View Full Version : Counterpoint: Why we are paying more for our cars?

10-26-2007, 03:10 PM

Matching U.S. prices would raise other issues

David Booth
National Post

Friday, October 26, 2007

Boy, I'm probably coming out on the wrong side of this argument.

What was the most contentious topic of discussion to plague Ontario in the summer of 2007? Was it John Tory's ill-advised promise of faith-based schoolfunding? Thenever-ending angst over Canada's mission (impossible) in Afghanistan? Or was it the seemingly scripted, almost inevitable and always farcical decline of Britney Spears into the iPod generation's Mommie Dearest?

Nope. What has Canada's most uptight province's shorts in a fully Kenneth Starr (did you ever see anyone more desperately in need of Monica Lewinsky's, uhm, attentions than Bill Clinton's self-appointed conscience?) knot is the massive difference in price between the cost of a car in Niagara Falls, Ont., and one in Buffalo, N.Y.

Indeed, the difference is startling, especially if you're shopping a sports car with a serious price tag. A Corvette Z06, for instance, costs but $71,000 in the United States, but it will fetch upward of $91,685 in Canada. A Nissan 350Z, meanwhile, starts at $27,900 south of the border while retailing for a whopping $49,798 here. Yes, there are significant equipment differences between our cars, but hardly $20,000 worth.

All this used to make sense until the dollar that God trusted began its implosion. With our loonie now standing above the U.S. dollar and threatening to stomp Uncle Sam like it's 1812 all over again, the price of automobiles south of the 49th is creating a serious issue for Canadian consumers. Those not heading down to the United States of Cheap Cars are demanding that Canadian automotive distributors adjust their prices pronto. And who can argue with them, right?

Well, as it turns out, I can. And though my argument may be a little weak in the here and now, it should, at least, be food for thought.

For instance, are all our memories so short that we've already forgotten our 63¢ dollar? Eight years ago, Canadian cars were so cheap they were flooding across the U.S. border. Jeep dealers had lists of banned auto brokers who were consigning Canadian-purchased Grand Cherokees to the United States. And the number of big-sticker Toyota Previas heading south was positively staggering. Forgive me if I'm wrong here, but I don't remember one single, solitary Canadian consumer complaining that we were paying TOO LITTLE for our vehicles and asking manufacturers, "Could you please, please charge us more so it better reflects the Canadian/ U.S. exchange rate?"

Matching U.S. pricing will also cause as many headaches as it solves. What of all the recently purchased automobiles? A sudden drop in new car pricing will cause a serious nose-dive in residual values. Leasing companies would take a huge hit. One of their only solutions to recoup their money would be to raise interest rates on new leases, thereby negating some of the price savings. Owners of relatively new cars would be furious come trade-in time. The anticipated $40,000 they counted on getting for their used Mercedes E-Class would suddenly be $10,000 shy.

Besides, not every car imported into Canada was paid for in U.S. greenbacks. In most cases, cars within the same family have different origins that have had little effect from the greenback's devaluation. So, yes, a BMW X5 built in Spartanburg, N.C., should be cheaper, but then the price of a 335i built in Munich would hardly be affected, creating some imbalances within model lineups.

More importantly, how many of us are willing to live with Canadian pricing inexorably tied to the U.S./Canadian exchange rate? As every economist knows but home owners have seemingly forgotten, what goes up also has a nasty habit of coming down. Do you really think the Canadian dollar's appreciation is permanent? And what if Canadian distributors were to tie pricing to the U.S. dollar? Will you be willing to pay $47,000 for a Cadillac CTS one year and $56,000 the next because OPEC opened its faucets and the price of oil declined, sending the Canadian dollar tumbling?

I thought not.

I'm not saying the manufacturers don't need to reprice their Canadian products. They'd better do something soon before there's blood spilled in local dealerships. In fact, considering how incredibly unbalanced the price disparities have become and the incredible public outrage at Canadian prices, automakers deserve to have their pee-pees whacked for not having anticipated this problem and started the adjustments three or four years ago. But this carping for immediate price parity with the U.S. is in nobody's interest unless you really get off on having automobile price volatility that would make the Vancouver penny exchange look stable.


© National Post 2007

10-26-2007, 07:31 PM
Very weak arguments. The fact that US customers were doing the same thing 8 years ago has no bearing on us - they should have been complaining then (and some did, but their cross-border shopping constituency is a lot smaller in proportion to ours). As for residuals, we're already seeing it in the used car market. A BMW e32 735i that would have fetched $7k in Edmonton two years ago, is not selling at $4500 today.

The issue isn't a direct tie to the US $. We've been getting screwed for a while. When the loonie was $0.63 we saw a huge change is pricing almost immediately. Books that were once $5.99US/$7.99CDN suddenly became $6.99US/$10.99CDN for example. We knew our buck had tubed, so we accepted it. The loonie has been clawing that difference back for years though without a change in pricing, but no-one complained because, frankly, people don't like to do math in their heads (at least Canadians don't - ask any American about how Canadians tip). When the $ hit par though, it suddenly became obvious.

