The waiting game of U.S./Canada pricing

Mark Richardson

WHEELS EDITOR

It didn't take long this week, in a meeting with the Star's editorial board, for Ford of Canada's president to start talking about U.S. auto prices.

Bill Osborne said he gets letters every week from people wanting to know why we pay more for vehicles in Canada than south of the border – as does Wheels.

You'd better believe Osborne knows all about the issue: the Canadian government apparently estimates that some 160,000 vehicles will be imported this year alone from the U.S.

"There is the potential for prices to come down in Canada," he said. "One manufacturer making a significant move will trigger all the other manufacturers... If that happens, Ford will react, and will react instantly."

And none of them want to be the first to do so, because all it will do over the long term is cut everybody's profits across the board.

The facts are that now that the greenback is worth less than the loonie, vehicles are thousands of dollars cheaper in the United States than here.

In many cases, those cars and trucks were actually built here – Ontario is now the largest auto-producing jurisdiction in North America.

In the U.S., vehicle prices have been fairly stable over the last several years. There's no issue down there.

But the problem is that if Canadian prices are slashed to match them, the bottom will drop out of the used-vehicle market up here. Cars coming off a four-year lease could have a guaranteed residual value of not much less than the new, next-generation vehicle.

Not everyone is worried about existing owners losing the resale value of their current vehicles.

Harley-Davidson, for example , dropped its Canadian prices this week for the third time this year, this time by 5 per cent, to bring them more into line with American MSRPs.

But also this week, Bombardier copied the example of most auto manufacturers by stepping in to prohibit its U.S. dealers from selling to Canadians, who were saving more than $3,000 on every snowmobile and ATV.

Dealers are often penalized for making a cross-border sale, and Canadian consumers are penalized by many manufacturers refusing to honour warranties on cross-border cars.

So much for free trade.

The bigger the price tag, the bigger the price difference. Luxury makers are feeling the pressure a lot more than Ford.

Osborne said this week that his company's research shows that the average Canadian stands to save only $500 to $1,200 on the purchase of an American Ford, and that's after all the various duties are paid, modifications made to bumpers and speedometers, and the considerable paperwork hassles.

As well, Canadians do not qualify in the U.S. for low-interest financing; the best they can hope for is a bank loan at the regular rate.

This is the key, for as Osborne explained, "If you do not need financing and are able to take the cash out of your pocket (to pay for the vehicle), there is a much greater disparity. Most Canadians finance their cars. If they didn't, we'd probably be seeing 1.6 million (vehicles) imported."

Americans, of course, can benefit from American financing plans.

And so the manufacturers are sticking it out, nobody wanting to be the first to move in this most competitive of markets.

If, when and how far prices drop is anyone's guess – it all depends on who blinks first.

Mark Richardson is the editor of Wheels. mrichardson@thestar.ca

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