While the rest of the auto industry frets over potentially disruptive U.S. tariffs, a group of Canadian dealers is mining cross-border pricing differences to make a profit off of pickup trucks.
Their enterprise — dubbed Canadian Super Sellers — makes a 4 to 5 percent margin by taking trucks purchased at lower prices north of the border and selling them for a premium in the U.S.
At the sprawling Manheim Detroit auction house Thursday, on the outskirts of Motor City USA, the dealers offered nearly 1,100 trucks in the largest one-day truck consignment ever by a single seller.
Last year, the group exported more than 16,000 trucks and other vehicles to the U.S., said Michael Hymus, who heads the Picton, Ontario, venture.
“We are commodity traders,” he said. “This not just a little show we are putting on. It takes a lot of coordination.”
The group’s Canadian vehicle sales at the Detroit auction house reached $370 million last year, Hymus said.
The format involves a fairly standard form of arbitrage: Practitioners extract profit by exploiting the price differences between identical or similar goods, commodities or financial instruments sold in different markets.
“This is a business model that works right now that takes advantage of an inefficient market,” said Mike Ramsey, the automotive analyst at Gartner Inc. “It works if you have the organization to do it on a large scale.”
The price discrepancy starts when the trucks are first sold.
For example, a 2017 Ford F-150 XLT Super Crew 4×4 equipped with a 5.0 V-8 engine has a Canadian sticker price of $48,249, including destination fees. After adjusting for exchange rates – one Canadian dollar is worth 76 U.S. cents – that amounts to $36,804 in U.S. currency. But the same truck sold at a U.S. dealer has a sticker price nearly $6,000 more, or $42,625.
“Automakers can’t raise the price of new trucks in Canada to close the gap because it would hurt sales,” Ramsey said.
The differences carry down into the used market.
A 2012 Ford F-150 4×4 crew cab in the XLT trim with 5.0-liter V-8 engine and 50,000 miles on the odometer auctions for about $17,300 U.S. at the Manheim auction in Toronto after adjusting for exchange rates. But the same vehicle would sell for $20,100 at the Detroit facility, according to the Manheim Auction Report, an online valuation tool that helps dealers decide what to pay for trade-ins they plan to auction.
The trucks Hymus exports — typically Ford F-Series pickups, Chevrolet Silverados, GMC Sierras and Fiat Chrysler Automobile Rams — are basically commodities. The vehicles are all produced in the same factories — mostly in America, but some in Mexico — and are nearly identical whether they are sold in the U.S. or Canada.
The only difference between the U.S. and Canadian versions of one type of Ford F-150 XLT is that the Canadian cousin comes equipped with satellite radio, while the U.S. truck offers the radio as an option.
But while the physical vehicles don’t vary much across the border, automakers’ pricing strategy varies by market. Facing a dearth of engines for a particular model, an automaker might raise the price to artificially dampen demand to a level its production schedule can accommodate. Or the company might raise prices on a popular but fuel-inefficient engine-transmission configuration in order to comply with fuel economy regulations.
Manufacturers also make price adjustments to deal with exchange rates and the per capita income levels in the markets where vehicles are sold, said Alan Baum, a principal at the Baum & Associates automotive consulting firm.
Recent low gas prices and new features such as adaptive cruise control and back-up cameras have helped fuel strong consumer demand for pickups in the U.S. These forces have allowed automakers to rapidly increase truck pricing.
“In every market or region where Ford sells vehicles, we determine MSRPs and vehicle content best suited to meeting customer needs and business goals,” said Jiyan Cadiz, spokesman for Ford’s truck business.
Full-size pickup trucks accounted for nearly 13 percent of a record 17.5 million U.S. auto sales last year. In 2012, buyers of full-size pickups like the Toyota Tundra or Ford F-150 paid an average of $32,444 after accounting for sales incentives and taxes, according to market research firm J.D. Power. By the end of 2016, that figure had risen more than 20 percent, to $39,125.
During the same period, the average transaction price for midsized sedans such as family cars like the Toyota Camry and Honda Accord dipped 1.2 percent to $21,951.
Trucks are also popular in Canada. But automakers there find that high U.S. pricing doesn’t pass muster with local consumers. The market for used pickups tends to be weaker as well, especially in regions such as Newfoundland, Hymus said.
The lower sticker prices on new trucks, faster vehicle price depreciation for pickups in Canada and the low value of the Canadian dollar all combine to afford Hymus the price margin he needs to make money exporting vehicles to the U.S.
He operates from a home office in Picton, where he chats with dealers from across Eastern Canada who are trying to gauge interest in trucks that have been traded in. His team goes to the U.S. with that inventory and essentially wholesales it.
He culls vehicles from a network of dealers and sellers but has several consistent sources for trucks: Automobiles Paillé in Berthierville, Québec, Larry Hudson Chevrolet in a small town west of Toronto and Northwest Ford in Toronto. Hymus purchases the vehicles, transports them to Toronto and then sends them on to Detroit.
Hymus said he spends about $300 per vehicle to change the speedometer from kilometers to miles, and another $700 or so on transport and other expenses.
“We pay a brokering fee to a licensed importer at the border, and we have to get a Michigan vehicle title,” he said.
Canadian Super Sellers started small, selling just 20 vehicles at its first Manheim Detroit auction in 2013. Now, the company sends dozens of loaded vehicle transports to the U.S. weekly, where the autos sit for 30 days at a facility in Dearborn before clearing U.S. customs. It has sold 50,000 trucks at the auction in the last three years.
Manheim Detroit draws a local and national audience of buyers who are hoping to beef up their used truck inventory, said Mandy Savage, general manager of Manheim Detroit. But dealers nationwide can also participate, bidding for vehicles via an online simulcast and sometimes bundling several vehicles for transport to their locations.
The facility has 12 auction lanes. Usually, every fifth vehicle in each lane is a truck. But on Thursday, Hymus’ Canadian trucks took up all the spaces across four lanes.
“It was unprecedented,” Savage said.
It’s also nerve-racking.
Hymus’ group sometimes hedges to lock in rates. But abrupt currency fluctuations can chew through potential profits while the trucks are awaiting customs clearance. And any activity that disrupts global economic forces — such as the Trump administration’s recent threats to slap new taxes and tariffs on imports — can shake up the value of the U.S. dollar, Hymus said.
Since Jan. 2, the Canadian dollar has gained about 2.5 percent against the U.S. dollar.
“It is amazing I have not had a heart attack yet. I can wake up in the morning and lose $1 million before lunch,” Hymus said. “Maybe you lose it today but get it back tomorrow. We focus on the year end or otherwise you would drive yourself insane.”