When you buy a new vehicle in Canada, you will typically pay about 22 per cent more than the manufacturer's suggested retail price (MSRP). In the United States, the gap between the MSRP and the transaction price is usually about 10 per cent.
The difference, according to Dennis DesRosiers, Canada's leading auto industry consultant, is largely due to higher levels of taxation.
When it comes to new vehicle purchases, governments in this country are guilty of piling on. Buyers pay GST and PST, not to mention tire taxes, air-conditioning taxes and fuel-efficiency taxes. Canadian motorists pay twice as much tax on gas purchases as their counterparts south of the border, says DesRosiers, and they pay tax on insurance, whereas Americans don't.
"We have one of the highest tax loads on vehicles in the world," says DesRosiers.
It's not surprising, then, that Canadians are also very different from Americans in terms of vehicle purchases and driving habits. Taxes play a role in shaping the buying decisions of many individuals. The steady rise in gas prices over the past several years is affecting consumer attitudes, and cultural values are also important. When you add everything up, the differences are pronounced and growing.
Canadians own 70 vehicles for every 100 individuals of driving age - a rather startling fact given our climate and geography - whereas Americans own 101. We also drive a lot more small vehicles.
"Canadians view their vehicles as a necessary evil," DesRosiers says. "We just want to get from point A to point B as inexpensively as we can. Americans see it as their God-given right to own as much vehicle as they can and to drive where and when they want to."
DesRosiers divides the auto market into four segments: Entry level; mid-sized family; luxury and luxury sport utility; and commercial vehicles, which includes panel vans and pickup trucks. About 44 per cent of the new vehicles purchased in Canada today fall into the entry-level category, which includes small pickups such as the Ford Ranger and small SUVs like Toyota's RAV4. That's up about six per cent in a decade.
Mid-sized family vehicles account for 31 per cent of new sales, down from 44 per cent, while sales of luxury and large SUVs have grown to 12 per cent from seven. However, DesRosiers points out that the big sport utility vehicles, which seem audacious and excessive in an era of high taxes and rising fuel prices, account for only about one per cent of new sales.
Now, compare our numbers with those south of the border. Nearly one-quarter of the new vehicles on the road in the U.S. are luxury or large SUVs, up 10 per cent in 10 years. Entry-level vehicles account for only about 22 per cent of the U.S. market and that number hasn't changed in a decade. No wonder George Bush recently lamented the fact that his fellow citizens are "addicted to oil."
High taxes and rising gas prices are not the only reasons Canadians have moved toward smaller cars. DesRosiers notes that buyers have been able to downsize without giving up anything in the way of comfort or performance, thanks to some rather extraordinary accomplishments on the part of carmakers.
Manufacturers have invested billions to improve the performance of entry-level vehicles while increasing the fuel efficiency. Today's small cars have 150 to 170 horsepower under the hood, whereas they used to pack 70 to 100. Yet, the more powerful engine yields roughly the same gas mileage. Not only that, but these vehicles have been re-engineered so that they now have the same trunk space and just as much room for passengers as a mid-sized vehicle did a decade ago.
Canadians have responded by purchasing these vehicles in larger numbers, while Americans have done the opposite.
They're buying bigger.
"If you look at the data," DesRosiers says, "Canadians are one of the most responsible vehicle-buying people in the world. On every single metric, Americans are the most irresponsible."
Still, Canada could be doing a whole lot better. There are about 17 million vehicles on the road in this country, but Canadians buy only about 1.5 million new each year. That means there are about 15.5 million used or older autos out there and a good portion of them are way up in years. DesRosiers says 40 per cent of passenger cars are at least 15 years old and more than 60 per cent of light trucks are of the same vintage. They're gas guzzlers and big polluters and represent all the mistakes of the past.
Hence, maybe it's time our governments took a more intelligent approach. Rather than simply slapping on a tax at every conceivable opportunity, why not develop policies that would encourage Canadians to trade in their junkers for newer vehicles that are easier on the pocket- book and better for the environment?
(D'Arcy Jenish can be reached at jenish@businessedge.ca)
