The funny part is that Brussels is also capital of Belgium, where they can’t patch together a government acceptable to both the Flemish speakers in the north and the Francophones in the south. You’d think two groups of Belgians would be more “comparable” than, say, Finland and Portugal, or Ireland and Bulgaria. Belgium may rupture before Sweden and Malta do.

I like your part about Brussels. It’s amazing they are all going for that stuff isn’t it?

So, dropping the independence part, how about uniqueness? So long as Canada is still a sovereign country, would a common currency be a killer? Would sharing it with Central America dilute the overwhelming size of the US influence?

Yes of course the Euro Zone nations have already lost a great deal of their independence — have you heard of Brussels? the EU? The EU consitituion that will be foisted on a public that won’t get to vote on it? Depending on the argument, Europeans already like to claim they’re one big happy country.

Yet that’s still not at all comparable — 20 fairly comparable nations banding together is entirely different from what would happen when giant 300-million population U.S. is allowed to overwhelm tiny 30-million population Canada.

Sort of correct, but not quite. The Canadian dollar started rising about six years ago and made a fairly big jump from 2003-2004 (most economists interviewed considered the Cdn. dollar undervalued in the low 60 cent range). The rise thereafter was slow and constant until last year when there was a large jump. I think it was this large change (attributed to the oil and mining boom) that caught everyone by surprise – and made consumers notice. BTW – various auto columnists have been writing about this issue for the past two years. Here is the exchange rate history since 2001:

2001 – .67 cents U.S.
2002 – .63
2003 – .64
2004 – .78
2005 – .82
2006 – .86
2007 – .86
2008 – 1.01
Exchange rate from the Bank of Canada on Jan. 2 (or closest date if holiday).

It’s not just comment when you make an accusation. I will defend ethical profits, but not lying or cheating. We all do tend to get the government we deserve, and yes, they are the best money can buy. Damn Shame. Cheers.

Kevin,

The eurozone has done a lot for price parity. Do you think that Germany and France will lose their independence or uniqueness? Maybe some of the lesser powers might? I wonder about how much of that is happening over there.

The exchange rate doesn’t confuse the issue, it clarifies the issue by illustrating much of the reason for the pricing disparity.

A strengthening currency makes foreign goods cheaper for the party with that currency. That’s really what we’re seeing here — cars sold in the US are becoming relatively cheap for those who hold other currencies.

American cars haven’t become cheaper for those who earn US dollars, but they have for those who exchange their currencies to receive US dollars. Much of the pricing disparity is due to this arbitrage effect, which is supported by regulators and businesses who don’t want consumers to exploit it.

Here’s a real world example using the Mustang GT. The MSRP of a new 2003 Mustang GT in the US was US$23,485. A new 2008 model is US$26,080, an increase of $2,595 or 11%.

During 2003, it took about CDN$1.40-1.50 to buy a US dollar; today, they’re about at parity. A Canadian would have needed CDN$33,000 to buy that Mustang at MSRP in 2003, but now would need only about CDN$26,000 today for the 2008. So while the price increased 11% for the Americans over the last five years, it declined about 20% for the Canadian who crosses the border to do his shopping.

It’s easy to see the problem. If Ford is like other automakers, then at minimum, it generally applies an inflation factor to its prices every year in all of its markets, which means that a 2008 Mustang in Canada saw the same sort of price increase over the 2003 model that the Americans received during the same period.

Normally, a policy meant to maximize asking prices works out well for the manufacturer, which gets to preserve its margins. But in the case of Canada, the disparity becomes obvious very quickly to a lot of consumers who are on the wrong side of the pricing formula, as they see their own prices climbing, while the prices in the US are falling in relation to their exchange rates.

And so that’s my ultimate point with a flourish: you can have a Canada and unequal car prices. OR, you can have equal car prices … but no Canada. You can’t expect to have both.

The identity issue is a political hot button up north, to be sure. But my point here is that the pricing disparity is largely a result of the exchange rates being out of equilibrium, and that the resulting pricing differential is effectively supported by regulations that allow Ottawa and the car makers to quash the arbitrage effort. The current pricing differential is a signal that the price variation is based largely on an anomaly in exchange rates that is probably temporary.

