Deal breaker

Peter Severinson | Image: Graham Winterbottom | Published: July 01, 2008

Victoria car dealer Todd MacDonald is launching a new battle in an old war: the cross-border car trade. For years certain cars have sold for thousands less in the U.S. than identical cars in Canada. Different players cite different reasons for the discrepancy: manufacturers say it’s because Canada’s smaller market isn’t as profitable as that of the U.S., while critics maintain manufacturers charge more in Canada simply because they can. Last summer, thanks largely to the rising loonie, cross-border shopping surged and the war escalated.

And as MacDonald discovered in late 2007, there’s plenty of fight remaining. He has been importing luxury used cars from the U.S. to resell in Canada for four years, and he sells up to 50
cars a month through his company, Westport Motor Cars. But new policies by certain car manufacturers recently threw a wrench in his operation by adding new fees and delays into the importing process.

Calling these moves an affront to free trade and contrary to Canada’s Competition Act, MacDonald is launching a class-action lawsuit against nine automakers, including BMW Canada Inc., Hyundai Canada Inc., Mercedes-Benz Canada Inc., Toyota Canada Inc. and Volvo Cars of Canada Corp. About 200 people expressed interest in joining the suit, which at press time was set to be filed in June.

Importing cars used to be a simple process, MacDonald explains. He would buy a used car in the U.S. and get a few free documents from the manufacturer to show it wasn’t subject to a recall and that it was acceptable for use in Canada. After he brought the car over the border, it was a simple matter to have the daytime running lights switched on and the last bits of certification taken care of. All told, it would take two to three weeks, he says. With the Canada-U.S. price discrepancy, MacDonald says he has been able to sell cars for less than what they cost at official Canadian dealers.

But certain manufacturers are changing the game, and it’s cutting into his profits. BMW is among the worst offenders, MacDonald says. In November 2007, it began charging about $850 for the two forms demanded by the Canada Border Services Agency and Transport Canada for every imported car, and it now also takes longer for both to be delivered. The hands-on modifications BMW shops must provide have also become more expensive and time-consuming. According to MacDonald, the whole routine

can cost between $2,600 and $4,000 for each car and takes three to six weeks longer than before.

The manufacturers, complains MacDonald, are trying to change the rules as they go. “And they seem to be able to do this as the wind blows, and nobody steps in and tells them that they can’t do it. They’re trying to protect their outrageous dealer prices here in Canada.”

Not so, says Jochen Frey, corporate communications director for BMW Group Canada. Since last summer, the demand for import documents has grown to the point that BMW has had to hire more staff to cope, and it has started charging fees to cover those costs. The process for modifying vehicles coming into Canada was overdue for a change, he says. The complex electronics of new cars means that even switching on the daytime running lights is a risky operation that can have serious repercussions for BMW’s warranty obligations.

And what about the perception that these are simply roadblocks thrown up to keep Canadians paying higher prices for the same products?

“I can fully understand that that’s the perception of the customer,” Frey says. “But the whole thing is a business case for us. We cannot lower the prices here.”