led to a flourishing cross-border trade in new and used vehicles with buyers, brokers and dealers all benefiting.
For Hawai'i residents to take advantage of this price gap, they would have to balance the savings against several costs Mainland residents don't encounter. For starters there is the shipping. According to Matson Navigation's Web site, the cost of shipping a car from Seattle to Honolulu is $863. Then there is the buyer's travel costs, which can vary widely.
Meanwhile, Detroit automakers want to stamp out this so-called gray market.
DaimlerChrysler AG last week said it will stop honoring warranties on 2003 models imported from Canada.
Complaints by American dealers who say sales were hurt by competition from Canada led to the policy, said Steven Landry, vice president of business operations. "The (profit) margins rightfully belong to dealers or to the manufacturers," he said.
General Motors also wants to halt this traffic. "Our dealer agreement says vehicles are to be sold only for the country the dealers are in," Sobrero said. "If we catch anyone selling to a broker, we can reduce their allocation."
So far, however, this is mostly just tough talk.
Superior Auto Sales in Hamburg, New York — a 20-minute drive from the border — resells Honda Odysseys it buys from Canadian dealers for about $1,500 below the price the vehicles usually fetch in the United States.
No matter that Honda Motor Co. refuses to honor the warranty on Canadian vehicles in the United States. "We sell extended warranties," said Rick Izzo, Superior's vice president. "Our customers in the Buffalo area just take their Hondas over to Canada for service."
Some U.S. dealers also have been buying vehicles in Canada that are in short supply in the United States. They replace speedometers that register kilometers instead of miles and resell the cars, often without telling buyers. Hot-selling new Chevrolet TrailBlazers, GMC Envoys and Oldsmobile Bravadas are among models moving south.
Dennis DesRosiers, a Toronto-based automotive consultant, estimates that 200,000 to 300,000 new and used vehicles — mostly Detroit models — are exported annually to the United States. Compared with the 16 million to 17 million new vehicles sold each year in the United States, this still is a relatively small amount, though dealers and manufacturers don't want to share even a sliver of exclusive distribution and retailing arrangements.
Retailers and independent mechanics in Europe have argued, with some success, that such exclusive franchises are anti-competitive. The European Union is considering a challenge to the current system.
In the United States, franchised dealers are protected by state and federal laws. Those dealers near the Canadian border are the most unhappy about low-priced vehicles turning up in their areas — that is, if they aren't selling some themselves.
Honda Motor's threat to refuse honoring warranties of vehicles from Canada is understandable: While Odysseys are made in Canada, most of the vehicles are sold in the United States and Honda doesn't want to undercut the market.
Still, if the vehicle migration from Canada doesn't grow much larger, the auto companies will likely look the other way. Voiding warranties won't deter budget-minded buyers, especially those near the border, and too much of a fuss might just publicize Canada's lower car prices.
In any event, manufacturers must shoulder the blame for creating an inefficient market that turns out too many of the wrong kind of vehicles for North Americans.
It's a common occurrence in mass marketing and the reason why Ralph Lauren shirts can be found at TJ Maxx. Discounters and brokers exist to redress the mistakes of manufacturers.
As economist Adam Smith noted, people tend to pursue their own self-interest — something automakers and their dealers can't change.
