Canadian Customers Migrating South

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SHOULD OEMS ADJUST PRICES when they sell products across the border to reflect short-term changes in currency exchange rates?

It's more than barroom chatter. There's a heated border battle up north, where Canadian dealers are screaming about the price differences among machines being sold on both sides of the border. With the U.S. dollar and the Canadian dollar now about equal (the dollar was worth about 1.60 Canadian five years ago but slipped to $1 in mid-September) it's a no-brainer for Canadians to buy a sled or an ATV in the U.S. and pocket the difference.

The net result is that Canadians are buying more from U.S.-based companies. But when one seller somewhere is happy, there's often another seller close by who's not. That's true among dealers located along the U.S.-Canadian border.

Let's assume, for example, that a U.S.-based OEM sells ATVs in the U.S. and Canada. Let's assume, also, that the OEM set the pricing five years ago on its Spiffy model ATV at U.S.$10,000 when the dollar was worth roughly $1.50 Canadian. That same Spiffy model ATV would then carry an MSRP of Can$15,000 north of the border. Canadians would pay Can$15,000 for the machine whether they purchased it in Canada or drove across the border to buy it in the U.S. But they wouldn't buy in America, in most cases, because there would be no savings in making the purchase in the U.S.

Fast-forward five years, and the U.S. and the Canadian currencies are basically equal. What happens now? If the U.S. manufacturer doesn't change its price structure, that U.S.$10,000 model Spiffy ATV still costs Can$15,000 in Canada, but it costs only Can$10,000 in the U.S. because both currencies are equal. The price differential as I write this in November is about 30 percent.

So Canadians pour across the border pushing wads of cash at U.S. dealers so they can buy a Spiffy ATV and save Can$5,000. Meanwhile, Canadian dealers are standing around in their empty stores watching traffic head south. At the same time, OEMs are making substantial profits on any machines that they sell far away from the border.

The net result: Canadian dealers say they are dying, American dealers are all smiles, and OEMs are straddling the border, trying to keep everybody happy.

FIGHTING MAD

Canadian dealers are demanding action from OEMs operating on both sides of the border. They're bringing political pressure at home on BRP, which is based in Valcourt, Quebec. The OEM has a good number of dealers in both countries, especially in the northern U.S.

Dealers argue that automakers have adjusted prices, and they are demanding that their OEMs do the same. According to one analyst, car and truck prices cost about 20 percent more in Canada than the U.S. for comparable models last summer. "It's much cheaper to buy vehicles in the States than it is in Canada," says Alex Rosten, an analyst with Edmunds.com.

Or take a Honda Foreman ATV that carries a U.S. MSRP of about $6,650. The Canadian MSRP for that same machine is about $9,500, a difference of more than $2,500 or about 27 percent. That's worth a drive across the border for many consumers.

"Ask (your DSM) why your company is not adjusting prices like Ford and other auto companies," wrote Stephen Bieda to Canadian dealers in 2007. Bieda, a powersports dealer, represents the 1,150-member Canadian Powersports Dealers' Association.

While individual OEMs treat the situation differently, BRP has told its U.S. dealers that they are prohibited from selling to consumers from another country. BRP's policy forbids U.S. dealers to sell to Canadians and Canadian dealers to sell to U.S. citizens.

BRP spokesman Pierre Pichette said the company always has assigned geographic boundaries to its dealerships and has enforced these rules with financial penalties. The financial penalties include an adjustable surcharge of about 7 percent on sales by U.S. dealers to Canadians.

BRP's actions were taken to protect Canadian dealers, according to published reports. "They said it's to protect Canadian dealers," Ron Thompson, owner of Gateway Sports in Grand Forks, N.D, told CanWest News Service. "But when the Canadian dollar was at 70 cents and Americans were going north to make their purchases, nobody was protecting my interests."

Therein lies the problem. OEMs are reluctant to cut prices unless competitors do the same because they might leave money on the table. And, given the nature of currency fluctuations, it's possible — but not too likely — that the exchange rate could reverse itself in the near future. In fact, one OEM executive noted that some of the loudest complainers among Canadian dealers were the ones making the most money when Americans were buying in Canada.

"We try to help our dealers," Pichette says, "but it's difficult when we have competitive pressures, and the dealers want to have it both ways." — Joe Delmont