So you want to buy a car in the U.S....

Yes, you might save money, but there are plenty of potential hurdles along the way

Oct 26, 2007

Special to the Star

With the Canadian and U.S. dollar hovering near parity, there are two big questions on the minds of new-car buyers:

Why aren't new-car prices the same in both countries?

Should I take advantage of the apparently lower prices south of the border?

Car buyers are overloaded with information on the Internet, with wild assumptions surrounding the recent parity between the currencies, and what it means for those looking to buy a new car. The apparently lower prices south of the border have even sparked a class-action lawsuit and a human rights complaint.

Wheels took the perspective of all parties involved – consumers, dealers and manufacturers – in order to debunk some of the myths surrounding cross-border car shopping.

If you're looking for a used car, there are a lot right here at home to choose from, already imported from the U.S. with prices that are not radically different from those in the States. They're not difficult to bring across the border.

But if you want to buy a new car, the issue is not quite so cut and dried.

The first thing to keep in mind is that dealers on either side of the border set prices based on their desire to move product out the door. But the economics of doing business vary even within the borders of a country as diverse as Canada – due to population size, operating costs, weather, government regulation, etc. – never mind the differences between here and another country.

Parity between the U.S. and Canadian currencies may not even apply in some cases. Volvo Canada, for example, like many European brands, doesn't buy its vehicles in U.S. dollars. Volvo buys in Swedish krona or the euro, depending on the location of the manufacturing plant. While the Canadian dollar has appreciated some 50 per cent against the U.S. dollar in the last four years, it has appreciated only 10 per cent against the krona and 7 per cent against the euro in the same period, according to Volvo Canada spokesperson Chad Heard.

Though the main bone of contention seems to be the difference between Canadian and U.S. manufacturer's suggested retail prices (MSRP), if you will be financing the car, the truth is that the price was always a bit of a fairy tale when figuring out the monthly payments. Beyond your negotiating skills at the dealer, you also have to add in the additional costs of the freight and pre-delivery inspection (PDI) charges.

Cash incentives, capital cost reductions, residuals, finance rates, warranty costs, roadside assistance and scheduled maintenance plans are not only different between the U.S. and Canada, they're also different between Halifax and Vancouver.

For the majority of new-car buyers who need to either lease or borrow money, these factors – more than just the MSRP – give a more accurate bearing on your final monthly payment. Comparisons between U.S. and Canadian models need to be done at the "transaction" level (the price customers pay on a monthly basis) to be more realistic.

For example, General Motors of Canada spokesperson Stew Low says the monthly payments for the 2007 Chevrolet Malibu LS is $280 a month in Canada compared with $282 a month in the U.S., and the 2007 Pontiac Torrent FWD is $416 in Canada vs. $413 in the U.S. (in their respective dollars).

So is it worth your while to shop for that new car across the border? There are several factors to consider, which add to your final cost:

Import duties, plus federal and provincial taxes.

The cost of meeting Canadian compliance standards (see sidebar). Safety standards differ and vehicles imported to Canada must be retrofitted at the owner's cost.

Scheduled maintenance costs that aren't covered on U.S. vehicles in Canada.

Vehicles imported to Canada may not be eligible for roadside assistance coverage, or incentives such as credit card affiliation points, no charge maintenance, etc.

When it comes time to sell your imported U.S. car, its resale value will be lower than a comparable Canadian model.

Finally, those federal and provincial energy rebate programs, which can add up to $4,000 in incentives for fuel-sippers, don't apply to imported vehicles. On the other hand, any gas-guzzler penalties still apply to U.S. vehicles and need to be paid when licensing the vehicle in Canada.

Apart from these financial concerns, there is also the difficulty of negotiating in the States. Most U.S. franchise agreements prevent dealers from exporting – whether you're from Canada, Cambodia or Croatia. And most trade experts say this international practice is not illegal.

When asked by Wheels this week, the Canadian branches of several car companies said they allow Canadian customers to buy new cars from their U.S. dealers, but that Canadian dealers may not honour warranties on new vehicles bought in the U.S.

At the time of publication, Audi, BMW, Hyundai, Ford, Mazda, Porsche and Volvo told Wheels they would honour the warranty on vehicles purchased in the U.S. However, most scheduled maintenance plans offered in the U.S. are only valid in the U.S.

So if Canadian retailers in the book or electronics industries can drop prices to reflect parity, why can't the auto industry?

In many ways it may simply be a matter of time. Over the past several months, Hyundai Canada has increased consumer incentives on select models. Last week, BMW Canada began offering lower lease and finance rates, or cash incentives. Porsche dropped pricing across the board for its 2008 models by 10 per cent.

The differences in Porsche's pricing were so large to begin with, it did little to reduce the disparity. But it did bring up the free-market issue. As a car buyer, you have a choice: If you don't like the price, don't buy the car. Or at least a new one.

Buying a used vehicle in the U.S. does come with the hassles of determining the car's accident history, and may reduce the warranty coverage. But it's a larger market down south, making for potentially lower prices and wider selection. And unlike the additional "hidden" costs of a new car, a used car in any country requires less detective work to get to the "real" price.

To avoid some of the hassles of importing a car, and as your first salvo in negotiating the purchase of a new car in Canada, some experts advise seeking out a comparably equipped U.S. model on the Web, and taking that price to a Canadian dealer.

That's a good start. But most Canadian retailers are still buying cars at a higher wholesale price than their American counterparts – sometimes much higher – giving them little wiggle room in the sale price.

With such a wide range of considerations, it's hard to make a broad statement that all Canadian new-car prices should be reduced by a fixed amount based on what the loonie is worth that day. Many Canadian auto retailers admit they are in the organizational and legal throes of trying to adjust pricing based on the changing Canadian currency.

In the end, do your research. Crunch the numbers. Then it's up to you to define "value."

Toronto Star