As reported here, parity between the U.S. greenback and the Canadian loonie has left many Canadian car buyers with a serious case of sticker shock. To rectify the disparity between U.S. and Canadian prices (albeit belatedly and reluctantly and only after a flood of cross-border shopping and probably more for their dealers' benefit than their customers), Chrysler and Porsche recently lowered their prices north of the border. GM is taking a different route, one with which they are no stranger: incentives. GM Canada has announced cash incentives ranging from $1.5k to $10K and a one percent reduction in the GST (Goods and Services Tax) two months before the government is scheduled to lower the tax. The press release doesn't say how long the incentives will remain in effect. Why incentives rather than price reductions? Incentives can be quietly phased out or terminated while raising prices after a few months would draw unwanted attention to the price "adjustment."
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GM’s pricing tactic makes sense if you believe the Greenback will recover.
The loonie’s lost more than three cents since Thursday afternoon. It is a highly volatile currency and it is hard to project where it will be in five days let alone five months.
I wouldn’t exactly call the amount of cross-border car buying a “flood”. According to the most recent stats, it is up about 10% year over year.
With the overwhelming majority of people financing or leasing their cars, it does not make sense to go south (you can’t get US incentives if you don’t live there). What the parity or parity-plus issue is doing is paralyizing the buyer into not making a decision for fear he or she is paying too much. Dealers are saying all they hear these days is “what’s the price versus US?”
Cashbacks are the right way to go. However, what every buyer forgets is for every dollar cut on the price of a new vehicle will also be cut on the value of a trade in. Porsche cuts the price of new vehicles by 10%? Guess what the new price of a used one will be?
Come to Canada for great used deals in the next year or so!
Manufacturers in Canada are facing a “credibility gap” with customers. They have gone from saying that vehicles are reasonably priced as per the market, to applying rebates in the space of a few weeks.
Its an example of “empowered customers” literally telling the manufacturers what to do, and in some cases where to go. The manufacturers in their “wildest dreams” did not anticipate such pro active, empowered, bold response from customers across Canada.
The “cash back” is a reactive measure on the part of manufacturers to temporarily appease their dealers, and potential customers. At the same time cash backs raise the level of confusion as to the real price of a vehicle.
If 50% of new vehicles are leased in Canada, and they are all “walk away” leases does the lessee care about the value?
If 50% of new vehicles are leased in Canada, and they are all “walk away” leases does the lessee care about the value?
They don’t care about the value of their old vehicle but they sure will care about the payment of the vehicle they get into!
We’ve seen how a hit to residuals can affect the market before. Domestics are used to being hit hard in this way, imports… specifically Toyota and Honda have yet to experience this.
Mazda is doing the same thing with the 1% GST cut right now and I thought that Chrysler was also doing ‘incentives’ not acutally cutting the MSRP.
Manufacturers all know the “price point” of their various models, they can get to the price point in several fashions. High MSRP accompanied by a high residual, or lower MSRP accompanied by a lower residual same monthly price point.
Manufacturers adjust residuals to achieve a price point, its their decision, and a certain residual hit is part of achieving the price point, and stealing business from another manufacturer in that specific market segment.
Aside from Porsche, no one has come right out and said “we’re permanently lowering prices”. Just about everyone has a program to offset the upcoming 1% GST cut (they learned from the last 1% cut in 2006).
Still, some of the cashbacks are huge, especially on SUV’s, luxury cars and HD-series trucks.
I’ve heard Acura, Lexus, Audi and BMW are especially concerned about the medium-term impact these price adjustments will have on their sales.
Manufacturers can set their residuals as they please but unadjusted residuals are set by companies such as ALG.
A manufacturer “pads” a residual at their own risk as they have to then assume the risk of lower true market value at the end of a closed-end lease. Sometimes the risk pays, sometimes not. At this juncture, I would think manufacturers are not in the forecasting mood.
Canadian tax law states purchase incentives are applied after taxes are paid. A price reduction, however, is applied before sales tax is calculated, saving the purchaser an additional ten to fifteen percent.
Car manufacturers could provide customers with a significantly stronger benefit without additional cost if they gave a damn about them. Unfortunately owners have never figured large in their business philosophy.
Canadian tax law states purchase incentives are applied after taxes are paid. A price reduction, however, is applied before sales tax is calculated, saving the purchaser an additional ten to fifteen percent.
Depends on how that incentive is applied. If it a manufacturer to dealer incentive, it can be taken off the final acquisition price before GST and PST are applied. If it is customer cash, then yes, taxes are payable before cashback is deducted.
Most cash incentives are of the manufacturer to dealer variety.
ALG establishes residual guidelines using auction data. Its easy for any captive finance company to use ALG as a basis for residuals, and residual losses.
Cash backs especially towards the end of the year are a simple decision with no long term implications. Manufacturers have no desire to alter their course, cash backs are a temporary relief to the situation, its not a solution.
Customers will quickly get tired of confusing cash backs, and start demending what the real Canadian price.
Customers will quickly get tired of confusing cash backs, and start demending what the real Canadian price.
Kind of hard to offer a long-term solution to a currency valuation that has jumped 25% in the last year. What if that value drops 25% next year or 15% or 30%? Do we let prices float with the loonie? Do you think customers are going to go for that?
“Sorry Mr. Jones but the dollar dropped 10% this week so your car is now 10% more expensive than it was before… I know you won’t mind because you’ve demanded we price our vehicles in relation to the C$ value to the US$.”
