Soaring loonie hits Canadian showrooms

A funny thing happened to Peter on the way to the dealership to buy a car: he flexed his consumer muscle.

He had been keen to buy a new coupe – the BMW 3 Series and the just-released Infiniti G37 caught his fancy – when the uproar over the U.S.-Canada price disparity stopped him in his tracks.

"I'm not willing to spend my money now," he says, citing the massive gap between sticker prices and the "obstructionist" tactics manufacturers are using to keep Canadians out of American showrooms.

"I had been in touch with a BMW dealer in Buffalo who told me that he was prevented from selling me a new car," says Peter (he doesn't want his surname disclosed because he works in the car industry).

So he's decided to wait it out.

"I'm convinced that if their sales numbers start to decline, manufacturers will have to make price adjustments as a concession to Canadian buyers."

He's not alone in exercising his consumer might.

Anecdotally, dealers are reporting quieter showrooms these days, despite the launch of next-generation models during what is the traditional start of the new model year – a development that has spooked the industry. Incentives such as those announced this week by Chrysler and Volvo are the latest way that the industry is hoping to turn the tide.

One General Motors new-car sales manager, who asked to remain anonymous, blamed the present hysteria around the strong Canadian dollar for consumers' "unrealistic" expectations by demanding deep price cuts to match American stickers.

"Consumers are ill-informed about buying in the U.S., and they think if everyone's doing it, it must be a good thing," she says. But she admits even her own sales staff don't fully understand the issue.

"We get a lot of customers who talk about buying in the U.S., but they're a little confused. They don't realize they have to pay cash," says Eastway Chrysler new-car sales manager Mike Popescu, one of the few dealers willing to let Wheels use his name.

"They tell me they can buy a Jeep Compass for $15,000 down there, a model that can cost $26,000 here. I tell them go ahead and try – you're going to be back in two months."

He says the currency brouhaha has made customers uncertain, so they're not committing to anything.

"The word is out there. It prolongs the decision to purchase – and that's the problem," says Popescu.

Mohamed Bouchama, executive director of CarHelpCanada.com, says dealers have been complaining to him about consumers' reluctance to sign on the dotted line.

"Dealers are screaming. Their showrooms are quiet. They tell me: `The manufacturers are being stubborn; we wish they would do something about pricing.'

"A Toyota dealer confessed he only sold eight cars last weekend; he would usually sell 18 or 20 vehicles on a Saturday."

Bouchama believes dealers are reluctant to speak out publicly, afraid to jeopardize their allotment of popular, profitable models assigned by the manufacturer.

Indeed, a Toyota dealer refused to talk when reached for comment and referred all media inquiries to the Canadian headquarters.

"Toyota sent a notice today telling all of us (dealers) not to speak to reporters. You'll have to call them," said a voice on the line.

Mike Karim, dealer principal at both a Chrysler and Mazda store and who writes the Dealer's Voice column for Wheels, confirms business has slowed significantly this fall as buyers investigate the ins and outs of purchasing in the U.S., or have withdrawn from the market altogether until prices drop.

"Three things can happen to address the present market: our dollar falls to previous levels; Canadians give up this notion they can shop in the U.S.; or manufacturers make their products more affordable in Canada," he says.

"Frankly, I can't foresee either of the first two things happening anytime soon, so our best bet is seeing some price adjustments coming from the manufacturers."

Karim points to encouraging signs: Porsche's 8 per cent price drop as well as BMW's recently announced rebate programs and favourable lease rates. And earlier this week, Chrysler and Volvo have rolled out larger incentive packages.

Karim is adamant that the blame rests squarely on the shoulders of the manufacturers, who dictate the invoice prices dealers pay for their products.

"We retailers don't have much say in it (pricing). Please direct your wrath at the manufacturers."

If dealers are grumbling, they're not showing it.

When Chrysler CEO Robert Nardelli and president Jim Press spoke at a recent company meeting in Las Vegas, the executives told their 460 Canadian dealers they will not be getting pricing relief to address Canada's rising loonie.

The Canadian dealers responded with standing ovations, reported the trade website WardsAuto.com.

One dealer who isn't complaining is CanadianCarsDirect.com, a website operated by a Mitsubishi/Hyundai dealer in Michigan. "I've had 50 calls from Canada today alone," says a sales rep over the phone.

Yet despite the high interest, only a small percentage of shoppers actually take the plunge.

"We've sold 150 cars into Canada so far," the rep adds. "I call them `pioneering Canadians' who venture across the border. It's not for everyone."

