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Ask Joanne

Woe Canada, why are cars cheaper in the U.S.? Add to ...

Why is it that a GM Yukon is anywhere from $11,000 to $13,000 more expensive in Canada than the United States? Our dollars have been very close for over a year. I asked GM and this is its reply:

At the onset, we would like to assure you that we sincerely appreciate the support given to us by every purchase of a General Motors car or truck.

Due to the economical differences between the two countries, Canadian vehicles are priced in accordance with Canadian economy, not American. General Motors of Canada Ltd. has no plans to make price adjustment at this time. Pricing is not determined based on the exchange rate of the Canadian dollar. The price of our vehicles is determined during prior-year production based on the previous supply and demand factors.

We appreciate the time you have taken to offer your comments, and we thank you for contacting General Motors of Canada Limited.

I believe this is really a cop-out, a $11,000 premium just to buy from a Canadian dealer, wow! As a Canadian taxpayer and by extension a shareholder that seems like we are getting the shaft here in Canada! – Glenn in Arnprior, Ont.

With the loonie at parity or even stronger for some time now, it’s hard to understand why we currently pay more for comparable goods. Indeed, this is not simply an exchange rate issue; the price difference you’ve highlighted (i.e. 22 per cent) emphasizes this. Moreover, price differentials vary across makes and models.

“Auto manufacturers and dealers often find it in their interest to charge different prices in different jurisdictions, even for the same product,” says James Brander, professor in the Sauder School of Business at the University of British Columbia. “To maximize profits, there’s nothing that says a sellers’ best price in Toronto is the same as the sellers’ best prices in Detroit or Seattle, from a dealers point of view.”

So are we talking about the same goods? According to GM, you won’t get additional options if you purchase a new Yukon in Canada. This doesn’t just apply to GM; as DesRosiers Automotive Reports tell us, vehicle pricing is a hot-button issue because our vehicles are largely the same as those in the U.S.

Why are prices higher in Canada than the U.S.?

In the past, price gaps emerged largely because of exchange rate differences. This set a price precedent for consumers. Manufacturers have cited the fact that fluctuations in the exchange rate are variable and difficult to predict, and so have not been quick to adjust prices. This has been further affected by the Canadian consumers acceptance of these prices.

“It seems that compared to Americans, Canadian consumers aren’t quite as focused on getting low prices, they aren’t quite as willing to bargain. It turns out that in Canada, sellers can typically get away with higher prices for lots of products, including cars,” says Brander.

Are vehicle prices driven up because it’s more expensive to do business in Canada? “It’s a little bit the dollar, a little bit the difference in the markets, and there are other things like taxes that are different, regulations are a little bit different – they don’t explain the whole difference but they do have an impact. Part of the story is that the manufacturers of lots of products try to prevent cross-jurisdictional competition because it provides them with a better environment for selling their products; there is nothing illegal about this, it’s just normal business,” says Brander.

Canada is a smaller market, which limits scalability and competition. “It’s all about scale; it’s scale which generates competition that drives down prices,” says Dan Trefler, professor of economics at the University of Toronto.

Some companies in Canada bridge the price gap by offering incentives and rebates. Right now, GM Canada is offering $3,500 cash back on a new Yukon. Not every car has a price variable between the two countries. Certain models are on par, and some are even less.

So if you’ve got your heart set on a new Yukon, what’s stopping you from heading south to snag one for less money? Aside from the paperwork, permits, inspections, duties, taxes, brokerage, and potential modifications – when you bring a brand-new GM product across the border, the warranty is void for the first six months/12,000 km.

Unless you switch your choice of vehicle to one with less of a cross-border price differential, why not take advantage of the current rebate, and enjoy all of the other privileges living in this great nation has to offer?

E-Mail Ask Joanne at globedrive@globeandmail.com

READ MORE: All eyes on the U.S. as lofty loonie indicates that Canadians are paying new-car premium for shopping here



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