GM Warns Dealers on Gray Market

General Motors Discourages Dealers From Doing Work on Vehicles Built in Canada

DETROIT Ed Gasten wriing for AP reported that General Motors Corp. dealers in the United States that sell or perform warranty service on some vehicles built in Canada risk losing their allocations of the hottest new products, the automaker told them in a letter Tuesday.

Approximately 25,000-30,000 so-called gray market vehicles are exported from Canada each year, mainly by brokers because of the favorable exchange rate and the demand for hot products such as the Chevrolet Suburban, GM spokesman Tom Henderson said.

The practice, while not illegal, is discouraged by the automakers because they want to be able to better control product mix and pricing in the two countries. Exporting also threatens franchise agreements, they say.

"We feel brokering Canadian vehicles to the U.S. erodes the Ford franchise, enabling competitive nameplate dealers to sell Ford brand vehicles," said Ford spokeswoman Susan Krusel.

GM told its U.S. dealers they could lose product allocations if they sell any new vehicles built in Canada that are not intended for sale in the United States.

In the letter, GM also told dealers they may not perform warranty service on vehicles originally sold in Canada with an "in-service" date later than Sept. 1, 2002, until they have been in service for at least six months with at least 7,500 miles.

Exceptions are Canadian citizens traveling through the United States or relocated across the border.

GM did not eliminate warranty coverage out of consideration for customers who might be unaware they are driving a gray market vehicle.

"We can't let customers who unknowingly buy one of these vehicles be caught in the middle," Henderson said.

GM's Canadian unit told dealers in that country they are prohibited from selling new vehicles for resale or primary use outside Canada.

The vehicles must be registered in Canada for at least six months for primary use there and be driven at least 12,000 kilometers (about 7,500 miles) before it would be allowed to be sold outside the country.

The move comes after complaints from the GM dealer council, according to co-chairman Glenn Ritchey, a Daytona, Fla., Chevrolet dealer.

"There needs to be some consequences or actions or appropriate actions to enforce the policy," Ritchey said. "We appealed to GM to take whatever actions to rectify the situation."

Rochester Hills dealer Russ Shelton said the policy puts much of the onus on dealers to catch gray market vehicles, but "I'm glad they're taking action. It's out of control."

About 5,000 gray market GM vehicles enter the United States each year, Henderson said.

Ford Motor Co. is letting its dealers perform warranty work on gray market vehicles because the company doesn't want to inconvenience a customer who may have been unaware of the vehicle's origin, Krusel said.

Canadian Ford dealers must pay a "chargeback" fee if they are caught selling vehicles to brokers or U.S. dealers, Krusel said. Vehicle allocations may also be withheld.

Ford's policy resulted in a 10 percent drop in gray market Ford vehicles between 2000 and 2001, she said.

The Chrysler Group of DaimlerChrysler AG voids the warranty of gray market vehicles.

"We don't want to lose control over the customer base. We need to be able to contact these folks," said Chrysler spokesman Marc Henretta.