What to do when auto makers charge Canadians more

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Hi Jeremy and Michael: I have been reading your work for some time (as an avid car buff) but wanted to see if you had any insights into a situation I've come across while mulling the purchase of a 2012 Volvo C30: The Canadian price is thousands more than the price of the exact same spec car in the United States – even if I account for the current $2,000 cash-back from Volvo Canada. Also, in the U.S. you get one more year (20,000 km) of warranty, five years of wear and tear coverage and five years of complimentary factory scheduled maintenance that's not offered in Canada.

Why there is such a drastic difference and why this kind of pricing discrepancy isn't scrutinized more? I realize other car companies have differing prices in the United States and Canada, but most have become much more equitable of late (Lexus and Mini come to mind). Needless to say I'm flummoxed and a little annoyed – and I guess I don't feel like being very Canadian about it. – Steven in Toronto

Cato: Yes, Steven, Volvo charges Canadians more for its cars. But then you have the privilege of buying a vehicle with what we'll call a three-continent connection – Volvo based in Sweden, formerly owned by U.S.-based Ford and now owned by Geely of China. Three continents, one brand.

Don't you think their heads are spinning in Gothenburg, Sweden, Volvo's headquarters? Geography aside, Volvo today is run day-to-day by a German who used to be in charge of Volkswagen in America.

Vaughan: You are a master of the trivial pursuit, Cato. It's genius, really. You insist on dishing out your trove of facts and minor details, all the while avoiding the basic question: Why does Volvo charge more here in Canada than in the U.S.?

Steven is not alone in his outrage. John, a self-proclaimed long-retired diplomat from Toronto, sent along a detailed note comparing V50s and S60s across the border. He had Steven's complaint and he's not alone.

The numbers are fascinating for you, Cato, I am certain. The essence of the note was this: Volvos in Canada are thousands more than in the United States. This is, our dear readers and viewers insist, an outrage.

Cato: I hate to break this to you and John and Steven and many others, but this is how market economies work. Something is only worth what someone else is willing to pay for it.

Look, Volvo Canada sales are up 6.8 per cent this year, in an overall Canadian market up just 1.5 per cent. As long as Volvo Canada's sales don't stall, you and John and Steven and all the rest won't be seeing major price reductions.

Vaughan: My years of schooling you in economics, on the invisible hand and Adam Smith have been a success. Something important now takes space in your otherwise pop culture-addled brain, Cato. How you've managed to pull yourself away from Glee long enough to learn something valuable is astounding.

Cato: Interesting that you, who claims to live in a world unsullied by the concerns of the commoners, knows the name of a popular, sing-along TV show. Hmm. How's that working for you?

Could it be that your pompous sanctimony is an act? Do you have Lykke Li on your iPod and posters of Kings of Leon and Drake on your bedroom wall?

Vaughan: I have no idea what you're talking about, but then I rarely do.

Cato: Since we're talking about Volvo, I thought a reference to Swedish pop sensation Lykke Li apropos. She tells Rolling Stone that she was born with a broken heart and working with you certainly gives me heartburn.

Vaughan: And we're breaking Steven's heart by failing to answer his question properly.

Cato: The best we can do as media types is cast a spotlight on the pricing issue. Over time we've seen quite a few auto makers lower prices or dish out sales sweeteners to level the pricing playing field, north versus south.

If you believe Finance Minister Jim Flaherty and others, including a fairly recent analysis by a Bank of Montreal economist, the Canadian dollar will stick around at or above par for some time to come. BMO suggests until at least the end of 2012. Or longer.

Vaughan: So, Steven, one option is to wait out Volvo Canada. But this could be a long wait. The loonie is not likely to lose altitude very soon. Eventually, as I have taught Cato, market forces will force Volvo Canada's hand. When, is an open question.

Cato: Or Steven can look at reasonable alternatives. I'd suggest a Mini Cooper S ($28,950 base) as one very solid rival to the Volvo C30 T5 starter model ($30,995) – especially given, as Stevie points out, the pricing issue has been addressed at BMW's specialty brand.

Vaughan: Or an Audi A3 ($32,300). And Steven, if you buy a Mini or an Audi or anything else, let Volvo know why.

Jeremy Cato and Michael Vaughan are co-hosts of Car/Business, which appears Fridays at 8 p.m. on Business News Network and Saturdays at 11:30 a.m. on CTV.

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Source: car manufacturers