The ins and outs of the new Dealers Act

Motor Vehicle Dealers accord will protect sellers but be a bigger aid to car and truck buyers. It doesn’t lend itself to snappy headlines, but the newly revamped Motor Vehicle Dealers Act ushers in some welcome benefits for buyers of new and used vehicles and the Ontario dealers they engage. The revised MVDA, which comes into effect on Jan. 1, significantly updates the regulatory framework for motor vehicle dealers and salespeople – the product of six years of teeth-gnashing negotiations between various players in the automotive retailing sector. Some of the changes include full disclosure obligations that will provide more vehicle information to buyers, as well as “all-in” inclusive pricing, increased Compensation Fund claim coverage to $45,000 and stiffer penalties for convictions under the act. “It’s the first dramatic change in auto retailing legislation in 45 years,” says Bob Pierce, director of member services for the Used Car Dealers Association of Ontario. “Consumers will be in a better position to buy with confidence, and dealers are welcoming the changes because they make good business sense.” Pierce has been spending the last three months criss-crossing the province to help dealers get up to speed on the impending changes. The retooled act will impact the business practices of the 9,000 dealers of new and used cars in Ontario. Perhaps the biggest improvement is the enhanced disclosure statement that spells out 22 bits of information dealers must reveal to other dealers (in the case of a trade) or to the consumer as part of the sale. Among other things, the mandatory vehicle information will specify: “Incident” damage repairs exceeding $3,000. Known defects in the powertrain, electrical system and air conditioner. Two or more adjacent body panels having been replaced (excluding bumpers). Immersion in water up to the interior floor. Previous vehicle registration outside of Ontario. Insurance declared “total loss,” whether branded or not. The disclosure rules cut both ways, Pierce points out. Consumers trading in their vehicles will no longer be able to silently submit their car for trade-in appraisal without answering a battery of questions about the vehicle’s history. “I teach a process to dealers about how they can engage car owners in a friendly chat about their vehicle’s history. Up until now, customers weren’t motivated to talk about their trade-in,” says Pierce. The disclosure statement for trade-ins and lease returns will go a long way toward shining a light on...
read more

Leasing loses its lustre in market turmoil

Plummeting residuals means cash is king for many automakers. There’s been a lot of speculation over the past nine months about automobile leasing going the way of the dodo, but in reality, leasing – preferred by the majority of new-car shoppers a decade ago – is still garnering a considerable slice of the Canadian car market. While it’s true General Motors and Chrysler have dropped their leasing programs, every other manufacturer is still in the game – although some would rather not be. Auto broker Mark Derry, of CarSense.to, believes lease deals are definitely more expensive than last year and some automakers are dissuading customers from leasing. The reason? Plummeting residuals – the remaining value of the car at the end of the lease – are playing havoc with profitability. “Companies are terrified of the market and don’t want to lose on lease returns,” Derry says. Leased vehicles (especially gas-swilling SUVs) are frequently worth less at the end of the contract than predicted, leaving the automaker’s finance arm to absorb the loss once the vehicle is sold at the present, lower market value. Even vaunted nameplates aren’t immune to falling residual values, leading to higher lease payments than Canadians are accustomed to. “Strong residuals among popular Japanese models are down 4 to 5 per cent,” Derry says. “Toyota has slipped from 48 per cent retained value after four years to 42 per cent – that means the customer has to pay more of the vehicle’s value over the first four years in their monthly payment.” Some automakers, especially the luxury brands, continue to advertise attractive lease rates, says Derry, because the prime rate companies pay is at a historic low. Given the stark economics of leasing, it’s no surprise leasing has taken a back seat to financing. Chris Travell, vice-president of Maritz Research Automotive Group, says automobile leasing in Canada has plunged from a peak of 54 per cent of all new-car transactions in 1999 to 42.5 per cent in 2005 and just 32.3 per cent in 2008. “I wouldn’t be surprised to learn leasing has fallen below 30 per cent of new-car sales right now,” says Travell. “The credit crunch has accelerated the drop in leasing.” Some automakers stipulate punishing lease rates to deter consumers and to cover future losses. “Ford is offering some lease rates at 11 to 12 per cent, which is far too expensive,” says...
read more

Is this as low as car prices can go?