The firm uses an intermediary in Sarnia to deliver the vehicles into Canada, where customers can pick them up as they would any new vehicle. "Just bring your licence plates and away you go."

CanadianCarsDirect.com looks after the paperwork, federal compliance, safety inspection and all duties as part of its pricing.

"I had one customer from Toronto who came to pick up his new Hyundai Veracruz for a savings of $7,000," the salesperson relates.

"He told me he made $1,000 per hour that day, since the round trip took him seven hours."

Like the others, the rep is loath to give out his name, fearing retribution from the auto companies. In fact, he corrects himself by saying he does not sell new cars, but vehicles with "ultra-low mileage."

"If I was selling 1,500 cars a year to Canadians, that would definitely arouse suspicions," he says about the prospect of being found out by head office. "But with the Metro Detroit economy tanking, what choice do I have?"

A competing Canadian service based in Halifax, BuyUSAcars.ca, has also garnered plenty of interest from prospective buyers, but most don't qualify because they're shopping inexpensive models.

"If the savings are less than $3,000, we tell people to just drive a harder bargain with their local dealer," says Jack, who did not want his last name published.

That's because the firm's brokerage fee is $2,400. Jack notes that 200 inquiries may result in 10 quotes, of which only one eventually becomes a sale. That one sale will likely be a luxury-car buyer who will save significantly.

"I just delivered a loaded Lincoln Navigator to a customer, a truck that costs $86,000 in Canada, taxes in. The U.S. model ended up costing him $62,000 delivered."

BuyUSAcars.ca is a sideline business of Auto Rail Forwarders, an established transportation company that ships vehicles across North America by train.

"We have an American company that approaches U.S. dealers to purchase vehicles on behalf of our customers," explains Jack.

But he admits the supply chain is shifting daily as manufacturers clamp down on the practice.

"Manufacturers are threatening dealers in the U.S. not to sell to us, which sounds kind of illegal to me. These dealers are independent businesses that have invested a lot of money to sell a brand of vehicles, and now the factory is dictating who they can sell to."

George Iny, president of the Automobile Protection Association, knows the frustration of working in an ever-changing environment.

The Montreal-based consumer group has been brokering deals to buy vehicles in the U.S. on behalf of its members.

Last month, workers loading Toyotas onto an APA-contracted truck at a Scranton, Pa., dealership were stopped when head office threatened the dealer.

"The carmakers are going out of their way to make it difficult," says Iny.

"The rules are changing weekly; new barriers are being thrown up all the time."

Consumer advocates Iny and Bouchama agree there's an easy way out of the present mess: manufacturers could announce substantial cash rebates, rather than lower MSRPs, to protect the residual values of leased vehicles on the road.

"Offer short-term incentives, like cash back, for the next six months to help dealers move their product," Bouchama urges.

It's a simple solution, but one that some manufacturers are reluctant to adopt after decades of favourable exchange rates.

When Nissan unveiled its all-new Rogue for 2008, it priced the compact SUV at $24,998 in Canada and $19,250 in the U.S. The difference is actually $8,548 – a markup of 44 per cent – when the all-wheel-drive models are compared.

"Our pricing is based on the Canadian competitive set and is not based on American pricing," wrote Nissan Canada spokesperson John Lindo in an email.

A new model with no "legacy" pricing to contend with (which can impact residual values on vehicles already leased to customers), Nissan could have addressed the U.S.-Canada gap by pricing the Rogue closer to its American counterpart.

But it chose not to, explaining that (as many makers recite like a mantra), it pays no attention to markets beyond the Canadian border.

"But if they're adamant the U.S. market doesn't matter to them, why are they meddling with import restrictions and asking their U.S. dealers to block sales to Canadians?" asks Iny.

He suggests car sales have been too good in model year 2007 for manufacturers to respond to the price issue, and the actual number of vehicles crossing the border is relatively small (an estimated 160,000 units, many of them used).

One benefit Canadians are beginning to see is the impact of used American cars being sold beside Canadian cars on lots here.

Andrew Gorman, general manager of Gorrud's Auto Group in Milton, says the pre-owned U.S. vehicles that Canadian dealers are importing are putting downward pressure on all prices. "The used American Toyota Sienna minivans I'm selling are around $3,000 cheaper than the Canadian vans."

He's had to adjust pricing on the latter to keep them moving.

What Gorman won't do is import new U.S. vehicles for resale. "I will not compromise our new-car dealers' livelihood."