Automakers Attack Canadian Market - Consumers Are Saving Big In Canada-See Ya In Windsor

ALBANY, N.Y. AP is reporting that automakers are trying to put the brakes on flourishing cross-border shopping by U.S. consumers, who legally save thousands of dollars on new cars intended for the lower-priced Canadian market.

This month Chrysler Group of DaimlerChrysler AG announced it will void warranties on 2003 models priced for the Canadian market but resold in America by brokers, dealers and independent operators.

Ford Motor Co. and General Motors Corp. are warning their dealers of sanctions for participating in such trades.

"It's a growing problem," said Dave Elshoff, spokesman for Chrysler. The corporation told its domestic dealers a week ago it would no longer honor new car warranties for the cars intended for sale in Canada, Elshoff said. He said retailers who consider the deep discounts found in the "gray market" likely know what they are getting and know the warranty wouldn't be enforced.

Consumers, particularly in border states such as New York, have been buying new American-made automobiles priced in Canada, Mexico and other countries at thousands of dollars off the U.S. price in trade greased by the favorable currency exchange rate, he said.

The cars, trucks and sport utility vehicles are marketed in Canada, but purchased and resold in the United States by auto brokers, used car dealers, independent sellers and dealers, Elshoff said.

"Ideally you would like to have no inhibitions against trade across borders, but it's not a perfect world," said David Cole of the Center for Automotive Research in Ann Arbor, Mich. "People just act like people, they want a deal."

"This is an issue the industry is going to have to learn to deal with," he said.

Consumer groups are concerned buyers would lose a legal way to save thousands of dollars and be caught without a new car warranty they may have assumed they purchased.

"Consumers should be careful not to be taken for a ride by unscrupulous car dealers," said Blair Horner of the New York Public Interest Research Group. "It's ironic that captains of industry who advocated for a free market in the North Atlantic Free Trade Agreement are now looking to undermine that system."

Savings from the cross-border trades can be substantial. For example, a loaded Dodge Caravan costs $31,000 in the U.S., but just $21,000 in U.S. dollars in Canada, said David Pierce, owner of Pierce's Superstores in Great Falls, Mont.

He complained that even his wholesale cost is $6,500 more than is charged a retail consumer in Canada. Pierce said that even when he's charged a customer $2,000 for an aftermarket warranty, the Caravan he has bought from Canadian exporters still cost $8,000 less than the same model meant for American showrooms.

"American consumers pays 50 percent more for a well equipped Cavaravn than a Canadian consumer in U.S. Dollars and that's not right," Pierce said. "Canada is not a third world country."

This legal "gray market" is particularly robust in border states where transportation costs are minimal, but is growing more common around the country. Chrysler estimates 200,000 gray-market cars and trucks from all manufacturers are imported from Canada to the United States annually. The automaker estimates 15 percent of those are its own models, but won't say how much the trade costs the company.

"It's not limited to the border states," Elshoff said. "It's just as likely to find them in Texas, Iowa, the Midwest."

The New York state Consumer Protection Board is urging consumers to be aware discounted Chryslers may not carry a new car warranty, although an aftermarket warranty may be purchased.

"If the dealer or some other third party offers an adequate, reliable warranty, then consumers may not be greatly affected by this change," state consumer chief May Chao said of Chrysler's decision.

"We haven't issued a direct warning," said Cort Jensen of the Montana Consumer Protection Office, "but it's one we've been considering."

Automakers want to curb the gray market to preserve the lower prices in Canada established to compensate for lower wages and buying power, avoid undercutting the higher-price American market and to make sure models repaired and maintained by dealers.

Ford has cut down on cross-border trades by 10 percent to about 5,800 vehicles in the last year because of the charge-back fees it is assessing to dealers who participate, said Ford spokeswoman Susan Krusel.

"Our goal is to get to the source and to stop it," she said.

A May 16 letter from GM told dealers they could lose the ability to get more new models and could face "charge backs" off rebates and incentives as well as legal action if they participate in the gray market. The letter cites provisions of dealers' contracts.

Chrysler considered these options, but found enforcement of its long ignored clause in dealer contracts was least harmful to its dealers, Elshoff said.

"It represents an issue not only because it does have bottom-line impact," Elshoff said, "but because it compromises our relationship with the customers ... it throws a roadblock in the first step of building the relationship."