In other words, the Canadian dollar is overvalued at $1=$1, was probably undervalued when it was worth $0.65, and should eventually end up somewhere in between. And when those values get sorted out, the pricing differences will probably not be enough to inspire many Canadians to do their shopping across the border.

Actually that’s a characteristic of a competitive commodity market — everyone charges the same price. That doesn’t mean there’s no competition, there is. That’s exactly what happens in the commodity markets for soybeans and pork bellies every day. When you sell an undifferentiated commodity, you really can’t charge a price different than everyone else.

Imagine you’re a gas station owner and the prevailing price in town is $3.00 a gallon. If you try to charge $3.25, you lose ALL your business in a heartbeat. No one comes to buy gas. You quickly learn your lesson and drop your price. But, if you try to gain market share and sell at a discount at $2.50 — yeah, people will come and drain your tanks. At which point you order up a tanker that charges you $2.80 wholesale for resupply, and you realize you just lost a lot of money. So you have to raise your price, and everyone goes back to buying gas where they did before — you gained no customer loyalty because you just sell a commodity, all you did was lose money.

Anyway, yes $40 billion is a lot. Not much to do other than:

1) break up Exxon, in which case a bunch of small companies will all be charging the same prices instead. That accomplishes nothing fundamental, just makes people feel better.

2) Levy a windfall profits tax. That makes people feel better, but sends a signal that if you make a lot of money, a jealous government will come steal it from you.

Meanwhile, the outrageous profit is a very bright beacon flashing the signal that there is a lot of money to be made by staisfying peoples’ need for energy. And the economy sees it and is scrambling to meet that need with a million monkey brains running around trying to get an angle and get a piece of that dough.

If you’re a venture capitalist or a battery-chemical engineer or a solar panel technician or a fusion researcher or a corn farmer these are fat times for you and they all see that $40 billion dollars screaming at them. And that is how civilization-altering changes happen.

Ah, but this is just a case of the changing exchange rate confusing the issue. Would be better to forget about the currencies altogether, and think of pricing the average car in terms of the average salary. To keep it simple let’s say that in the U.S. the average car costs only 1.0 annual U.S. salary. I’d then guess that in CANADA, a comparable car costs maybe 1.2 average Cdn salary. That’s a good way to think about productivity.

The Canadian has to work a bit longer to afford the same car. These “prices” have remained about the same over the last few years. (Because to a Canadian thinking in terms of Canadian dollars, car prices have not increased much, and his pay has not increased much either: the ratio is about the same).

So my point is, as measured by an external standard (the US dollar or the Yen), Canadian car prices have gone up, and could in future go up or down … but by the standard that really matters — a Canadian’s income — their car prices have remained about the same.

You miss that the real constraint is the regulatory one. The Canadian government effectively uses the restrictions as a trade barrier, and in the process empowers companies to put up their own barriers to prop up their own Canadian lines of business.

You are absolutely right Pch — I haven’t actually missed that, I’m just trying not to write a whole book here. Barriers sure are required to maintain the existing differences between the two economies. I think of it as a big high-pressure air tank, and a much smaller low pressure tank sitting next to it. If you connect the tanks with a large enough pipe and and open valve, the pressures equalize, and will wind up being close to the pressure of the original bigger tank.

Both countries do things to keep the valve closed, or open just a little bit. Using different currencies is one thing: that’s like broadcasting different radio stations on different frequencies so they don’t interfere.

All the other laws and barriers are other things they do. (E.g., the U.S. Government makes silly excuses to try to prevent Americans from buying cheap drugs in Canada. The Canadian provincial governments are concerned too, because 300 million Americans with access would completely clean the shelves and leave nothing for Canadians.)

If the gates were thrown wide open without inhibition, yes indeed prices would equalize, and wages, and productivity — that would all be part of the U.S. economy completely overwhelming the Canadian economy, and Canada largely losing its independence. Yet that is the quickest way for Canadians to achieve an American level of productivity: they become Americans.

