February 6, 2002
Auto manufacturers shouldn’t be allowed to stop Canadian dealers selling cars in the U.S., says trade association
Richmond Hill, Ontario – After the European Commission released proposed rule changes yesterday to stop car makers from banning cross-border sales in Europe, the North American Automobile Trade Association issued a call for auto manufacturers in Canada to stop penalizing Canadian dealers for selling vehicles in the U.S.
“When car manufacturers are allowed to stop vehicles from crossing borders simply to restrict supply or inflate prices, the consumer loses. Independent dealers and the public should be allowed to buy vehicles for export. It increases competition and provides consumer alternatives. It’s healthy for the market,” said Brian Osler, President of the North American Automobile Trade Association (NAATA).
Osler said that manufacturers typically set prices at whatever the market will bear. This means that consumers in one country pay more money for the exact same car than people in another country. “Consumers in Britain typically have to pay thousands of dollars more for identical cars compared to people on the continent. These pricing policies also exist in North America, where Americans are forced to pay thousands more for the same car than Canadians.”
In North America, car buyers in Canada are often required to sign agreements that prohibit them from exporting vehicles to the United States. Manufacturers also penalize their Canadian dealers when they sell cars that end up in the United States. The European Commission has decided that this kind of behaviour is anticompetitive and has imposed significant fines on offending car makers. In October 2001, DaimlerChrysler was fined 71.825 million euros (approx. $63 million U.S.) for prohibiting their dealers from selling outside specified territories. Volkswagen was previously hit with a bigger fine.
The new rules in Europe will come into effect on October 1, 2002. For the first time, new vehicle dealers will be allowed to sell more than one brand. Manufacturers will be prohibited from reducing allocation and imposing financial penalties on dealers who sell across international borders. Manufacturers will also have to provide independent vehicle repairers access to parts, technical information and training.
“This is a key development for fairness in the market”, says Mr. Osler. “Manufacturers don’t want to lose their ability to keep prices artificially high in the United States. Car makers on this side of the ocean should take note of what is happening over in Europe. If they continue to hit Americans with higher prices and try to keep Canadian cars out of the market, they will face repercussions here too.”
Car manufacturers often claim that export restrictions are needed to subsidize the Canadian market and protect franchisees. “This is a huge myth perpetrated by manufacturers”, says Mr. Osler. “Vehicle manufacturers are sophisticated companies run by people who are too smart to sell products at a loss. The Canadian market is not subsidized and manufacturers do not lose money selling in Canada. Otherwise they wouldn’t fight so hard for market share. The bottom line is that Canadians are willing to pay less for cars. It’s not fair to ban Americans from access to Canadian dealers and freedom of choice.”
Similar pricing policies in other industries attract public outrage. Mr. Osler notes that “Airlines are notorious for charging different prices for the same service. People hate it when they pay more money for the exact same item than the guy down the street. Car manufacturers do exactly the same thing.”
NAATA does not expect prices to rise significantly in Canada if manufacturers were prohibited from stopping export sales. Mr. Osler says, “Simply put, Canadians are not willing to pay as much as Americans for their vehicles. If manufacturers raise prices on new cars in Canada, consumers will buy used product instead. With enough choice in the marketplace, people will buy the best quality at the best price. That’s what competition is all about. Our government should encourage that.”
NAATA’s mandate is to facilitate the trade of motor vehicles across international borders by independent dealers.