Arguments about the size of our market, the Euro exchange, our taxes and duties are pure BS. The difference between a US 335i and a Canadian 335i is a sticker on the B-pillar and a couple of different computer settings. At worst, we should be paying about 7% more, since that's the cost of our duty on European cars, plus a bit extra for extra transportation costs. We pay the tax when we buy it.

Is it the retailers' fault? In some cases maybe, but manufacturers set the prices (hence MSRP) and they invoice the dealers appropriately.

I think people wouldn't complain if our prices were slightly higher, but a 25% or more difference in many cases is simply theft.

10-26-2007, 08:29 PM
^ minor point, I believe the USA pays a similar duty amount when they import a German manufactured car, can anybody confirm the exact rate?

11-02-2007, 09:52 AM

Currency exchange loss a major factor

David Booth
National Post

Friday, November 02, 2007

Jeez, are you folks some kinda cheesed. Last week's rant -- which posited that the solution to the vexing automobile pricing disparity between Canada and the United States was more complex than a simple matching of cross-border manufacturer suggested list prices -- raised some hackles.

I pointed out, objectively, I thought, that auto distributors face some difficult challenges in the months ahead placating Canadian consumers regarding the huge price difference between cars on either side of the 49th parallel. In return, I was accused of being of being a corporate shill, a deluded commie (this, despite all my left-wing friends normally describing me as slightly right of Attila the Hun) and suffering from a case of nincompoopery.

Now, perhaps my wisest course of action would have been to offer a few insincere mea culpas, pack my bags for a month in rehab and let my publicist handle the whole deal. But I come by my stubborn streak honestly so, like a true obsessive compulsive, I have to pick at the scab.

Before I do, however, let me uncategorically state that the price disparity between Canadian and American new cars is untenable. Whether justified or not, the gap has become so grotesquely out of whack that Canadian auto distributors will have to do something dramatic beyond the current minor price reductions, larger incentives and adding more standard equipment to their base models. When a BMW 750i costs $33,000 less in Buffalo than it does in Toronto, something more than a special financing deal is needed.

But (and you knew there had to be one of those coming), I did the armchair economist thing this past weekend, focusing my attention on the truly big-ticket items where the cross-border pricing disparity is most egregious. And with the exception of Chevy's Corvette, the Dodge Viper and a handful of Cadillacs, the high-end portion of the market is dominated by foreign brands. So, using the strictest of scientific methods (tossing a dart at a calendar and searching for "historical currency exchange rates," I performed some decidedly complex Boothenomics.

According to OANDA.com's FX History, on Oct. 22, 2002, the euro/loonie exchange rate was exactly 0.65680. Almost five years later, that exchange rate stood at an all-but-identical 0.65660 (only in the last few months has the Canadian dollar risen against the euro). My rudimentary understanding of those numbers tells me that BMW Canada, for instance, paid relatively the same (adjusted, of course, for inflation) for a 7 Series in 2002 as it did this year. Ditto for Mercedes and its S-Class and Audi's A8, both of which are tens of thousands of dollars cheaper in the U.S.

During the same period, the U.S. dollar has dropped precipitously against the same European currency. The greenback that used to buy more than an entire euro now brings in less than ¤.70. At those exchange rates, an Audi A8 sold in the U.S. (currently US$70,690) would have generated approximately ¤72,600 in 2002 but only ¤49,130 last week. By comparison, the same car sold in Toronto (C$97,190) would have meant ¤63,700 in Audi AG's coffers in 2002, the same ¤63,700 earlier this year and ¤70,200 today. I did the calculation against the British pound and found much the same thing.

For European marques, then, the huge pricing disparity between U.S. and Canadian new cars is much less a case of automakers ripping off hapless Canadians as the bottom having dropped out of the U.S. market. Indeed, a case can be made that U.S. prices need to increase more than ours have to decrease (automobiles wholly manufactured in the U.S., however, are generating far greater profits for their makers).

Of course, that's not going to happen. The U.S. is still the engine that drives the automotive world. Nobody is going to upset that apple cart by dramatically increasing their prices to recoup their currency exchange losses. And, indeed, when our dollar was residing at the bottom of the toilet, the same automakers held the pricing line so Canadian sales wouldn't plummet.

None of this alters the fact that, for many Canadians, significantly cheaper cars are but a few hours' drive away. Though they may be fraught with their own problems -- homologating them to Canadian standards, the honouring of warranties, etc. -- U.S. cars are cheaper and far be it for me to counsel anyone not to head south of the border in search of a bargain. But the long-term solution to this pricing disparity is far more complex than the simple across-the-board dropping of prices that so many of you who wrote in are demanding.


© National Post 2007