dds are that new car you bought in the USA is being sold for less money — maybe thousands less — in Canada. Whether it's a plain Ford or a rare Cadillac, cars and trucks sold in the USA by most automakers are priced higher than virtually identical vehicles sold in Canada.

Now automakers are punishing car dealers and U.S. customers who buy Canadian cars, even though it's legal to do so.

The number of Canadian vehicles brought into the USA by registered importers ballooned to 211,797 in 2002, up from 14,052 in 1996, 14 times as many, according to the National Highway Traffic Safety Administration, which tracks and regulates auto imports.

Those numbers may seem small when compared with the nearly 17 million new cars and trucks sold in the USA last year. But at over 200,000 annually, Canadian imports represent the equivalent of two shifts of annual production at a typical auto plant.

The issue has grown increasingly contentious, with no end in sight. In the last year, automakers have attempted to crack down on sellers and buyers. In turn, the automakers have been sued on behalf of buyers. If the automakers can't stop the import numbers from growing, they face yet another erosion of profit, already dragged down by the high incentives that have propped up U.S. sales.

Automakers call the price differential "pricing to the market." They say they price cars lower in Canada — anywhere from 1% to 40% — because wages and economic conditions are below those in the USA, and taxes are higher. It's what the market will bear, they say.

Plants in the USA and Canada generally make the same cars and trucks for both markets. But automakers say vehicles may have different standard equipment as well as prices. Heated seats may be standard equipment in Canada, for instance. And some automakers only sell four-wheel-drive versions of sport-utility vehicles in Canada, where it snows more.

"Our business model is built around each country in terms of volume, competition and other factors," says Steve Landry, Chrysler Group vice president of business operations.

"Canada is a much smaller market and a more price-sensitive market," says Andy Boyd, a Honda spokesman. "We price cars in every market based on the needs of the local market."

But some U.S. dealers, brokers and buyers say it's price gouging. "It's not right," says Dave Pierce, a Great Falls, Mont., new car dealer, who sells Lincoln, Dodge, Hyundai, Honda, Volkswagen and other brands. "Canada's not a Third World country."

He says "a new loaded Dodge Caravan that costs me $28,000 from the factory, I could get delivered to my door from Canada for $19,500."

Warranty presents problem

Pierce says he stopped getting Chrysler vehicles from Canada last May when DaimlerChrysler began refusing to honor warranty work on Canadian cars sold in the USA.

The warranty issue can be a huge problem for buyers, threatening to wipe out any savings from buying a Canadian car.

Jason Clark of Jackson, Miss., bought a 2000 Honda Odyssey minivan with 10,000 miles on it from a private seller in Alabama a couple of years ago. At 65,000 miles, the Odyssey's transmission started acting up. Honda recalled that particular transmission and replaced it for free. But when Clark took his Odyssey to the local Honda dealer, he was told it was a Canadian car, and Honda would not honor the warranty.

"When I bought the van, the guy told me he thought it was a Canadian model. But I figured a warranty would be good anywhere in the world," says Clark, who ended up paying $2,200 to get the transmission fixed.

The warranty issue prompted antitrust lawsuits filed by a Boston law firm against every major automaker, the National Automobile Dealers Association and the Canadian Automobile Dealers Association. They accuse the automakers and dealer groups of illegally stifling competition by conspiring to block imports of Canadian cars.

Although some U.S. and Canadian dealers participate in cross-border sales, the dealer groups have supported manufacturer efforts to prevent Canadian car sales in the USA. They wouldn't discuss the issue because of the lawsuits.

Automakers say they have to take steps to protect their U.S. sales.

"If we had to lower the prices in the U.S. to equal prices in Canada, it would be a nasty business model for us and one that is not sustainable," Landry says.

Before the mid-1990s, U.S. Customs laws made it tough to import Canadian cars. The few that were imported were mostly hard-to-find models, cars owned by Canadians relocating to the USA, and used vehicles being unloaded by Canadian fleet owners.

Political and economic developments changed that.

