Sticker Shock: The Truth About Destination Fees
William Potvin, a loyal Mazda owner from Maumee, Ohio, understands that consumers routinely pay something called a destination or delivery fee when they buy new cars. But when he purchased a new Mazda CX-5 in 2019, Potvin was caught off-guard by the amount: $1,045, up from the $820 he paid when leasing a Mazda6 in 2016.
“That’s a nearly 30 percent increase in three years,” the CR member says.
It turns out Potvin’s experience reflects a trend. A new CR investigation, based on research from the industry data source ChromeData, found that mainstream automakers increased destination fees from an average of $839 in 2011 to $1,244 in 2020. That’s more than 2.5 times the rate of inflation.
Compounding the problem is that destination charges, which can also be called things like “inland freight and handling” fees, often take car buyers by surprise. The fees appear as a line item on car window stickers at dealerships. But they’re rarely baked into the prices in car ads or clearly listed on automaker websites. Instead, these non-negotiable fees tend to lurk in the fine print.
In addition, while experts agree that destination fees have something to do with getting cars from factories and ports to car dealerships, it’s not at all clear exactly what they cover, how they’re determined, or why they should be treated any differently from, say, the cost of equipping a car with a steering wheel.
One reason for the mystery, consumer advocates argue, is that the fees are really little more than a stealthy way for automakers to raise prices without fully owning up to it.
“The auto industry’s relative silence on the rise of destination charges is a bit deafening,” says David Friedman, CR’s vice president of advocacy. “If they had a valid reason beyond just driving up the price, they would actually be able to point us toward specific examples of costs that have gone up within the shipping process.”
CR is calling for rules requiring automakers to include destination charges in their advertised and online prices—and not just in the footnotes.
To help consumers better understand what they’ll pay, we display destination fees on new-car model pages.
“The lack of transparency about how destination charges are derived, and the rate they’ve been increasing, is why CR now highlights them,” says Jake Fisher, senior director of auto testing at CR.
Destination Charges Are Rising
Source: CR analysis of data from © 2021 Autodata Inc. dba ChromeData. All rights reserved.
Some Grow Faster Than Others
Amid the overall growth of destination fees across the industry, our investigation found a wide range of variation, including several pockets of especially significant increases.
Stellantis, the company formerly known as Fiat Chrysler that’s behind the Chrysler, Dodge, Fiat, Jeep, and Ram brands, among others, is a notable example. Destination fees rose an average of 90 percent on Chrysler, Dodge, and Jeep vehicles; 74 percent on Ram trucks since 2011; and 114 percent on Fiats since 2012. The charges on one model, the Jeep Cherokee, rose to $1,495 in 2019 from $995 in 2016, a 50 percent increase in just three years.
Other models with sizable destination fees include the much anticipated new Ford Bronco and the smaller Ford Bronco Sport, for which the fee is $1,495, and the 2021 Ford F-150 and Ram 1500 pickups, at $1,695.
We asked several automakers, including Acura, Ford, General Motors (GM), Kia, Mini, Stellantis, and Toyota, why destination fees are on the rise. Most didn’t answer the question directly; some declined to comment.
A GM spokesperson, James Cain, wrote in an email that freight and logistics costs had increased, and pointed to growing sales of pickups and SUVs. “The bigger the truck, the fewer you may be able to fit on a carrier/rail car,” he explained.
Daniel Barbossa, a Ford spokesperson, echoed that point, telling us that “the shift by consumers to SUVs and trucks” has contributed to increased shipping costs, along with the high demand for shipping and a shortage of skilled drivers.
But if that’s the case, then how have other automakers managed to keep the fees from increasing as much? While our investigation found that almost all of them had increased destination charges over the past decade, many had done so in line with inflation, which rose about 18 percent over the period. Audi showed the slowest increases, for example, inching its average destination fee up 10 percent. BMW, Infiniti, Lexus, Lincoln, Mercedes-Benz, and Volvo each grew their fees by less than 20 percent.
When we asked for more explanation on how destination fees are calculated, almost all of the manufacturers we contacted repeated the same vague formulation: They’re simply the average of what it costs to deliver a model from U.S. factories or ports to the closest and most distant dealerships. (This ensures that customers don’t pay more or less based on location.) None would provide a detailed breakdown of how they calculate the fees on any particular model.
Raising Fees for Profit?
That lack of transparency has led many to wonder why delivery costs are foisted on consumers at all. Car buyers often pay extra for options like leather seats and high-end sound systems, but delivery is no more optional than a windshield. And almost no other business expects consumers to pay separately to send goods to stores.
“The automaker should be responsible for getting their product to the retailer, just like eggs to a grocery store or electronics to a store such as Best Buy,” says Jack Gillis, executive director of the Consumer Federation of America.
The conclusion of many consumer advocates is that inflating destination fees is just a way for automakers to boost the bottom line without officially raising prices. “There is no reason why destination charges are not incorporated into the cost of the vehicle,” Gillis says, “except that it enables the manufacturer to charge more.”
Dan Bedore, an independent consultant with 25 years of executive experience at several car manufacturers, puts it more starkly. “[Destination] ends up being another lever the business can pull to increase revenue,” he says. “It does not take a mathematician to understand the value of a $100 increase to a company that sells 2 million units a year.”
Know Your Fees
Documentation
What it is: Aka the dealer conveyance fee, it’s a charge for processing the title, registration, and the like.
Typical range: $75-$800
What to do: Negotiate. Eliminating it entirely is hard, but ask for a discount on this fee, on the “out the door” price, or on a dealer-installed accessory such as winter floor mats.
Dealer Prep
What it is: Also called a “vehicle prep” or “predelivery inspection” fee, it often appears on a second sticker next to the official one at the dealership.
Typical range: $100-$500
What to do: Contest it. Along with a full tank of gas, it should be the dealer’s responsibility to take the plastic off the seats and do similar prep.
Advertising
What it is: Dealers sometimes try to recoup the cost of national and regional advertising campaigns.
Typical range: $100-$1,000
What to do: Refuse it. These costs should be incorporated into the sticker price.
Market Adjustment
What it is: Translation: This is a hot car in short supply. Don’t want to pay this fee? Fine. We’ll sell the car to someone else.
Typical range: $300-$5,000
What to do: Try to negotiate. But unless you find the car elsewhere, you may have little leverage.
How to Get a Better Deal
There’s currently little a consumer can do to avoid paying the destination fees on a new car. “It’s simply a pass-through charge from the automaker to the dealer,” says Jill Merriam, owner of Key Hyundai of Manchester and Key Hyundai of Milford, both in Connecticut, whose sales staff will negotiate the bottom line but not destination charges.
Still, understanding the fees can help you get a better deal. Here are three tips:
Know the fees when you see them (even those in the fine print). Destination fees are listed in the last line item at the bottom of every new car’s window sticker, right above “total MSRP.” But they may not be obvious in advertised or online prices.
Compare apples to apples. Whether you’re comparing various models or the same model at different dealerships, make sure the prices include destination and other fees. When pricing on automaker websites, click through to the summary to see prices with fees included.
Negotiate the bottom line, not the destination fees. Instead of focusing on the delivery charges, insist on discussing your “out the door” price. And don’t be shy about asking for a reduction; car dealers expect you to haggle. Aim to get the price down by $1,000 or so to offset the destination charges.
Editor’s Note: This article also appeared in the April 2021 issue of Consumer Reports magazine. For more information, go to our 2021 Autos Spotlight page.
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