Quebec class action lawsuits filed against Toyota, Honda for excessive fees

Could the mystery of the costs of transport and preparation fees paid for all new vehicles in Canada finally be solved? What is the real cost of the freight and pre-delivery inspection (PDI), a sum that is substantial – and non-negotiable – charged by dealers for each new vehicle they sell or lease?

These fees are not hidden. They are, in fact, clearly stated. First, they’re advertised on the car configuration websites you might visit. Then, they’re specified in the sales or leasing contracts you sign. On average, you’ll be charged $2,000 to cover the cost of shipping the vehicle (from the factory to the dealership) and the preparation in the workshop before the keys are handed over to you.

So, why are these amounts virtually the same for vehicles assembled in Canada as they are for vehicles built in Mexico, Europe, or Japan? Shouldn’t those fees be lower for cars made in Ontario, which is, at least metaphorically, just down the road?

This question may be answered not by one, but by two class action lawsuits filed in the Quebec Superior Court by Montreal lawyer Fredy Adams. (The same lawyer is behind the settlement of the Canadian “Toyota Cablegate” class-action.) These new “recours” target two manufacturers that produce vehicles in Central and Southern Ontario: Honda Canada and Toyota Canada (for now, Stellantis and GM appear to be exempt).

The two class-actions allege that manufacturers and/or dealers have charged consumers disproportionate and abusive freight and PDI fees, breaching their legal obligation of good faith and duty to inform in the process. Therefore, the two claims call for “reimbursement of the freight and PDI charges that exceed the actual cost of transporting and inspecting the vehicle,” for all Quebecers who have leased or purchased the following vehicles:

• Honda Civic sedan (since October 3, 2020)
• Honda CR-V (since October 3, 2020)
• Lexus NX (since March 10, 2020)
• Lexus RX (since March 10, 2020)
• Toyota RAV4 (since March 10, 2020)

The Corolla is also named in the lawsuit against Toyota although the sedan has not been built in Canada since 2019.

On May 14, the Honorable Florence Lucas, who heard both cases, found them arguable and authorized them. For those interested, the two motions are registered under file numbers 500-06-001272-232and 500-06-001228-234 in the Quebec Registre des actions collectives. As the judgments are written exclusively in French, we have reviewed them for you below.

Disproportionate and abusive charges, claimants maintain

In February 2022, Yvon Denault bought a Toyota RAV4 from Montréal-Est Toyota. Six months later, Yvon Matte leased a Honda Civic from Honda Lallier. Both transactions included freight and PDI fees of $1,890 and $1,780, respectively. According to their testimony, both consumers were under the impression that these charges were billed at cost price. (Editor’s note: really!?)

However, subsequent quotes obtained from transport-industry car-carriers revealed that, had they wanted to ship their vehicle directly from the Ontario plant (Cambridge/Woodstock for the RAV4 and Alliston for the Civic) to Montreal, Quebec City, or Sherbrooke, and had they taken advantage of the volume discount “necessarily granted to automobile manufacturers,” claims the legal decision, the cost would have been between $250 and $350 per vehicle.

According to the claimants, this is “a significant difference from the invoiced shipping costs,” as much as two or three times.

The two class action lawsuits also address the issue of vehicle PDI costs, with Toyota USA and Honda USA service bulletins, given in evidence by the plaintiffs, indicating that a maximum of 1.5 hours should be allocated for the pre-delivery inspection. Judge Lucas questioned these “amounts for services that remain unexplained and unaccounted for at this time.” George Iny, the Executive Director of the Automobile Protection Association (APA) agrees, saying that “inflated charges for vehicle preparation are part of the ‘fake’ or inflated charges added to the price of new vehicles by the carmakers and auto dealers.” According to Iny, these “bogus fees” such as the administration fees charged by dealers that now can reach $1,000 in some cases, should be included in the price of the car.

