Toyota Fires the First Volley in Possible Canada Price War
By Chris Haak
02.05.2008
For the past six months, the Canadian dollar has been roughly equal in value to the US dollar. In fact, from time to time, the “Loonie” actually passes the “Greenback” in value, meaning that those Canadian quarters that you’d used to find in your change and mutter under your breath about actually are worth more than 25 cents.
The problem for Canadian consumers, however, has been that automobile prices do not reflect the reality of the current exchange rates. Pretty much every vehicle is far more expensive in Canada than the same vehicle would be in the US. Many Canadian consumers have decided to buy their new vehicles in the US and import them into Canada, as sort of “gray market” imports, but the government sometimes makes registration difficult, and many manufacturers will not honor the new vehicle warranty for Canadian residents who buy a new vehicle in the US. (The exception to the warranty issue is Toyota; if a Canadian resident purchases a new Toyota, Scion, Lexus, or Subaru in the US, the warranty is still honored; however, at least for Subaru customers (and perhaps the other brands as well), the repairs must be paid for in cash, then submitted to the company for reimbursement.
The complaints have gotten louder over the past few months. Porsche was one of the first to lower prices in Canada, although they still were not as low as they were in the US. But over the weekend, Toyota announced that it was lowering retail prices on 16 different models between $750 and $8,100. Even after these adjustments, the prices are still not in line with US prices.
For the past few months, in an attempt to keep new car sales within Canada’s borders as consumers got wise to the price disparity, manufacturers have been offering cash back rebates. The net effect on transaction prices may be minimal, as they will probably be closer to MSRP than they have been. Still, the move allows Toyota to trumpet lower prices in advertising and in online price comparison tools (some of which exclude rebates). The question isn’t whether someone will follow Toyota’s lead, but when they will.
I can appreciate the difficult situation that Toyota and other manufacturers find themselves in. On one hand, they realize that by charging exorbitant prices for their vehicles, they are potentially harming sales and alienating consumers. On the other hand, lowering prices will reduce their profits and lower residual values for cars already sold. The effect of lowered residual values will be dissatisfied consumers whose vehicles have significantly dropped in value, plus the company being on the hook for vehicles worth much less than expected at the end of leases.
Let’s see who makes the next move in this possible price war.
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