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The "uplifting" Canadian auto business

Auto manufacturers in Canada are clearly getting desperate.  This morning's Globe and Mail came with an 8 page propaganda piece advertising supplement to explain why Canadians pay more for cars than Americans do. With headlines like The pitfalls of price matching and Why things cost more in Canada, this piece was a regular comedy festival.  Some of the chestnuts include:

  • lower prices would ruin the Canadian used car market.
  • wages, rent and property taxes are different in Canada.
  • the cost of operating a business in Canada is different from the US.
  • the cost of marketing is higher in Canada because materials have to be produced in both official languages.
  • taxes are higher in Canada.

According to this piece, what we Canadians really want is equivalent monthly payments.  Change the interest rates, or stretch out the payment schedule, and we should be happy to pay more. 

I wonder if these guys have any bridges for sale?

Now, I don't know what it costs to run an auto business in Canada.  However, a common feature of pricing algorithms used by all businesses to convert US prices into Canadian prices is a small line item called "uplift". It varies from as little as one or two percent into the double digits.  That's the extra we pay, on top of our already higher taxes, for the privilege of living in Canada and buying goods here.   When consumers shop across a border in order to obtain a better price, businesses refer to this as the "grey market".  The challenge companies have when pricing products is to maximize the "uplift" without increasing the "grey market".  That's called maximizing profits.

The car manufacturers have a grey market issue. So does every other industry out there.  For example, I was pricing the new Panasonic TH-42PZ77U 42" plasma TV yesterday. It's $1,999 at BestBuy in Canada, and $1,499 at BestBuy in Watertown, NY — a two hour drive from my door. Or, I can buy it from a Florida company on EBay for $1,000 plus shipping.  Most electronics are duty free, to boot.  Where do you think I'm planning to buy my TV?  I bought our new Sony HD camcorder in Florida last year too.

That's the nature of the market in an age where anyone can comparison shop for any product in any part of the globe.  Suck it up Auto Manufacturers and give us a real break at home, rather than whining about the cost of doing business. 

Oh, and by the way, if anybody in Oshawa is listening, I'll be in the market for a new car in the near future as well.

{ 7 comments… add one }

  • Edward November 26, 2007, 9:25 am

    One of the concerns with the grey market is that you need to ensure that the manufacturer will honor the warranty in Canada.

    If memory serves me correctly, Pioneer Canada for example would not honor warranty work on units purchased in the US and stated that the unit would need to be shipped States-side to be eligible. This was last year when I looked at their Plasma units so things may have changed but it is something to keep in mind especially as manufacturers are grappling with methods to mitigate the cross-border shopping.

    One thing is for sure though… We are raked over the coals compared to our friends in the US and manufacturers are pretty bad at coming up with proper excuses for the vast difference in price.

  • Donald Smith November 26, 2007, 11:57 am

    It's amazing how many people in software, where marginal cost of producung an additional unit approaches 0, assume that economic theory translates into non-software supply chains – and that price discrepencies are "gouging" or other form of conspiracy. (this isn't meant to disparrage you, but all my friends are in software it seems :)

    The Globe-and-mail-not-so-hidden-agenda aside, you don't actually debate their reasons why things cost more in Canada than other countries, and just rely on rhetoric to make your point – which is a shame. Which of their points is wrong? You seem to imply they're wrong.

    Here is a point that gets lost in all these Exchange-rate discussions — people are "victims" of price descrimination locally too. A 500ml bottle of Coke costs about $0.31 at Costco. It costs $0.42 at Lowblas. It costs $1.11 at Macs. It costs $1.89 at Esso. It costs $2.50 at ScotiaBank place and I catered a meeting last week where the same half-liter was $4 (actually it was a Can, but I digress).

    We focus on the tangible part of a sale too much. Your assessment of "uplift" is misleading. The fact is the cost of an item is impacted by hundreds of variables – risk, value capture (which is what I think you meant by uplift), micro / mini supply demand curves, cost of available alternatives, local cost of doing business, etc.

    So maybe we pay more for a car, and maybe you should invest a day or two and pick one up in the USA and blog about it, but there are lots of places where things here are WAY cheaper than the USA — like perscription drugs and home/car/life insurance to name two. Which begs the question — WHY are our Drug/Insurance costs so much cheaper than the USA? (if you answer that, you'll get a start on the converse too) :)

    – Don

  • Alec November 26, 2007, 12:52 pm

    Hey Don,

    Those are fair criticisms. Specifically, the things I have a beef with are:

    1. Lower prices would ruin the Canadian used car market. Well, yes, they might devalue a lot of vehicles. But one could argue that the vehicles are already overvalued. You know who would be harmed most by a devalued used car market? The auto manufacturers — it's their leasing companies who have the residual value of those leases on their books as an asset… that's suddenly not worth what it used to be.
    2. The cost of doing business in Canada is higher. I think this is a smokescreen. Every dealer will negotiate from the sticker price to the invoice price. So the cost of doing business at the dealership level is the irrelevant. The cars themselves are produced all over North America, and trucked all over North America. The invoice price for the same car should be the same anywhere in North America. But it's not. Why?
    3. Taxes are higher in Canada. Corporate taxes are actually not, but we may have other taxes built in. Granted. Break out a line item on the invoice to show the taxes and I'll be satisfied.

    Cheers, A

  • Judson November 26, 2007, 1:41 pm

    Might I suggest looking at the Panasonic TH-50PZ700U seeing as how it was ranked #1 by consumer reports for 50-inch plasma's :) (It's also the same plasma I'm waiting to find a great deal on).

  • Alec November 26, 2007, 3:24 pm

    50 is too big for the space I want to put it in Judson, otherwise SURE!

  • Alec November 26, 2007, 3:30 pm

    Edward – sorry I missed your comment. Warranties are definitely something to watch out for. When, for example, we shipped our car to the US in 1994, Chrysler refused to honor the balance of our 5 year warranty. They acted in extremely bad faith, considering that we were a family moving to another country.

  • Edward November 28, 2007, 1:44 pm

    Alec –

    Amex will be offering a 42" Panasonic HD Plasma for $700 on Nov 30 via their popular MyWishlist website. More details at,
    http://snipurl.com/1uc98

    Believe you must have a US issued Amex to qualify for the purchases. If your card is issued in Canada, it may be worth to chase down some friends or a relative in the States.

    Ed

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