« Back to Index

LOONIE PRICING: Market Variables Make the Difference, Experts Say, But Canadians Aren't Buying That

By Scott Burgess, The Detroit News

Why does a Dodge Grand Caravan start at $22,470 in Buffalo but a similar van costs $25,912 in Toronto? How can a Ford F-150 in Windsor have a sticker price of $22,562, but the same pickup is only $17,345 in Detroit?

A growing number of Canadians are voicing their outrage over the disparity in prices between similar vehicles sold in both countries. The concern also has prompted at least one class action lawsuit on behalf of consumers.

Near parity between the Canadian and U.S. dollars - and the resulting incentive for Canadians to use their greater buying power at U.S. retailers - recently has exacerbated the sticker shock. Five years ago, one U.S. dollar bought you $1.59 in Canadian dollars. On Monday morning, $1 U.S. got you 98 cents Canadian.

Carmakers say comparing just prices is unfair because while close in geography, the neighboring countries car-buying patterns are as similar as hockey and baseball. Canadians want and buy different vehicles than their American counterparts south of the border. It's the market, not the exchange rate, they say.

"People would like to see fair prices for the same vehicles," said George Iny, president of the Automobile Protection Association, a consumer advocacy group in Toronto. "It's gotten to the point where we knew we could look to the U.S. and see a substantial price difference."

Industry experts and automakers contend that exchange rates play a small role in calculating a vehicle's final price. Instead, the price of a new car in Canada reflects differences in equipment, incentive programs, taxes and, most importantly, what the market will bear.

"Pricing is done in market conditions," said Jim Miller, vice president of Honda Canada. "There is no simple easy answer."

The Canadian car market is one-tenth the size of the American market. The country's 33 million residents buy about 1.6 million vehicles a year, and buying patterns tend to skew more toward the practical than in the United States.

Canadians buy or lease smaller vehicles, while Americans tend to super-size their orders. Nearly 60 percent of the new cars purchased in Canada are entry-level or compact vehicles. Small cars make up only 17 percent of the U.S. car market, according to Autodata Corp., a New Jersey company that tracks U.S. vehicle sales.

"We approach the marketplace very differently than the U.S.," said Stew Low, a spokesman for General Motors Corp. in Canada. "As a Canadian, we ask, 'How do I get the most car for the least money?' In America, the full-size and luxury SUV market is nearly 1 million units; here it's only about 14,000 units."

Competition plays a bigger role in pricing than the exchange rate, the car companies say.

"It's a lot more complicated (than simply converting prices from U.S. to Canadian dollars)," said Steven Landry, Chrysler LLC's vice president of sales, marketing, services and parts. "We don't make any operational decision based on currency fluctuations. We price our vehicles by market."

Chrysler determines prices by examining the prices of competing models from such makers as Toyota and Honda, Landry said.

Cars different in Canada

For the most part, the cars sold in Canada are much like the ones sold in America. There are a few differences: many Canadian vehicles come with engine-block heaters and larger windshield wiper reservoirs. All cars must have government-mandated daytime running lights. Canada has more stringent bumper requirements, but most American sold cars already meet those standards.

Another factor: entry-level vehicles in the States may be stripped to the bone, but similar Canadian models have upgrades in the base price.

"The trim levels are different, so you're not getting a fair comparison when you're looking at similar vehicles," said Dennis Desrosiers, a Canadian auto industry analyst and president of DesRosiers Automotive Consultants Inc. in Ontario.

"There's a large group of people who sit around every day cross-border shopping. They think there's a boogie man in every closet when the reality is the market is shockingly complex."

Additionally, most carmakers set their Canadian prices independently from their U.S. parent corporations.

"We price at what the market will bear," said Jim Cain, a Ford spokesman, adding that the U.S. side of operations at Ford do not dictate how much a car costs in Canada. "The U.S. doesn't get a vote in Canadian prices."

Many consumers don't buy it

But these answers still don't satisfy many Canadian consumers.

"There has been a conspiracy to keep those prices high," said Jonathane Ricci, an attorney in Toronto with Juroviesky and Ricci LLP, which filed a lawsuit in September alleging automakers have kept Canadian prices inflated and have thwarted efforts by Canadians to buy cars in America.

"The premise (of the suit) is, we believe that Canadians should be paying less in Canada," Ricci said.

The suit, which was granted class action status, claims the automakers have collaborated to void warranties on cars bought in the United States and brought to Canada. Some automakers, such as Ford, honor their warranty across the border. Most do not.

The warranty issue is one point that discourages Canadians from taking advantage of their strong dollar in the United States, said Iny. However, more likely will consider it. When the price difference reaches $10,000, the savings makes importing a car worth the risk.

"It appears the carmakers are only interested in free trade when it suits them," Iny said. Cars can be imported for $226 in some cases, though Canada charges on average a 14 percent sales tax, meaning small price differences do not save Canadians enough money to take the trip to the States. Additionally, carmakers offer a more aggressive incentive program on many cars in Canada, automakers said. "The incentives are very different, making the net price lower," Landry said.

"At the narrow end of the market place, there are much bigger differences in prices," said Desrosiers, adding that "90 percent of the market is operating as normal."

Doug Porter, an deputy chief economist for the Bank of Montreal, said some vehicles may have up to a 24 percent price difference, but added the prices in Canada have not caught up to the strengthening Canadian dollar.

"Look on any book and you'll see an American price and a higher Canadian price, even though there's a par dollar," Porter said. Over time, the market will adjust, especially if the Canadian dollar stays as strong as it is, he said.

"It's grown 60 percent in the past five years," Porter said. "It's understandable that car prices haven't changed immediately, but eventually the pressure will become enormous."

Porsche Cars North America has already succumbed to the growing pressure in Canada, lowering the prices of its vehicles by roughly 8 percent, said Tony Fouladpour, a Porsche spokesman.

"We couldn't ignore a strengthening Canadian dollar," Fouladpour said. "We listened to the market and adjusted the prices."

Not enough, said Iny. "Nobody has come up with something bold."

Some dealers have talked about offering a floating rebate tied to the exchange value, but until something more is done, more Canadians will become disenfranchised with the current system, Iny said.

"Really, it's greed," Iny said of the higher prices. "What the public would like to see is no fine print, no excuses. Just do the right thing."

Scott Burgess is the auto critic for The Detroit News. He can be reached at (313) 223-3217 or sburgess@detnews.com.