DETROIT - Moving to slam the door on the booming trade in gray-market vehicles from Canada, Chrysler group says it will not honor warranties on 2003 cars and trucks bought through unauthorized channels.
Dealers were to be notified of the action by e-mail Sunday, May 19 - two weeks before the automaker begins taking orders for the 2003 model year. Gary Dilts, senior vice president of sales, said dealers were given two weeks notice "so that no one can say they didn't know."
Although gray-market dealings violate both Canadian and U.S. dealer franchise agreements, the lure of huge windfall profits has attracted hundreds of dealers to the cross-border trade.
Some dealers said last week the profits on gray-market vehicles are so large Chrysler's action is unlikely to eliminate the practice.
With last week's decision, the Chrysler group becomes the first of the Big 3 to take action against the gray-market trade. Chrysler group executives said company audits show that at least 15 percent of the 200,000 gray-market cars and trucks imported into the United States last year were Dodge, Chrysler or Jeep vehicles.
Each of those 30,000 vehicles represents lost revenue and profit for Chrysler because it, like automakers, sells vehicles to Canadian dealers for less - often thousands less - than what they charge American dealers.
Thus every vehicle a U.S. dealer buys in Canada at a discount is a vehicle the factory cannot sell at the higher U.S. wholesale price.
Automakers defend the subsidy to Canadian dealers as a necessary evil to maintain a healthy market in Canada. Incomes are generally lower in Canada than in the United States and sales and excise taxes are higher, meaning vehicles are less affordable.
"If we priced the same way in Canada, all we would sell would be Neons and regular-line vehicles," said Steven Landry, vice president of business center operations.
Beginning today, Chrysler will begin advising brokers, fleets and auctions on both sides of the border about the warranty action to stress the importance of telling buyers that a gray-market vehicle from Canada has no warranty, Landry said.
Chrysler's move gives U.S. dealers three strong incentives to stop selling gray-market vehicles: the unhappiness of customers whose warranty claims no longer will be honored; the loss of warranty service business; or the added expense of providing supplementary service contracts on their own.