However much havoc the lately devalued American dollar is causing on markets all over the world, it is certainly distressing manufacturing industries in Canada.
For instance, a major western Canadian printing company I have had dealings with for many years is suffering mightily. As the Canadian dollar declined down to the 70-cent [U.S.] level five years ago, the company’s pricing structure became ever more attractive in the United States. As its export business soared, it invested in high-cost sophisticated equipment and vastly expanded its staff as well.
Within the past few months, all this has radically changed. As the Canadian dollar climbed first to reach par with the American, then to top the American by as much as 10 cents, the effect was to raise my friend’s printing prices accordingly. A job that had sold for $70,000, now sold for as much $110,000. Customers deserted him in droves.
Much the same thing must be happening to every Canadian manufacturer whose business lies largely in the U.S. This cannot bode well for the Canadian economy, particularly in the manufacturing centers of southern Ontario and Quebec.
At the same time, the price of American printing fell accordingly, and the Free Trade Agreement between the two countries meant that my printer friend’s Canadian customers likewise began considering shifting their orders to the south where they could come back duty free.
Canadian automobile retailers have a similar problem. Even when the Canadian dollar was low, it was sometimes narrowly profitable to buy a car in the U.S. and import it into Canada, because American retail prices have always been substantially below Canadian.
Now, however, the differences are startling, and the rumors surrounding them more startling still. One model pickup truck that costs $65,000 in Canada is said to cost only $42,000 (Canadian) in the U.S. The Chrysler 300-C, selling at about $52,000 in western Canada can be had in the U.S., so the story goes, for $38,000 (Canadian). The Jeep Patriot 4-by-4 SUV running from $28,000 to $30,000 here is offered there at $22,000 (Canadian).
The fee for bringing the vehicle back into Canada is $206.70. Canada Customs warns, however, that not all new vehicles on sale in the U.S. meet Canadian standards. It publishes a list of non-acceptable models on its website.
Stories abound of Canadians from the Yukon and the Northwest Territories, where prices are higher still, organizing family excursions to Las Vegas, where they buy a car or truck and drive it home, saving a net $10,000 in the process.
Canadian dealers, some of whom admit they’re feeling an exodus of customers, fight back in a number of ways. Some say they will not honor the warranty on American cars, a dubious threat untested in court. American dealers have customarily honored the warranty on Canadian vehicles that require service in the U.S.
The manufacturers also warn American dealers near the border not to sell cars to Canadian residents, another rule of doubtful efficacy since most Canadians have kinfolk in the U.S. who would be happy to buy the car on their behalf, then re-sell it to them. In any case, the rule itself would seem in clear violation of the North American Free Trade Agreement. Not that anybody would be willing to take the issue that far.
Prime Minister Stephen Harper urged caution last week and allowed that the high Canadian dollar was a subject that required “reflection.” It must certainly be getting much reflection and then some in the Canadian retail automobile trade.
Under the free-enterprise ideal, of course, the Canadian prices should be coming down to meet the American competition. Presumably, if the average Canadian can buy a car for much less in the U.S., so can the Canadian dealer. In other words, they should be doing what my friend the printer is having to do to remain competitive. So far, however, there has been little evidence of this.
Meanwhile, the industry is no doubt on the watch for freelance importers, who buy large numbers of cars in the U.S., bring them into Canada and peddle them here at sharply reduced prices. Rent a vacant lot, put the cars on them, and sell ’em all on one weekend. Nothing to it.
All perfectly legal perhaps, but something the Canadian retail auto industry would not welcome. Even so, how could they prevent it? “Bootleg automobiles,” they might call them, but they would be the same ones that are on sale in the showrooms at much higher prices.
So here’s an investment opportunity for somebody. I’m available as a consultant.
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