Lately I’m reading many forum threads like this one where the poster wants to know why car prices are so much higher in Canada or Europe than in the United States.

The simple answer: taxes and exchange rates. The former can be far higher in other countries. I’m going to focus on the latter here. The U.S. dollar has been falling against other currencies. In the late 1990s, the Canadian dollar was worth less than 70 U.S. cents. Not it’s worth more than 90 U.S. cents, and recently hit a 30-year high. The situation is similar with the Euro. As a result, when car prices in Canada and Europe are translated into U.S. dollars, they’re much higher than they used to be.

Back when the U.S. dollar was strong, some Americans imported cars from Canada. Now the opposite is happening. (In both cases the factory warranty can be affected.) This article from a year ago discusses some examples, with price differences in the $7,000 to $10,000 range for moderately expensive vehicles.

But then why don’t the manufacturers adjust selling prices as the exchange rates change? Are they just greedy, and charging more outiside the U.S. simply because they can?

Greed has little to do with it. Instead, if car prices changed as often or as much as exchange rates do, there’d be chaos in the car market. People would delay purchases hoping for a change in their favor. People who could buy a Honda Accord one year would find themselves able to afford only a Civic the next time around. And then maybe a BMW the time after that. Sales would go through huge, disruptive boom and bust cycles.

As a result, it’s better for both manufacturers and consumers if car prices don’t change nearly as often or as much as exchange rates do. This keeps demand stable, which reduces manufacturers’ costs and thus car prices, and provides some guarantee that people with stable incomes can afford a similar car each time.

For the time being, because the dollar is very weak car prices in the U.S. are low. Manufacturers aren’t overcharging outside the U.S. nearly so much as they are undercharging inside the U.S. It follows that, if the dollar continues to weaken, or simply stays where it is, car prices (and especially European car prices) will have to increase in the U.S.