And so that’s my ultimate point with a flourish: you can have a Canada and unequal car prices. OR, you can have equal car prices … but no Canada. You can’t expect to have both.

@ireallylovemangoes:
If you are looking for a Volvo and are concerned with supporting the local economy, track the dollars. When you buy your vehicle, how much money is going to the local dealership versus an out-of-country manufacturer and plant (sorry, I don’t know where they are made, but I assume overseas). It would seem that profit flows to a US company and Swedish workers (depending on production areas). If you save 10k on your vehicle, and spend that 10k in the local economy supporting smaller merchants, are you not “helping” more then sending a good portion of that 10k outside of the country? Naturally if you were going to spend 30k on a local vehicle, but get a “nicer” one from the US, this is a wash.

Somewhat as an aside, I had read an interseting comment from a local Toronto resident who actually doesn’t bring his BMW to the dealership for regular “free” maintenance – it simply costs him too much time away from work. He was complaining that it was allways a 2+ hour wait for an oil change, or several days with a rental for small parts repairs (often back-ordered, etc); all the driving around with missed parts, returning rental cars, etc, etc (much during work hours) while technically “free” still cost him time away from work – real dollars in his pocket. If you value “family” time, you could probably factor this in as well, but it’s a bit more ethereal to the population at large. He still would take his vehicle in for a major (free) repair, but otherwise uses a small independent shop. If you find yourself in a similar situation, buying a car with knowledge of reduced service from a dealership suddenly might not be too bad – assume that you haven’t extended yourself to far financially just to buy the car in the first place.

Here is an article from today’s Globe and Mail regarding the importation of used vehicles from the US…Click

Many folks to save the last few dollars go to an “out of town” dealer, and then go to the local dealer for service or warranty. The local dealer will cater to his local customers that bought from him, before catering to local customers that bought “out of town”.

There are a multitude of ways that a dealer can give a polite “cold shoulder” to an unwanted customer. Starting with longer delays for service appointments.

Don’t confuse the views of your typical commision hungary salesmen with those of the dealers association.

This is a very simple concept. Dealers have no pull with manufacturers, customers do. Dealers want their prices to be competitive, this will only happen when customers demand it of the manufacturer.

Yes I am reluctant. I would prefer to support the local economy if at possible. In this case it appears as though this won’t be happening. That leads me to the second cause of my reluctance, servicing. As I stated in a previous post, I live in a one horse town (or rather two Volvo dealers owned by the same guy, town) who have made it clear they will not view servicing of my American bought vehicle with any sense of urgency.

In any event, I have to decide if the huge savings of dollars will make up for the years of headaches I will encounter when visting the dealer. It sure doesn’t feel to me like this dealer is happy to see a sale go south to prove a point to the manufacturer…

Kevin pretty much got it right. One point he left out is that Exxon is not just a refiner, they are an oil producer. They own rights to a LOT of oil in the ground. When the price goes up, they make more money. When it goes down, they lose big. Of course, a company the size of Exxon has all sorts of hedges and things. Their books are VERY complicated. You need an advanced degree to do the estimates of their book values, and then all you really have is an estimate.

Also, another way of looking at what Kevin said is that you are concentrating on the dollar record, but the percentage profit is actually still low. This is why I always tell people that if they think oil companies make too much money they should invest in one. In actuality, oil stocks are not that great, so when you research the stock you will learn the lesson.

In general, taking shots at people for making too much profit is bad form. Unless they are a cheating, and/or are a monopoly, then why criticize? Usually, the insults are born of ignorance, or, when people should know better, the insults are just an attempt to take someone down a notch because you can do it without fear of reprisal (cowardly).

I know it’s a common habit, and I have done it too, but it’s really not good. We should refrain.

The facts belie your argument. The Canadian economy was less productive than was the US economy five years ago when cars were cheaper in Canada, and it is less productive now, now that cars are more expensive in Canada. Similarly, in both instances, Canadian per capita PPP (which is an indirect measure of per capita income) lagged that of the US, even though vehicle prices were lower then, and are higher now. So no, the prices haven’t correlated with relative productivity.