In his motions, Mr. Adams invoked Section 8* of Quebec’s Consumer Protection Act, arguing that the “fees charged were disproportionate and abusive in relation to the actual costs incurred.” He also invoked article 1437** of the Civil Code of Quebec, alleging that the defendants failed to act in good faith or fulfill their duty to inform, allowing people to “believe that the fees were billed at price cost when they were actually a source of profit.”

*Consumer Protection Act, 8: The consumer may demand the nullity of a contract or a reduction in his obligations thereunder where the disproportion between the respective obligations of the parties is so great as to amount to exploitation of the consumer or where the obligation of the consumer is excessive, harsh or unconscionable.

**Civil code of Quebec, 1437: An abusive clause in a consumer contract or contract of adhesion is null, or the obligation arising from it may be reduced. An abusive clause is a clause which is excessively and unreasonably detrimental to the consumer or the adhering party and is therefore contrary to the requirements of good faith; in particular, a clause which so departs from the fundamental obligations arising from the rules normally governing the contract that it changes the nature of the contract is an abusive clause.

A legal move about to shake up the auto industry?

Probably not. After speaking with a few industry insiders, we learned that the plaintiffs’ comparison of the cost of moving a vehicle from Ontario to major cities in Quebec does not account for all the costs incurred by manufacturers, particularly those related to the cost of the large lots where cars are held before local shipping, as well as other storage costs. Those fees are significantly increasing the costs beyond mere shipping.

Moreover, we were told that if the industry charged the actual cost of delivering each model to dealers, small economy cars made in Asia would be unaffordable. David Adams, president of Global Automakers of Canada, although unaware of the two class actions just authorized in Quebec, put it this way: “My understanding [is] that most manufacturers try to employ an equalization of the freight costs charged on vehicles which represents an average of all the costs to get all models to market from anywhere in the world.” Indeed, not only freight and PDI charges are similar in dealerships across the country, they are also similar on various models, no matter where they are manufactured.

In other words, automakers aggregate their shipping costs across all their cars, no matter where they are built or sold. Thus, at the time of writing, the Toyota RAV4 and the Honda CR-V, the two best-selling SUVs in Canada assembled some 650 kilometres from Montreal, are advertised on their manufacturer’s Canadian site with respective freight and PDI fees of $1,930 and $2,000. These charges are about the same for the Toyota Corolla Hatchback ($1,760), which is built in Japan, 10,500 km away from Montreal, and for the small Honda HR-V SUV ($2,000), which is assembled 5,000 km away in Celaya, Mexico.

The settlement?

One thing is clear from this court appearance, though: The actual cost of freight and PDI remains a mystery. Most importantly, perhaps a broader debate will take place during the hearings for these two class action lawsuits, especially if they gain legal traction in other Canadian provinces. Why do automakers require their customers to pay such operating costs? After all, as an industry critic told this undersigned 25 years ago, when she was starting out as an automotive journalist: “When you buy a pair of jeans, does the retailer charge you extra fees for shipping and sewing the button?”

The Superior Court proceedings intend to shed new light on these mysterious freight and PDI fees. Indeed, in her authorization judgment, the Honorable Florence Lucas wrote that “other factors will no doubt explain the industry’s practices and the amounts established by the manufacturer.” However, based on the average number of years it takes to settle a class action in Quebec, the answers may not be available for another seven years.

Or maybe never. The flaw in the plaintiff’s case is that, while they assert that the charges are exorbitant, they do not provide any real reflection of what the fees should be. In any case, it is impossible to estimate how much financial compensation those class action lawsuits would bring to the more or less 185,000 buyers of Toyotas and Hondas made-in-Canada in the past five years (Driving.ca estimation) if the cases were to be won in court.

Remember this: For Toyota and Honda — and the all the other automakers whose dealer charges are cloaked in mystery — they’d assuredly much prefer that the actual costs involved in freight and PDI will remain unknown. Expect, then, that this lawsuit, like 80% of all Quebec class actions, will be settled out of court.

And the mystery of freight and PDI charges will remain unsolved.