What Makes Up a Destination Charge?
Buy a new car, and you'll likely shell out $800 or more for the destination charge. Automakers call it all sorts of things: Honda says it's for "destination and handling," while Subaru dubs it "destination and delivery." Mercedes-Benz simply calls it a "transportation" fee, while Buick says it's a "destination freight charge." Toyota leaves nothing out with its verbose "delivery, processing and handling fee."
Whatever the name, destination charges are on the rise. The customary fee for the 10 bestselling cars in 2003 averaged $643. By 2012, the price jumped to $879 — a 3.3% annual increase, on average, that puts destination charges on track to crest $1,000 per car by 2017. If that seems expensive, those track about even with average new-car MSRPs over the same period. The average new car ballooned from $27,836 in 2003 to $36,672 by 2012, according to CNW Marketing Research.
What's In a Fee?
With the destination fee, you're paying to do just that: land the car on dealer lots. Chrysler's Wendy Orthman said the automaker "sets the destination charge for each nameplate based on our costs to deliver a new vehicle from the assembly plant to the dealership. Our costs include shipments by rail and truck."
And with the exception of certain areas — Alaska, in some cases — destination charges are the same across the country. The fee "consists of all transportation and processing costs for all finished vehicles covering their movement from plants or ports to dealers," Honda spokesman Steve Kinkade explained. "This includes truck, rail and ocean transport plus fuel surcharges for each mode. Costs are calculated into a national average which results in equalized freight charges — and is the same for all dealers regardless of their distance from the vehicle's origin."
Live around the block from the factory? Too bad, IHS principal analyst Joe Langley told us.
"The price is a flat fee regardless of the proximity a consumer may be to a factory," Langley said. "If you live in Youngstown, Ohio, the destination fee is no cheaper for the Chevrolet Cruze that is built in nearby Lordstown."
Higher Costs, Higher Fees
New cars have made big strides in the past decade — which justifies, at least somewhat, their price increase. Take safety and fuel efficiency, for example: In 2003, just 19 percent of all new cars had a standard electronic stability system, according to the Insurance Institute for Highway Safety. By 2012, every new car had the important safety feature. Similarly, new cars sold for the 2012 model year averaged 23.5 mpg in sales-weighted EPA gas mileage, according to the University of Michigan's Transportation Research Institute. In the 2008 model year — the first year UMTRI tracked sales-weighted EPA mileage — new cars achieved just 20.8 mpg.
But the age-old destination charge delivers no additional benefit versus past decades. The car still shows up at the dealership, new-car smell and all, with nary a scratch. Are automakers eking out extra profits through the fees? Langley doubts it.
"The increase isn't a way for manufacturers to try and pad their prices upwards, but reflects the increased costs of logistics in recent years due to higher fuel costs," he said.
Indeed, in the first week of September 2003, a gallon of regular averaged $1.75 nationwide, according to the Energy Information Administration. This September, that same gallon runs more than double that — $3.61. Over that same period, diesel fuel costs, which the trucking industry relies on, ballooned even more to a national average of $3.98 per gallon this September from $1.50 a decade ago. That and general consolidation of shipping companies has driven up costs over the past decade, Ford dealer spokeswoman Elizabeth Weigandt said. Fuel surcharges, meanwhile, can add as much as 25% to the total cost of transportation, Honda's Kinkade added.
Add it all up, and higher fuel costs have not just elevated the cost to own a car, but the cost to buy it in the first place.