You miss that the real constraint is the regulatory one. The Canadian government effectively uses the restrictions as a trade barrier, and in the process empowers companies to put up their own barriers to prop up their own Canadian lines of business. These restraints limit the ability of Canadian consumers to exploit the arbitrage effect, which allows the arbitrage to exist in the first place.

The EU provides a test case of what can happen when barriers between neighboring countries are reduced — the end result is more price equality (pre-tax).

The Canadian government CANNOT accomplish this, and it certainly won’t.

Of course, Canada CAN do it, they just DON’T WANT to do it. Two very different positions.

If Canada wanted to adopt California emissions standards (the strictest in the US), it could do so on its own. If it was willing to accept US speedometers that display smaller metric measures, it could. If it was willing to waive the DRL and seat anchor requirements, it could.

Ottawa could do these things, but doesn’t want to do it. These rules, and insisting on maintaining petty differences with its neighbor and trading partner, create barriers to would-be importers and intimidate some of those who might otherwise participate in the personal import market. Clearly, the federal priority is not on helping the Canadian consumer get the lowest prices possible.

Contrary to the US, in Canada GM dealers have always been dualed Chev/Olds – Pontiac/Buick with the Cadillac franchise granted to either a Chev or Pontiac dealer. Lately in smaller communities the GM dealer carries all the lines.

In the US there are single line, Chevrolet, Pontiac, Buick, Cadillac, its a different situation, with different franchise laws.

If the difference is 10-12K for the vehicle you are considering and its an easy drive(close) you should go and get the vehicle yourself.

You seem relunctant to do it.

The more vehicles that are imported in Canada the more pressure it applies to manufacturers to adjust Canadian prices. When prices are adjusted downward it facilitates dealer’s ability to close deals.

Franchise agreements stipulate specific selling areas, or territories for a dealer. That you are in a dealer’s showroom, and live outside of the dealer’s trading area, the dealer might sell you a vehicle, the manufacturer will know very quickly that it was an out of area sale. If the dealer has too many out of area sale. With the Internet some manufacurers are closing an eye to out of area sales. This is for new vehicles.

Used vehicles any dealer, can sell any vehicle anywhere.

What I say has rock-solid basis as long as globalism has not washed out differences in economic productivity between countries.

Now you are on to one thing: goods that are easily tradeable between coutries MIGHT be the first things that can experience equalized prices, just owing to the cross-border competition — one would think. Yet … I see that at this very moment the two dollars are almost exactly equal. Yet a quick sampling of things on amazon.com and amazon.ca shows the same items at wildly different prices. Wow, The Simpsons Movie is $16 USD versus $27 Cdn. They must not like Canadians. Interesting. And you think 4000 lb. cars should cost the same?

Where’s all the high-dudgeon about how the Anchor mass market paperback of The Da Vinci Code costs 10 bucks in Canada but only 8 in the U.S.?

Back to the basic point: has globalism erased the difference between US and Canada productivity? Not last I checked. When someone can show me that it has, I’ll quit arguing because my point will then be moot. For now it isn’t.

Canada is too closely linked to the US, and it’s too easy to self-import for a substantial difference in prices to be upheld.

Ask Homer Simpson. But anyway, a currency chart shows the Canadian dollar has been steadily rising for at least FIVE YEARS. This only seems like a current story because none of you guys noticed til the loonie hit par. When will the car prices equalize? Another 10 years? 20? A hundred? Looks like differences in prices have been holding up pretty well for some time.

That’s why I refer to price differentials, not “eternally higher Canadian prices”. Your observation is merely a reflection of the exchange rate. Yes the Canadian dollar has risen against the U.S. dollar in those 5 years. A rising tide floats all boats, so in terms of the U.S. dollar, Canada wages have risen and Canadian price tags have risen and Canadian costs have risen. This can all reverse again to where it was 5 years ago, without changing the economic fundamentals.

Rudimentary economic “fact” does not supplant what happens in corporate board rooms — companies guesstimate what prices they can get away with charging, and then proceed to charge as much as possible. They adjust their prices based upon how sales correlate with the price changes, with the goal of maximizing profit.

