New car destination fees have soared in the last 10 years
Cars
Speaker 1: You know, the drill, you heading down to the new car dealership and you haggle off and over hundreds of dollars. And then after wasting half your Saturday drinking a lot of bad coffee and hearing a lot of that, I have to talk to my manager, BS you finally March into the finance office to sign the papers and going there it is. You forgot about the destination fee, a thousand or more. In most cases, making a mockery of the day, you just spent to save hundreds. Let's figure out destination fees and how you can [00:00:30] deal with them.
Speaker 1: Now, back in the day, destination fee used to be called freight and to prep was another line item charge. You had these two things on the window sticker today. It's almost always rolled up into this one thing called destination fee. What's in there is pretty opaque. The industry's not real transparent about what that contains we'll speculate in a minute. What we do know is that it's a single number and a growing one [00:01:00] consumer report recently took a look at the history of the fee and found that destination has climbed from an average of $839 in 2011 to $1,244 in 2020 that's 48% in about a decade. What else do you pay for has gone up that much in those years, I joined consumer report. It's in calling for this fee to be rolled in to MSRP and not stuck over here in the footnotes as a separate and rapidly [00:01:30] growing stinger.
Speaker 1: Now, yes, cars are big, heavy things. They have to be transported on large trucks, often thousands of miles cleaned up and set up when they get to the store where they're going, I get all that. But I also know there's a certain tyranny about the fact that those distances vary, greatly. Imagine what it's like living in the Detroit area. And you buy a Ford ranger made in Wayne, Michigan, and you may live literally down the street, but you pay the same $1,200. I [00:02:00] pay to get one out here in California, 24, 400 miles away. It just doesn't seem right. Oh, and then there's the other part inside of a destination fee, which may include, we don't really know dealer prep. When cars arrive at the dealership, they gotta have all that protective plastic taken off. They definitely need a bath. Gotta have the washer bottle filled.
Speaker 1: Sometimes the keys have to be initialized. Various techs set up that's for right. I understand. That's also an essential part of marketing a car, but that's why I don't think it should be a separate fee. It's [00:02:30] an essential part of bringing a car to market. You don't give me a fee for including a gas tank or doing crash testing. Those are also essential to retailing vehicles. There's no reason to break out destination any more than to break those out the bottom line. Why that destination fee is blanket across the country because I'm pretty sure it's a place to hide some profit. When you look at the fact that it's opaque times the 48% jump over a recent 10 year period, you gotta believe it's a profit center, but again, [00:03:00] we don't know what's in the black box. So I can't be sure, but I've got my hunch.
Speaker 1: Now, why is the destination fee? This separate thing lurking down at the bottom of the sticker or the finance contract sitting there waiting for you. Part of its tradition. That's a big reason for it. The car making in and the retailing industry do things like they've always done things to a high degree. It's an inertia driven industry, as much as it doesn't like that about itself. And there it is. Look at Tesla, the car company that [00:03:30] is so innovative and seeks to blow up almost everything about the auto business. They do the exact same thing with destination fees. They stick it down there by itself as this opaque, bad guy on the bottom line. So there's no difference there. Then there's competition. Let's say you're the first car maker who wants to do the right thing and build destination into the base price. Well, you're also gonna be the first car maker. Who's got a vehicle that costs about a thousand dollars more than the other guy's competing vehicle overnight that's marketplace side. [00:04:00] So unless the industry moves in concert, I don't see one car maker moving at all. Then there's perception. When you can play the game with this fee and move it outside of the MSRP, you can hit certain price targets that are perceived as being affordable, especially with more affordable or mainstream cars.
Speaker 1: Look at the shoe, heavy traverse with a teaser price of just under 30 at 29,800. But if they rolled in the destination fee that they charge, this would essentially be a $31,000 [00:04:30] vehicle overnight. You'll have moved from the twenties to the thirties, just by making a line difference on the Monro. Look at the prices of a lot of new cars. You tell the accounting and product planning departments worked hard to hit a mental target. Rolling destination in there would blow it. Now, as far as I know, you can't negotiate the number or the presence of the destination feed it's there and it ain't going away. So after you spend your Saturday haggling, feel good about [00:05:00] what other you've won that may be offset your irritation at destination, or do what I do and don't buy new cars at all buy nice late model used ones on which someone else has paid the fee for you.
