Certain new car models in the U.S. have become comparatively much less expensive than the same car in Canada-variances can be up to tens of thousands of dollars in some cases. As word has traveled of this disparity, more Canadian citizens and businesses (including re-sellers) are approaching U.S. dealerships about purchasing a new car. While dealers in border-states were seeing such inquiries last fall, it seems that this practice is now reaching dealers in other states, including Colorado. Additionally, a complaint filed by a Canadian couple alleging discrimination against several manufacturers has generated some press on this issue and spurred questions from dealers about whether they can turn away such buyers.

First, to clarify-the claim filed by the Canadian couple is currently against the relevant manufacturers-not the 80 or so New England dealerships they allege had rejected their purchase. It is also a claim filed with the Maine Human Rights Commission; not yet a lawsuit, though reports on file indicate the couple "plans" to sue. Whether they can do so in the U.S. is an issue yet to be addressed.

Second, those dealerships appear to have rejected the Canadian couples' request to purchase because the dealers' franchise agreements prohibited such sales. Dealers should check their Sales and Service Agreements (as well as policy statements and related bulletins) carefully. Here are a few points to consider:

• The prohibition generally appears as a positive statement in a dealer agreement defining that the dealer may sell vehicles within the US-it
  may not be stated as a negative prohibition.
• In the case of one manufacturer, the issue was clarified through a memorandum highlighting the manufacturer's "Export Policy" in which
  the following were noted:
  • Vehicles built for the U.S. market may not be properly equipped to meet other country's standards
  • Contractual commitments typically exist with dealers/distributors in other countries.
  • Manufacturer may withhold documentation not required by law that might assist a dealer or broker with exporting a vehicle outside of the continental U.S.
  • Penalties may include the refund of any sales contest or other special monetary incentives to dealers for any units which are exported outside of the U.S. within 120 days of sale; additionally, the dealership will be charged back for any payment that the manufacturer is obligated to make for claims made by the distributor in the other country.

Scenarios that have surfaced also include inquiries by Canadian citizens asking if the dealership will sell the car to relatives or friends who live in the U.S., who will then re-sell to the Canadian citizen. Note that in the sample "Export Policy" above, the penalties apply to any unit exported within 120 days of sale. Even without those penalties, and on used cars, there are a number of other issues that may arise in titling (Canada is a non-title country), lien perfection (financing a deal on a car that the dealer knows may be removed from the US could leave the dealer unprotected), varying emission or equipment standards, and the inability to transfer the manufacturer's warranty.

The bottom line is that each dealer should fully understand manufacturer limitations and restrictions concerning sales of vehicles which will be used outside the United States. Dealers are strongly encouraged to consult with an attorney and/or an export specialist if considering selling used cars to residents of another country.

CLICK HERE for a Canadian news report that may be useful to dealers who have Canadian consumers who may be upset with this perceived inequity resulting from manufacturer distributorship arrangements. Excerpt from: U.S. car dealer rejects Canadian shopper, Friday, Aug. 31, 2007, CBC News

Biased or not, it's not an unheard-of phenomenon in the states. Angry auto shoppers are typically referred to the Competition Bureau, which says there's nothing illegal about the practice. Bureau spokesperson Chris Busutill said it's generally done to foil "arbitragers" - people who buy cars in the U.S. just to bring them back to Canada to sell at an inflated price. Arbitragers stand to make good money by the practice since some U.S. and Canadian car prices are vastly different, even though the loonie is now closer to parity than in recent years.