Buying a new car? Watch out for this hidden fee
As if semiconductor shortages and COVID-19 hadn’t driven car prices high enough, automakers are ratcheting up a hidden charge most shoppers are unaware of — and which nobody seems to understand.
Meet the destination charge, also known as a shipping charge and the second-to-last line on the window sticker.
I’d love to tell you exactly what a destination charge is, but nobody but the automakers seems to know, and the car companies aren’t talking. The first rule of destination charges seems to be: “Don’t talk about destination charges.”
This much is clear, though: They’re rising faster than inflation, and they tend to be higher on vehicles for which there’s high demand — like pickups and SUVs. Slower-selling vehicles, like sedans, have lower destination charges and see fewer increases.
The destination charge is not included in the manufacturer’s suggested retail price, or MSRP — the price automakers and dealers advertise. A cynic might suspect shenanigans.
“Some automakers use destination fees to increase revenue in a way shoppers don’t notice till late in the buying process,” says Mike Monticello, senior manager of road tests and reviews at Consumer Reports.
“We think there should be rules to include the destination fee in the advertised price, not below it in a footnote,” he says.
Neither the automakers nor dealers I contacted for this column would discuss how destination charges are set.
How much per pound?
Destination charges were relatively stable for years, but Consumer Reports found they increased at 2.5 times the rate of inflation since 2011.
Destination charges on vehicles I’ve tested recently range from $945 for a Mazda 6 — a sedan that sold so slowly Mazda dropped it — to $2,000 for a luxurious Jeep Grand Wagoneer,one of this fall’s hottest rides.
The Grand Wagoneer is bigger than the 6, which could account for some of the difference. The Jeep will almost definitely be more popular, though.
Comparing destination charges for the new 2022 Toyota Corolla Cross subcompact SUV and the 2021 Corolla sedan further undermines correlation between destination charge and vehicle size.
The sedan’s destination charge is $1,025. The Corolla Cross SUV — based on the same architecture as the sedan and 6.7 inches shorter — carries a $1,215 destination charge. To be fair, the Corolla Cross weighs 215 pounds more than the sedan.
I’ll do the math: $190 more to ship an extra 215 pounds works out to 88 cents per pound. At that rate for the whole car, the sedan’s destination charge equals $2,571.
It’s easier to draw a line between the charges and a vehicle’s likely popularity. Compact-sedan sales are falling. Small SUVs are booming.
How did this begin?
A federal law requires automakers to reveal the destination charge on the window sticker, which includes other information like standard features, options, government safety ratings, EPA fuel economy and emissions estimates, and where the vehicle and its major parts were built.
The window sticker is also called the Monroney, in honor of U.S. Sen. Mike Monroney, an Oklahoma Democrat who sponsored the 1958 Automobile Information Disclosure Act, an early consumer-
protection law. Frequently updated with new information, the act’s original requirements included listing transportation charges.
Theoretically, the destination charge consists mostly of what it costs to ship the vehicle from its plant — or port of entry, for imports — to the dealer that sells it. There may also be some payment to the dealer for fueling, inspecting and cleaning the vehicle.
Destination charges used to vary around the country, depending on how far the vehicle was shipped.
That gave dealers near the assembly plant an advantage, which they loved. Dealers located farther away weren’t fans of that. Since happy dealers make happy auto execs, automakers adopted a national average for shipping costs. It’s now the same throughout the U.S., with a few minor exceptions.
Automakers and dealers sometimes try to justify destination charges by saying the Monroney Act requires them. That’s incorrect. The act says the transportation charges, “if any,” must be revealed. It does not say they must be assessed.
Would you do this for a toaster?
If this just started to look logical, check yourself: Destination charges do not include shipping costs from overseas plants. Those are wrapped into the vehicle’s MSRP.
Why not do that with the cost of shipping within the U.S., you ask?
No reason, except that a person suspecting shenanigans might say the cost would then become part of the MSRP used in advertising.
Transparency in pricing is the customer’s friend. People notice MSRP increases.
Instead, the destination charge is often mentioned in the same phrase as taxes, license and registration, like the automaker had nothing to do with it.
No other common in-person transaction works that way. It’s as if you bought a $99.99 toaster oven at a store, and when the checkout clerk added sales tax, they also tacked on $5 to cover the truck that delivered it to the store.
“If I buy a sofa, I pay for delivery to my house but not to the store,” Monticello says. “There should be a rule to include the destination fee in the advertised price, not as a footnote.”
Or it could simply be considered part of the vehicle’s price, like cost of the steering wheel and the steel used making the vehicle. Is that so hard?