Foreign Exchange: The Americans Are Coming!

AutoJournal

Amounts shown represent the difference from Canadian models to US models, after converting to Canadian dollars.
(Photo: Canadian Black Book)

Thanks to the lower Canadian dollar, American dealers are buying up used Canadian vehicles at a discount.

We’re always looking for a deal. Even those of us who are financially comfortable are prone to thumbing through the Canadian Tire flyer, or maybe splurging on a new suit, just because there was an “end of season” sale.

Not all sales are created equal, though. Many of those we see in our daily lives are engineered by retailers trying to urge us to part with some cash. And deals of a different sort are happening in the auto world these days. They’re not created by any one firm or individual, but rather by the financial markets and by the factors that inspire foreign exchange – in particular Canadian and US dollar exchange rates.

There has been a lot of noise made about US buyers snapping up vehicles at Canadian auctions with exchange rates tilted firmly in favour of those paying in US dollars. It is hard to blame those buying here from out of country. It was not that long ago that we Canadians were buying in the US as fast as they could load the trucks and process the paperwork at the border.

Today, we see a great number of buyers from the US – according to some of our auction staff – buying all they can get their hands on, especially trucks. While the last statement might be a little bit dramatic, there certainly are times when US buyers are using their dollar to throw their weight around.

Consider why. At the time this was penned, a quick check on Bank of America’s website indicated that they would exchange US$10,000 for $12,578 Canadian – that’s nearly a 26% bump in buying power! If they were to ask their bankers to exchange US$500,000 they might even get a more favourable rate. If not, that US buyer would still have CA$628,930 to spend here.

That gap is made even more substantial when we look across the border at the wholesale value of vehicles. Using data from Black Book USA we have examined the values to get an idea of where the differences are. We see distinct differences from segment to segment, as well as in the age of the vehicles.

To examine the differences we used the exchange rate published by Bank of America on September 8, 2015. We then applied the exchange rate to the Black Book USA values to find what the Canadian equivalent price would be. Starting with age, we looked at vehicles that were from one to seven years old (2008 to 2014 model years). A pattern emerged: As the vehicles got older, the values drew closer together, although there was still an advantage for the US buyer.

The difference in value for model year 2014 vehicles averaged $2,835. That may seem high, but it does not consider transportation charges or costs incurred by the importing dealer to convert the vehicle to conform to US regulations. Considering those expenses, it may erode the up side enough that US dealers might not be interested. From there, down the age scale, the differences are up slightly for 2011 – 2013 models, and down from there, ending at $1,237 for 2008 models.

Nothing much to be concerned about then, right? Well, looking more closely at individual segments begins to open up some more sizeable differences. One of the budding new segments tops the list of vehicles where US buyers stand to gain the most. Granted, there are only two model years of history. If there was a complete seven-year cycle to average the segment over, there might be a different story.

The segment that has the greatest difference, and across all of the model years considered here, it is the full-size car. In this case, the US buyers have a $4,533 spread to work with. Considering the Canadian market’s general disinterest in these vehicles, and the American market’s inclination towards that larger side, it does not come as a great surprise to see this segment at the top of the list.

Full-size vans were next on the list, followed by pick-up trucks. It is pick-ups that we hear most about from our auction surveyors and from dealers – this is where fierce bidding takes place. That’s not surprising, given the seemingly never-ending appetite for trucks on both sides of the border. Add to the demand the fact that US dealers have an average of $3,800 extra to bid with, and it will take a very determined Canadian dealer, with plenty of floorplan financing headroom, to win a lot full of trucks at auction.

One segment stood out as a “bad buy” for US dealers though – premium sports cars. That type of vehicle often sees lower prices in the US than in Canada as new, and it seems they are less likely to be a deal here after they become used too.

Dealers are likely very aware that we need an 85¢ dollar to slow down US buyers, and a 90¢ dollar will pretty much put an end to US buyers here altogether. Those numbers seem far away right now, and the foreign exchange is very dependent on the price of oil, which is not going to see sustained higher prices in the short-term. So the US buyers are here to stay, unless US values drop enough to make them stay at home.

Perhaps Canadian dealers will have to begin buying in Mexico or Peru. Or perhaps we will have to continue what we started when supply shrank so sharply in 2011 – to hunt down good quality trades. Even if you have to pay more than you feel comfortable with, there’s likely a US dealer waiting at auction for it.

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