Rebates, clearance pricing and cutthroat competition mean car prices at `historic lows’. How many times have you heard this lately: “There’s never been a better time to buy a new car”? Problem is, automobile dealers have been repeating it for years, diminishing the claim to just another tired sales pitch. New-car shoppers have been wooed by a dizzying array of factory rebates, zero-per-cent offers, gas cards and other incentives long before the present economic downturn. So, is it true that new vehicles have never been cheaper – or is it just hype? George Iny, president of the consumer group Automobile Protection Association, believes consumers who are in the market for a vehicle have it especially good right now. “New-car prices are at historic lows. Thanks to rebates and clearance pricing among the domestics, this has put pressure on the import brands” to be more competitive, says Iny. The rise of Korean nameplates Hyundai and Kia in Canada has given other importers a run for their market share, he adds. “Hyundai and Kia now have several vehicles in the top tier of their segments, while still managing to sell at prices below much of the competition.” Iny points to some examples of recent price cuts: a $6,500 rebate on the Dodge Grand Caravan; about $6,000 off the all-new Pontiac G8 and the outgoing Ford Fusion; $3,850 plus no-cost financing on the Hyundai Elantra, and almost $10,000 off some Acura MDX models. He suggests the deals are ripe for the picking because once the bailout money runs out and the domestics have found their footing, prices have nowhere to go but up. “General Motors and Chrysler both have about five months of inventory and are selling at low prices that cannot last after they restructure,” Iny says. Yet despite the deep discounts, consumers have been sitting on the sidelines. Compared to one year ago, new-vehicle sales in March were down 15 per cent in Canada and 36 per cent in the U.S. “There’s a perception that the market is behaving somewhat like a Dutch auction; that is, prospective buyers are watching the prices drop and won’t get involved until the absolute bottom is reached,” says Chris Travell, vice-president of Maritz Research Automotive Group. Travell acknowledges there are more “cash on the hood” incentives now and even the Japanese automakers are dealing aggressively. Sticker prices at the low end of the market...
read more

Leasing Is History

Henderson Weekes sounded genuinely apologetic. He really did. The veteran salesman at Roy Foss Chevrolet in Toronto would have been only too happy to offer a lease on General Motors Corp.’s award-winning Malibu sedan when I inquired as to its availability this week. But he said his hands, like those of all GM dealers, were tied. “Leasing is history,” he said. “Everything’s finance, finance, finance. No lease at all.” But what if I don’t want to own the car? What if, like many of the roughly 40% of Canadians who choose to lease when getting a new vehicle, I consider a six-or eight-year relationship with the same automobile to be monotonous enslavement? Then “you’re in trouble,” he said. Vehicle buying and selling in Canada is about to change after GM and Chrysler LLC signalled to dealers last month that their finance units will pull back on the subsidized lease rates they’ve been offering for years. BMW AG, which derives 60% of its Canadian sales through leases, is also back-pedalling on leases somewhat by offering a wider variety of purchasing options. And Ford Motor Co. disclosed yesterday that its lending arm is planning to cut leasing of vehicles, although a Ford official said there will be no change in lease offerings in Canada. The reason for the retreat is clear: The price of used vehicles has tumbled in recent months in the United States and Canada. That, along with credit-market pressures, has made leasing less economical for automakers than in the past. In particular, the value of large SUVs and pickups that drivers return to dealerships after their leases are over is now far less than expected, forcing the automakers who own them through their finance arms to set aside hundreds of millions of dollars in provisions against the declining residual values. Ford Motor Co. wrote down the value of its Ford Credit leased-vehicle portfolio by US$2.1-billion in its latest quarter. Leasing, loved by some for its hooked-on-drugs quality that allowed Canadians to drive away with a car they might not be able to afford to buy outright, will almost certainly become less prevalent. But industry executives say leasing is not going away. “What leasing enabled people to do was to drive more car for less payment,” says Jerry Chenkin, executive vice-president of Honda Canada Inc., adding that the values of Honda’s used models have held up better than those...
read more

