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THE CHEAP CANADIAN DOLLAR IS CREATING A BOOM IN GRAY MARKET VEHICLES

Imports of "gray market" vehicles from Canada are on the rise, spurred by a price differential of up to $3,000 on some models, importers say.

Bypassing automakers' sales channels, U.S. registered importers brought in 75,413 vehicles last year, more than triple 1997's volume. This year the total reached 102,682 by mid-August, according to the North American Auto Trade Association in Toronto. Buffalo and other border cities are centers of import activity.

But while the government sanctions the practice, automakers try to discourage it, leading to a bizarre cat-and-mouse game for importers and potential pitfalls for consumers.

For example, Honda Motor Co. says it won't honor the warranty of gray-market imports.

"The vehicles that are produced for Honda Canada are supposed to be sold in Canada to Canadian buyers," said Art Garner, public relations manager for American Honda Motor Co.

Baloney, the importers say. Honda and other makers sell the same cars in both nations, said Brian Osler, executive director of the auto trade association. The only real difference is price.

"They (automakers) want to make some extra money off U.S. dealers, it's as simple as that," he said.

As a registered importer, Richard J. Izzo's Superior Auto Sales in Hamburg is licensed by the U.S. Department of Transportation. His company is one of 129 in the U.S. -- including 11 in Western New York -- that have Washington's blessing to import and resell foreign cars.

But for a legal business, there's a lot of sneaking around.

First Izzo has to find a Canadian resident willing to pose as a car buyer. "We use a lot of nominees," he said.

After buying the car at a Canadian dealership, the nominee goes to a prearranged meeting place like a gas station, where he'll meet Izzo's border-bound truck.

The Canadian dollar has slipped to a value of 68 U.S. cents over the past two years. But instead of raising prices in Canada to compensate, some manufacturers have held the line to avoid losing market share, importers say. The practice creates a price gap between Canada and the U.S., particularly for models that are in short supply here.

Registered importers must certify that their cars meet U.S. safety and emissions standards, sometimes making changes to bring them into compliance. When the import is a new vehicle the importer usually acts as a middleman for a franchised dealer, who sells the Canada car to the end user.

Whatever new vehicle is in short supply -- Honda Odysseys, Toyota Siennas -- a gray market truckload of them is crossing the Peace Bridge on any given day, said U.S. Customs import specialist Larry Mruk.

"It's their (importers') responsibility to do whatever it takes to bring imported vehicles into conformity" with safety and environmental requirements, Mruk said.

Canada has essentially the same emissions requirements for new vehicles as the U.S., Environmental Protection Agency spokeswoman Nina Habib said. As a result, Canada-market cars automatically qualify for import in most states, she said.

New York's special emissions standard means few Canada cars wind up on the local market, importers said. Izzo said he ships as far away as Florida -- where drivers must be mystified by their Canadian side-mirror defrosters.

But some Canada cars do wind up in local hands, and not always with good results.

One Amherst resident said he bought two Odyssey minivans from Ray Laks Honda in West Seneca in November, not knowing they were originally sold in Canada.

"There wasn't much break on the price, only $500 under sticker," said the buyer, who asked to remain anonymous. At most U.S. dealers the Odyssey -- highly rated by Consumer Reports -- wasn't available without a long wait.

After discovering the vans' Canadian origin, the buyer returned them to the dealer. Honda had told him the vans' warranty was void. He was also uncertain if the vehicles met New York emissions requirements, he said.

Ray Laks didn't return calls seeking comment.

At Waterloo Honda in Waterloo, Ont., where at least one of the vans was purchased, a new Odyssey costs the equivalent of $23,660 in U.S. funds -- $2,300 less than the U.S. sticker price.

"It's our weak (Canadian) dollar," general manager Lothar Quak said.

He faxes the names of would-be buyers to Honda in an effort to spot importers. If the buyer recently purchased a Honda somewhere else, no sale.

"We are not allowed to sell vehicles for export," he said.

Honda makes the Odyssey at a factory in Alliston, Ont., which supplies both the U.S. and Canadian markets.

Registered importers say the denial of warranty coverage is an unusually harsh tactic that might not hold up.

"If anybody put it to law they (Honda) would lose," Izzo said.

Canadian cars are frequently serviced under warranty in the U.S. when driven by Canadian visitors, importers say. They are also brought in by Canadians who move to the U.S. To disqualify legally imported vehicles from coverage amounts to discrimination and restraint of trade, importers argue.

In fact, Honda hasn't cracked down on any gray market cars yet, Garner said.

"Truthfully, we're not going to hold the customer's feet to the fire," he said. The company aims to penalize dealers who bypass its rules -- not customers who buy Honda products, he added.

Other automakers have their own ways of discouraging the unsanctioned trade, importers said.

"Ford doubled the price of its speedometer," said Scott Boggs, president of Can Am Auto Importers in Amherst, a federally registered importer. The speedometer is the most common component replaced by importers, exchanging kilometers for miles-per-hour.

DaimlerChrysler withholds certification of North America content for its cars, making it difficult to qualify for tariff-free status, importers say. The importer must present a manufacturer's NAFTA certification at the border or pay duties of 2.5 percent to 25 percent.

"In many cases the registered importer cannot obtain from the manufacturer the documentation," Mruk said.

While automakers discourage imports of new vehicles, they benefit from the movement of used cars, importers said. Off-lease vehicles in Canada would glut the market for some models -- pulling down new-car prices -- if importers didn't ship them to the U.S., Boggs said.

"It's almost a crime against the public that cars can be sold for $3,000 less in Canada," he said. However, Boggs said, it's the dealer, not the U.S. consumer, who collects the savings on most gray market imports.

Izzo said that the costs of importing absorb most of the price difference, when there is one. The cars he imports are ones that are out of stock in the U.S., with dealers clamoring for supply. For some popular vehicles Izzo said he pays thousands over sticker in Canada.

"I've been doing this 20 years and they (auto makers) have been discouraging it," he said. "Why don't they want to put cars where they're selling?"

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