Yes I agree — prices are set according to supply and demand. That says everything and it also says nothing. Productivity is the root of our “problem” because it is at the foundation of “demand”. The level of productivity determines the income of Canadians, which determines the amount of money they are willing and able to spend on new cars, which literally IS the demand curve. (Productivity heavily influences the supply curve too.)

If the goal is to equalize prices

This is not the goal. Prices should not be equal: they should be appropriate to the respective economy. There is no reason to want prices to be equal between the U.S. and Canada (except, at present, Canadian jealousy — and that’s not a good reason). It’s obviously not the goal of suppliers.

And if consumers think it’s a goal, they’re obviously short-sighted: what happens if the Cdn dollar declines to where it was 5 years ago? I note your quote that begins this entry … would Canadians of 5 years ago have wanted prices to be equal? They are two different countries with different economies, currencies, incomes, and levels of productivity: as long as this remains true, it is mathematically impossible for prices of ALL things to be equal — and I don’t know why cars should be one of the few exceptions.

there are several courses of action that the government of Canada could take to accomplish this

The Canadian government CANNOT accomplish this, and it certainly won’t.

But if you keep buying them at the higher prices, then they will keep selling them to you at those higher prices — since you’re willing to pay it, why shouldn’t they try to get every penny that they can?

I agree wholeheartedly PCH! If you ignore the U.S. and think of Canada in a vacuum, you can see that the following variable have all remained about the same: wages, car prices, peoples’ willingness to buy cars. There has been no change. Observers are being distracted by a currency fluctuation — in the Canadian cosmos the fundamentals of the auto market are mostly the same, so it’s unrealistic to expect prices to plunge 30 or 40%.

The price difference is more like $10,000 to $12,000.

My bank converts to USD for 1.5% and import duty is 6.1% not 6.2%.

And I can drive the car home myself.

That being said, you still haven’t explained why Canadain dealers are happy when a sales goes south as you posted earlier.
You also said
“These folks that fly down to pick up a vehicle in the US, and wing it driving back with a US temp tag, US sales documents, and Canadian insurance on the vehicle. Merely thinking of the consequences if anything “untoward” would happen, can give someone a headache.”

What does that even mean? I fly down Buffalo, pick-up a car and drive it home. So what? It is all legal, so if anything “untoward” happens, what is the difference if it is a Canadian car or an American one?

Car dealers are not selling out of their area if a customer comes into their store. They are selling the product in their store. The manufacturer has created an artifical border based on where the customer lives, not where the product is sold.

I can buy a chocolate bar, bed, TV, washing machine or even a house in the States from any one who wants to sell to me. Why do car manufacturers have to have different rules?

Swervin

Looking at gently used. I told the dealer that if they didn’t have a Canadian car on the lot that they could make a deal work with, they were welcome to bring one up themselves from an American dealer. I offered a list of 5 I would be interested in, what dealers they were at, etc. I would wait. Nope.

I don’t know or understand very much about the car sales business, but for the life of me I can’t understand why they wouldn’t try harder for the sale instead of trying to strongarm me. I’m not trying trying to screw them, we all need to make a living. I just don’t want to pay way too much.

My location is the GTA (greater Toronto) there are numerous glass palaces especially with luxury imports.

If one manufacturer gets one high profile dealer group to put up a glass palace, the domino effect starts.

pch101,

When the CDN dollar was weak and the flow was going from Canada to the US and elsewhere. Manufacturers in Canada were getting regular reports from the ports as to which vehciles were being exported in containers. For the US manufacturers would pull Carfax reports and usually several months later confront the selling dealer to verify if it was intentional or accidental.

US dealers close to the Canadian border are probably subjected to a 3rd degree the way Canadian dealers used to be regarding the sales of new vehicles. We will cut allocations, we will penalise you in different ways, we will pull Carfax reports, we will consider additional measures if its premeditated and intentional. Remember “your franchise agreement does not permit you to sell cars out of your trading area, and certainly not out of the country”.