Want to save thousands on a new car? Head south
Published in The Financial Post, April 21, 2011, Written by Garry Marr
Frank Wiginton has something to declare. He likes the strong Canadian dollar.
When the Toronto certified financial planner pulled in to talk to a customs officer, he probably had a few more purchases to come clean on than your average Canadian returning from a visit to the U.S. He had just bought a Toyota Camry while visiting his in-laws in Rhode Island - and saved a few thousand dollars.
"We pretty much only buy our [major] goods down in the U.S. We have to buy our daily living stuff while in Canada but anything like electronics, clothes or any special stuff we do it down there," says Mr. Wiginton, who along with his wife and daughter turn vacations into heavy but judicious spending.
And why not? The data is clear that Canadian consumers can save major bucks if they head south of the border to buy their goods.
A Bank of Montreal study released this month looked at a basket of goods and found on average Canadians were spending 20% more here on the same items that could be found stateside. With the dollar at par and now above, the discrepancy is clear.
Canadians have figured it out because spending in the U.S. has lurched ahead over the last year, according to Visa Canada. The credit card company says visitors spent $9.2-billion in the U.S. in 2010, more than triple of any other nationality, and an 18% jump from 2009.
As Mr. Wiginton found out, the savings can be huge when you get to the big ticket items.
"Buying a car in the U.S. was a bit of challenge because there is so much to figure out to do that," says Mr. Wiginton, who looked for a car manufactured in North America that would be covered by the North American Free Trade Agreement and therefore not subject to duty. "I paid $18,000 and change for a $26,000 car. There was no HST at the time, so I just had to pay GST, there were no other fees."
As a financial planner, Mr. Wiginton said it's easy to justify a vacation that includes a shopping expedition for major purchases like a computer and stocking up on clothes. Make it part of a vacation and you can take advantage of the $750 personal tax exemption every Canadians gets if their visit is longer than seven days.
"Always declare everything. It's just not worth the hassle. If you say nothing, they are just going to search your car and you're going to be in a lot of trouble. Most of the time they don't even ask you to pay duty," says Mr. Wiginton, who declared $2,900 in goods on his last trip and paid no tax because the custom's officer just didn't care.
Canada Border Services Agency, which is responsible for administering duty, won't offer any clues on whether there is any rhyme or reason as to who gets stopped. "The CBSA will not speculate," said spokesperson, Esme Bailey, in a email.
She did point out the heavy penalties for not declaring. Your goods can be seized and you could pay anywhere from 25% to 80% of the price just to get them back.
In a recent case, a Canadian bringing back a car declared it worth US$21,000 but CBSA later found the value to be $29,000. The car was seized and the owner had to pay $4,426.40 to get the vehicle back, even though the extra duty owing on the real price was just $402.40.
If you don't want to figure out the red tape yourself, there are plenty of car brokers who will help you bring a vehicle across the border for a fee. Even with the broker charge and potential duty there is savings leftover, says Viraf Bailwalla, owner of Automall Network Inc.
"The pricing in the U.S. for higher end vehicles is just lower than comparable Canadian vehicles," says Mr. Bailwalla. "Look at a BMW, even after paying 6.1% duty, you are still saving $10,000 to $12,000."
He says you can buy a car on your own but you'll have to deal with some issues like registering your vehicle and making sure it conforms to local standards, which might include something like installing running lights.
You probably want to make sure the car has a transferable warranty but even if doesn't in many cases you could buy a third party warranty for your car and be ahead of the game financially.
Doug Porter, chief economist of Bank of Montreal, notes there was time when the opposite was true and Americans were heading up here for deals on cars. Much of trend to shop in the U.S. is driven by the value of the currencies -- when the Canadian dollar is strong, we head south.
Still, he says, border restrictions since 9/11 have made consumers less willing to shop in the U.S. until more recently when the currency makes it really worthwhile.
"We are not seeing the numbers we had in 1990s when the currency had a bout of strength," said Mr. Porter. "Cross border shopping does seem to pickup when the loonie goes above 90¢."
Beyond just currency issues, Mr. Porter says part of reason for price gaps can be related to fixed costs. Retailer costs don't fluctuate as quickly so it's harder for them to move their prices and remain profitable.
"Consumer prices just don't change as quickly as the exchange rate," says Mr. Porter.
But Canadian consumers don't care and can quickly shift gears, an ability that has grown stronger in the Internet world where they can easily compare prices and scratch their heads about why a gas barbecue on homedepot.ca is listed at $1,999 when the same barbecue at homedepot.com in the U.S. is $1,799.
Stephen Fine, owner of the four-year-old website crossbordershopping.ca, says Canadians are increasingly looking to take advantage of that gap. One of the problems with ordering online are shipping charges and brokerage fees.
But Mr. Fine says Canadians are now shipping their goods to U.S. addresses. They cross the border and pickup up their items from companies who handle the packages on a one off basis.
"You still have to declare those goods but you are saving on the shipping which is usually cheaper to the U.S.," says Mr. Fine.
Some Canadians have taken to opening personal accounts with United Parcel Service of Federal Express to expedite their purchases. UPS says by providing a credit card with an account, customers are able to better assess what the charges will be for their purchases.
Even groceries are coming under scrutiny for Canadians who live close enough to a U.S. border to get their staples, says Mr. Fine.
"If you live in place like Windsor you are right across from [a U.S. supermarket]," he says.
While you may pay GST, HST or provincial tax on groceries, there are also rules on what you can bring across with restrictions on the things like the importation of meat, eggs, dairy products, fruits and vegetables making dry goods a safer bet.
It's just not the same retail world that existed a decade ago, says Richard Talbot of Talbot Consultants International Inc. Consumers are armed with better information and when they can get a product cheaper they act on it.
"It's not always the retailers fault, it's the manufacturers, the wholesalers, but the retailers are on the front line," says Mr. Talbot. "The dollar has been up for a year now. You can use that excuse for a while that it takes time for price to filter through. But that's long gone by now. They're screwing us."
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