The "gray market" that enabled U.S. dealers to sell tens of thousands of new vehicles imported from Canada has virtually dried up. The once-heavy flow of used cars and trucks from Canada has slowed considerably as well.
The number of gray-market and used vehicles imported to the United States from Canada fell to 96,621 in 2003, down 54.3 percent from 2002, says Dennis DesRosiers, an industry consultant in Toronto.
Similar figures for 2004 aren't available. But U.S. importers and dealers agree that the booming vehicle trade from Canada has gone bust.
Several factors have combined to slash U.S. vehicle imports. The Canadian dollar has strengthened against the U.S. dollar, making imports relatively more expensive.
At the same time, many automakers are refusing to honor warranties on gray-market vehicles sold across borders. In previous years, a weak Canadian dollar and the conformity of U.S. and Canadian vehicle standards made Canadian vehicles attractive to American dealers. They would import new vehicles and resell them, as used, at a handsome profit.
Most vehicles imported to the United States from Canada are genuinely used. But during the peak import years, up to 12 percent were new, DesRosiers estimates.
DesRosiers says his analysis of U.S. Department of Transportation data shows the number of gray-market and used vehicles imported from Canada soared from 15,840 in 1994 to 211,797 in 2002.
Michael Haddon, CEO of American Vehicle Importers in Port Huron, Mich., says his business has declined so much that he has laid off half his staff of 14. He and his wife, Josie, started their wholesale auto auction business in August 2003.
"We went from (importing) 1,000 vehicles a month," Michael Haddon says. "Now it's a struggle to do 100 a month."
Most automakers sell new vehicles to Canadian dealers for less, in U.S. dollars, than they do to U.S. dealers. Incomes in Canada generally are lower than in the United States, and sales and excise taxes are higher.
The price policy helped create a vibrant U.S. gray market, especially when the Canadian dollar was weak.
To discourage the sale of gray-market vehicles in the United States, many companies stopped honoring warranties on those vehicles.
That crackdown spawned consumer lawsuits starting in early 2003. They charged that U.S., German and Japanese automakers were conspiring to violate U.S. antitrust laws. Those suits are pending.
The suits allege prices of new cars are 10 percent to 30 percent lower in Canada than the prices of comparable models sold in the United States in U.S. dollars.