The Honda Odyssey minivan that a US dealer sells for US$26,750 costs about US$4,000 less in Canada. A used 2001 Ford Mustang GT convertible fetches US$22,000 to US$23,000 in the US; in Canada, you might pay US$18,700.
No, these aren't trick numbers. The comparisons are all in US dollars. Automakers price models for less in Canada than in the US 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 US 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.
Detroit automakers want to stamp out this so-called gray market though they enjoy -- under the North American Free Trade Agreement -- unprecedented flexibility to ship cars and parts across Mexican and Canadian borders without tariffs or duties.
DaimlerChrysler AG last week said it will stop honoring warranties on 2003 models imported from Canada and bought by brokers or individuals in the US. 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.
"We don't think we're violating free trade rules," he said.
"The [profit] margins rightfully belong to dealers or to the manufacturers."
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," said Sobrero. "If we catch anyone selling to a broker, we can reduce their allocation."
So far, however, this is mostly just tough talk by the automakers. Superior Auto Sales in Hamburg, New York -- a 20-minute drive from the border -- resells Honda Odysseys it buys from Canadian dealers for about US$1,500 below the price the vehicles usually fetch in the US.
No matter that Honda Motor Co refuses to honor the warranty on Canadian vehicles in the US. "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 US dealers also have been buying vehicles in Canada that are in short supply in the US. They replace speedometers that register kilometers instead of miles and resell the cars, often without telling buyers they're getting autos meant for Canadians. 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 US. Compared with the 16 million to 17 million new vehicles sold each year in the US, 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 EU is considering a challenge to the current system.
In the US, 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 illicitly exported Odysseys from Canada is understandable: While Odysseys are made in Canada, most of the vehicles are sold in the US 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 Adam Smith noted, people tend to pursue their own self-interest -- something automakers and their dealers can't change.
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