Canada-U.S. Pricing Dilemma

Canadians look at sharply lower auto prices in States and feel it’s very unfair they’re paying thousands more while the buck hovers near par; Wheels talks to buyers, dealers and car makers. Like Seinfeld’s non-fat yogurt, the pitch seems too good to be true. A brand-new Ford Focus with air conditioning for just $9,999, a factory-fresh VW Rabbit for $12,999 and a 2007 Chevy Trailblazer 4×4 for $21,999 are three pinch-me-I’m-dreaming bargains advertised recently in The Boston Globe. Prices like these take the breath away of vacationing Canadians who open a local newspaper in the U.S. The lease deals seem even more unbelievable Boston’s Kelly Nissan offers a new Altima for $139 per month (with $2,723 due at signing) and a Pathfinder 4×4 for $239 monthly. While priced in American dollars, the gap between the two currencies is closing, making the U.S. stickers especially appealing. Yet it begs the question with the loonie’s rise against the U.S. currency, why aren’t Canadians seeing lower automobile prices here? Reader Tom Becker asked the same question of Porsche North America, the importer of his 2001 911 C4. He’s contemplating purchasing a new 911, but noticed the wide chasm between American and Canadian prices on the auto maker’s website. “Why do I and every other Canadian get unfair pricing?” Becker wrote in an e-mail. “You list a GT3 at $147,300 Canadian and $106,000 American. After conversion, I would have to pay more than $24,000.” When he posed his question last December, one American dollar cost $1.16. Plug in a more recent exchange rate ($1.06) and the gap between the two prices has widened to more than $33,000 (Canadian) (the GT3 is now listed at $107,500 in the U.S.). Porsche wrote back, explaining that its German-built cars are valued in Euros, not American greenbacks, so the Canada-U.S. exchange rate was moot. But when Becker crunched the Euro’s exchange rates, he discovered that Canadians were still paying well over $20,000 more than Americans for the same model. “Wow, that would buy many sets of tires, gas and insurance!” he wrote to us. Despite growing awareness of the loonie’s favourable exchange rate, auto manufacturers seemingly have done nothing to address the situation. If anything, they’ve let the price disparity grow unchecked. “The gap has become embarrassingly large,” confirms George Iny, president of the Automobile Protection Association (APA). “The potential is there to erode the Canadian dealers’...
read more

Dealer dance covers all the bases

‘I’m not a car guy,’ baseball fan admits, but lands great deal by doing homework Matthew Ives knows how Dice-K of the Boston Red Sox throws a gyro ball, but don’t ask him to explain the difference between a turbo intercooler and an air conditioning condenser. As a baseball fanatic, self-employed communications consultant and single dad of two, Ives never found the time to read a Chilton’s auto repair manual from cover to cover – which makes him no different from 99.8 per cent of the buying public. “Shamefully, I suppose I’m just not a car guy,” he shrugs. Until recently, Ives, 44, invested about as much time and forethought into buying a car as most people spend shopping for toothpaste. “I bought my first car, a 1985 Honda CRX, second-hand from my boss’s boyfriend because I had just started a job and it was contingent on me having one,” Ives recalls. Having never driven a manual-transmission car, Ives took matters into his own hand and rented a five-speed Ford Fiesta on his first business trip, learning to manipulate a stick and clutch on the chaotic streets of Lisbon, Portugal. His first new car was a Honda Civic coupe, which he purchased one afternoon after having done zero homework. “It was a miserable car and I purchased it without any knowledge of the process. Looking back, I know I was completely ripped off. I paid what the dealer wanted me to pay.” After that experience, he bought a 1998 Chrysler Sebring convertible from his friend’s father over the phone. A dealer’s demonstrator, it was delivered to his home and – despite Ives’ chronic disinterest in car shopping – turned out to be his best purchase to date. But he vowed the next time would be different. With the recent completion of his Haliburton cottage, Ives realized he needed a four-wheel-drive sport utility if he wanted to use the property year-round. “I had to bite the bullet and get an SUV, instead of stressing out about how I was going to get to this place I had spent so much money on.” With two kids and a small dog, a five-seater initially made sense. Until he gave it some more thought and began to see advantages in something bigger. “When you’re shopping in the $30,000 to $40,000 range, you have options available to you,” he says. “Making the trip with...
read more