Cashbacks are really the simplest and only viable way to address price concerns until the C$ flattens out a tad.
There is nothing on the GM Canada site about its promotion’s tax status. Chrysler Canada clearly specifies its similar sounding Consumer Price Adjustment will be deducted from the negotiated price AFTER applicable taxes.
At the end of the day its the customer that has to see value in Canadian prices. The customers are not buying into the value of the prices. Manufacturers are attempting to put value in Canadian prices by offering cash backs.
If prices remain artificially high, with monthly cash backs applied to the prices to assuage a customer that questions the credibility of manufacturers it will get worse.
Manufacturers cannot lose face, and blatantly admit that the prices are too high, they apply selected cash backs, with selected conditions, on selcted models, to encourage customers to buy in Canada.
Manufacturers dug in their heels, and blatantly said this is the price that the Canadian market will support. The market is blatantly telling manufacturer we don’t believe a word of what you are saying.
It goes beyond the exchange rate, manufacturers know it, Canadian customers know it too, the cash backs are a temporary solution until manufacturers establish a credible Canadian price for their vehicles. The price of Canadian vehicles was not suddenly too high last month, its been too high for quite some time.
Come January what are they going to say?
I agree that Canadian prices do not reflect the current perceived market value.
This issue should have been raised two years ago when the dollar started to stay above $0.75 US consistently but it didn’t. Canadians didn’t even think too hard when it started to hang around $0.90 US. However at parity, look out, we’re being ripped off.
What’s the fair price of a vehicle in Canada?Whatever the market will bear. As for manufacturer credibility, the average joe could give a monkey’s. The chattering classes talk can talk about credibility and whatnot, the consumer says this is what I want, how much is it.
They could care less how you get there.
It was reported yesterday by the CBC that 25,000 people have purchased vehicles in the USA so far this year!
Most of the Showrooms of dealers are not well occupied at this time, I was in one on Saturday a Toyota one that was almost empty of Customers. On the Auto Show on CP24 last evening(Sunday) the Host said that Canadian customers are boycotting dealers.
There is nothing on the GM Canada site about its promotion’s tax status. Chrysler Canada clearly specifies its similar sounding Consumer Price Adjustment will be deducted from the negotiated price AFTER applicable taxes.
Legal disclaimers are there to act as boilerplate to avoid any issues of disclosure. If the consumer does not need to be advised on a cash incentive (such as a manufacturer to dealer credit) then it will not be disclaimed.
Hate to say it, but the little disclaimer at the end “see dealer for details” of most legal text is how you will find out what’s available on a certain model. Unless you can finagle a spreadsheet of current offers from somewhere.
I’m sure its on the net somewhere.
Canadians woke up with a vengence in the past 60 days. The individual looking for a 20 to 25K vehicle does not pay too much attention to the price differences since they are not dramatic.
It would seem that the prices on the less expensive vehicles are “somewhat fair”, on the more expensive vehicles the prices are “not as fair”.
Jim Kenzie took Ford to task on Saturday with the Canadian pricing of the Mustang Bullitt. Today in Automotive News a BMW dealer in Vancouver is not comfortable with an excess of new vehicles in inventory from 400 to 576, and lower used sales from 50 down to 25. From the same article a Volvo dealer in Toronto is complaining of slow sales is November.
If an individual is considering a Fit, Echo, Cobalt, Versa, Mazda 3, the price differential is not a deterrent. The individual looking at a BMW the price differential even with a cash back is a deterrent.
So as of five minutes ago, the loonie is down under $1.04 US versus $1.10 on Thursday. We’ve had a 5.4% swing in valuation in four days to the negative. Somehow, retailers and manufacturers are supposed to respond to this?
When (and not if) the B of C lowers the prime rate, the dollar will go into a tailspin if this is the kind of speculative trading propping up the dollar.
As for luxury makes, what is a manufacturer to do? If they drop prices that means the bottom falls out of the resale value of these units. Inflated values work both ways.. used prices for Canadian units are higher than US units. As I said, at a stroke Porsche slashed the value of every existing customer’s Porsche in Canada by 10%, do you think they’ll be happy about that?
$1.0309 US at the close of trading.
We are on 2 different buses here, if you agree that the price of new vehicles are too high in Canada which is the general opinion of potential customers. The exchange rate between the Canadian and US currencies merely drives the message home.
The CDN dollar needs to be 1.03 to get a US dollar since most fiancial institutions charge between 2 and 4% to exchange funds.
The monthly programs that manufacturers apply dilute used vehicle values, the present cash backs dilute used vehicle values. The US vehicles being imported dilute used values.
The discrepencies are not as glaring with lower line vehicles, Canada has historically been a market for lower line vehicles compared to the US, lets all close our eyes and keep on driving lower line vehicles to keep the manufacturers happy with their pricing strategies.
Porsche prices in Canada, have evolved from being intellectually obscene, to being insulting.
If an individual is considering a Fit, Echo, Cobalt, Versa, Mazda 3, the price differential is not a deterrent. The individual looking at a BMW the price differential even with a cash back is a deterrent.
Not necessarily true. What if you could get a loaded Civic down south for the price of a Fit up north?
What if you look at the 24,000 needed to buy a Civic EX and realize you can buy an Accord EX-L with the same money across the border?
It impacts all segments, I’d say.