New car salesrising despite price gaps
In North America, the number of new car sales and leases has been steadily increasing since the late 1990’s. In fact, according to recent statistics released by Statistics Canada, sales of new cars and trucks have risen by a significant amount across every province. Across Canada, new car sales went up on average 12.9 percent this past June. This rise in demand for new cars is juxtaposed with widespread dissatisfaction with the significant gap in new car prices between Canada and the United States.
Although the Canadian dollar has just recently fallen bellow parity to the U.S dollar, the two currencies have been equal (with the loonie often surpassing the U.S dollar) for some time now. The Canadian economy withstood the economic collapse relatively well compared to our neighbours to the South, and as such the currency has been strong. This comparatively stable currency has not been reflected in the cost of many goods however, particularly innew car sales. For example, a GM Yukon is at minimum $11, 000 more expensive when purchased from a Canadian dealership as opposed to an American dealership.
Price differences between goods in Canada and the U.S could previously be explained through exchange rates and the subsequent price adjustments. Due to the long history of many goods being more expensive in Canada, consumers have become accustomed to a price gap. The industry dealing with new car sales is no exception. Thus, dealers can get away with charging Canadians more for their new cars, even if the exchange rate is close to parity.
Additional explanations for the difference in price is differing safety and environmental regulations, and higher taxes. This would be a completely legitimate explanation if one were explaining the higher price of a car in a Scandinavian country for example, where environmental regulations and taxation on cars are significantly higher. However, the regulatory difference between American and Canadian vehicles is not significant enough to cause such a wide price gap.A more viable explanation is the smaller size of the Canadian market and the resulting limitations of scale, which affects the amount ofcompetition that drives down prices.
Despite the perceived widespread unfair price differences,many Canadian car companies are responding to the concern over price differentials by offering cash back deals on new car sales. This response has resulted in some makes and models being on par with prices in the U.S, and sometimes even less. This is evidence of the effects of Canadian consumer expectations and habits; Canadians are used to paying more for the same products. It is thus a very wise decision to research which model of car is going have the smallest price differential, and if there does appear to be a significant gap, to enquire if there is a rebate or other form of incentive to make up for the difference.
Although many Canadians have begun to flock to the U.S to purchase ‘cheaper cars”, the expense of permits, inspections, taxes and other associated costs when buying internationally, would amount to more than the original price gap in most cases. New car sales do not appear to be effected by those who buy from other countries, which is indicative of either long standing habits, or the gap reducing efforts of car companies. Either way, new car sales appear to be unaffected by the price gaps, and in fact as shown above, are increasing despite it.