Suit targets auto price gap in Canada, U.S. (from today's OTTAWA CITIZEN)
Jim Middlemiss, CanWest News Service
TORONTO - The major Canadian and U.S. auto manufacturers are about to be hit with a $2-billion, class-action suit in Canada over their sales practices, which a law firm alleges artificially enhances the price of vehicles in Canada and dissuades consumers from crossing the border to take advantage of a stronger dollar to purchase or lease cheaper vehicles in the United States.
Toronto class-action law firm Juroviesky and Ricci is expected to file the suit on behalf of four Toronto residents who say they paid more for cars in Canada, after factoring in the exchange rate, than the comparable or identical cars cost in the United States.
The suit covers consumers who bought cars between August, 2005, and August, 2007, a period when the Canadian dollar was rapidly appreciating. It also seeks $100-million in punitive damages.
The action, which also names the Canadian Automobile Dealers Association (CADA) and its U.S. counterpart, the National Automobile Dealers Association (NADA), alleges the defendants "conspired to lessen competition and to unreasonably enhance the price of new cars sold in Canada," contrary to the Competition Act.
The suit claims the defendants engaged in a "series of concerted actions, agreements and directives amongst each other" that had the effect of reducing competition in the U.S. and Canadian marketplace for new cars. They did so by attempting to control and limit the cross-shipping of new cars across the border, the suit claims.
Such actions allegedly include:
- Forcing consumers to sign "no-export clauses" in their sales contracts to prevent them from taking vehicles home to Canada or the United States;
- Failing to honour warranties from vehicles purchased on the other side of the border;
- Penalizing dealers who sold vehicles, which were later exported, through the use of "chargebacks" or threatening to withhold inventory or popular styles and colour of vehicles;
- Threatening to terminate dealerships of Canadian dealers that didn't comply.
The Competition Act makes it an offence for anyone to conspire to lessen competition or unreasonably enhance the prices.
William Price, director of legal services at NADA, said he had not seen the lawsuit and was unable to comment.
Neither could Honda or Ford Motor Co. Calls to CADA, General Motors Corp. and Chrysler Canada were not returned.
The plaintiffs' lawyer Henry Juroviesky said "we allege a cross-border conspiracy between U.S. head offices and their Canadian affiliates to each protect the high profits in their respective jurisdictions by not allowing the cross-shipping or import of cars from Canada to the U.S. or the U.S. to Canada."
The suit claims that when the dollar trades below 70¢US, it's advantageous for U.S. consumers to buy cars here, and when it trades above 80¢US, it's better for Canadians to buy cars in the United States because of the pricing differential between the two countries.
Juroviesky said that under the "natural laws of competition," the prices should be comparable, once the exchange is factored in.
"Right now you should be able to go to Buffalo and get a fully loaded Camry for the mid-20s. In a Toronto showroom you're walking out at $36,000 or $37,000 and it (the dollar) is at par."
A recent report from automotive analyst Dennis DesRosiers found the price differential between the United States and Canada is typically $1,000, but goes as high as $7,960 for an intermediate SUV.
This is not the first class action the automotive industry faces over anti-trust allegations regarding Canada-U.S. pricing issues. A similar suit in the United States against manufacturers and dealer associations has been certified, although Toyota has settled for $35-million, but didn't admit to wrongdoing.
"The lawsuit doesn't surprise me," said Bill Osler, president of the North American Automobile Trade Association, an association for car importers and exporters, noting the ongoing U.S. suit and troubles over cross-border pricing in Europe.
"Manufacturers try to charge as much as they can for a vehicle in any particular market. It's easier for them to have different prices in different countries, even if a car is effectively the same."
The case is far from a slam dunk, said Ariel Katz, a law professor at the University of Toronto.
Competition law makes a distinction between vertical relationships, those involving a manufacturer and its own distribution network, and horizontal relationships, those among competing manufacturers.
There is more leeway in assessing conspiracies under vertical relations, he said, as the authorities are sympathetic to companies that are trying to build their markets and protect their dealers' investments. "It allows for exclusive relationships."
When it comes to horizontal relationships, "you have to prove there is a conspiracy, but you don't have to prove the effect of the conspiracy."
Juroviesky isn't overly concerned.
"At the end of the day, they artificially enhanced the price of cars. At this point that is something that is almost factually undeniable."
(anybody can get it with above logic.)