In January 1994, the North American Free Trade Agreement, NAFTA, broke the regulatory handcuffs on the free flow of goods between Canada, the USA and Mexico. It eliminated tariffs on many products, including automobiles.

Then, a 1998 Canadian government decision to adopt all U.S. auto emission standards meant importers no longer needed to modify Canadian vehicles to meet U.S. regulations.

Also in 1998, the Canadian dollar, after years trading at about 80 cents to the U.S. dollar, fell to a low of about 60 cents. That made the cost of Canadian goods even less for U.S. buyers. Today, the Canadian dollar is worth about 70 cents.

The number of vehicles imported from Canada nearly doubled in 1999 from 1998, to 151,842.

Canadian cars basically same

The U.S. government apparently has no problem with Canadian cars being garaged in the USA. NHTSA is close to finalizing new rules to simplify the process of certifying that a Canadian car complies with U.S. safety, emission and anti-theft standards. NHTSA says most automakers have told the agency that their Canadian and U.S. vehicles are essentially the same. "We have tentatively concluded that we should make it easier to import Canadian vehicles for resale" that comply with U.S. safety requirements, the agency says in its proposal.

Technically, only a registered importer or the original manufacturer can bring a Canadian vehicle into the USA. That's done to make it easier to guarantee that the vehicle complies with U.S. regulations.

Two minor items must be changed on many Canadian cars before they can be imported.

The speedometer and odometer in Canadian cars use kilometers rather than miles. Cost of a conversion can range from $100 to $800, depending on the vehicle. Some new models are being built with a switch allowing the driver to select miles or kilometers for the speedometer and odometer.

Daytime running lights in Canada are brighter than allowed in the USA. To get around this, importers simply disconnect the daytime running lights for U.S.-bound Canadian cars because there is no law requiring them.

With the number of imported cars continuing to grow, automakers got serious about cracking down on the situation last year. While policies vary slightly, most automakers threaten to revoke the franchise of a dealer on either side of the border who knowingly sells or buys Canadian cars for U.S. residents. In the USA, automakers also may withhold delivery of vehicles from dealers they suspect are selling cars from Canada.

In Canada, automakers also may impose a fine of hundreds of dollars for every vehicle sold that winds up registered in the USA.

Fining the Canadian dealers, they say, is an effort to protect their U.S. counterparts.

"What has happened is that brokers would arrange to purchase a Canadian vehicle to sell at the used car lot down the street," Landry says. "They would sell brand-new Canadian vehicles at much lower prices than the franchised dealer up the street. Dealers began to question our ability to manage our company."

"Canadian dealers like selling to U.S. buyers," says Brian Osler of the North American Automobile Trade Association, an Ontario-based group representing import car brokers. "It's a cash sale, and they don't have to go on a test drive."

The automakers also have taken what steps they can to stop independent importers, which is how most U.S. buyers get Canadian cars. General Motors won't honor a warranty on a Canadian car in the USA unless it has at least 7,500 miles on it. The automaker says that prevents reselling brand-new vehicles and competing with franchise dealers.

Ford Motor, which continues to honor warranties on Canadian cars, keeps a list of known brokers in an attempt to catch Canadian dealers who sell to them. "Our issue is with brokers," says Susan Krusel, a Ford spokeswoman. "Customers generally are unaware when they buy a Canadian vehicle."

But the restrictions aren't enough of a deterrent for many importers and the remaining determined dealers. To get around the warranty issue, they offer their own through private companies.

To get financing, importers work with local banks. "We never had a problem getting someone financed," says Richard Izzo of Superior Auto Sales in Hamburg, N.Y., who advertises on the Internet that he sells vehicles from Canada.

To get around reluctant Canadian dealers, Izzo pays Canadian citizens $200 or $300 to buy cars for him. This works because Canada has less restrictive vehicle registration laws than the USA.

Despite the payout to the Canadian buyer, Izzo says he still has plenty of room to give his customers a deal.

"I get customers coming in thanking me, saying I saved them $3,000," he says.