What Is the Destination Fee for New Cars and Why Has It Risen?

LifeStyle on August 14, 2019

Have you ever read the list of fees that come with the purchase of a new vehicle? There are several additional costs that you may see dealerships adding to the MSRP of the new car that you want. Depending on the make-and-model that you purchase, everything from gap insurance to an extended warranty can add thousands of dollars to your final financing package.

One of those charges that have seen a recent surge in total cost is the destination fee. It used to be $500 or less, but that rate has more than tripled for popular models like the Ford F-150 and the Dodge Ram.

You can still see charges of less than $1,000 for cars like the Fusion or the Fiesta. The Chevy Cruze has a destination fee of $875 as of August 2019.

Any destination charges for a vehicle are not typically negotiable. Even if you arrange to take delivery of your car at the factory, there is an expectation that you’ll pay for this charge. It is also taxable in most jurisdictions.

What Is the Destination Fee?

The destination fee is a charge that represents the cost to deliver a vehicle to the dealership. This cost passes to the consumer upon purchase, and it is not part of the listed MSRP.

It is the same for each make-and-model no matter what the location of the dealership happens to be, so expect to pay the same charge in Phoenix that you would in Boston. Only Alaska and Hawaii are sometimes exceptions to this rule.

What you need to watch for when shopping for a new vehicle in Arizona or where you live is an added delivery fee. Some dealerships tack on something extra above the destination charge, which would mean you would get hit twice for the shipping expenses.

If you see two delivery or destination fees, then ask your dealership to remove the second one.

How Is the Destination Fee Calculated?

The destination fee remains the same for all destinations because of how the factory calculates this expense. They will take the cost to deliver a vehicle to the furthest dealership from their location, and then average that expense with what it takes to send that same make-and-model to the dealership closest to the manufacturing site.

As vehicles get larger, the cost to ship them will be more. What has some industry analysts concerned is the fact that between 2013-2019, the fees increased by an average annual rate of 6.2%. Between 2003-2012, the destination charges only rose by 3.3% each year.

Destination and handling are supposed to be a profit-neutral venture. The reason why we are paying more for this line item is due to an increase in insurance costs, electronic logging device compliance, and vehicle maintenance. Higher wages, fewer workers, and a spike in equipment charges are also putting pressure on this cost.

You can save some money on the destination fee by purchasing a smaller vehicle. With the increases in shipping charges caused by outside influences, there is no other way to reduce this expense unless your dealership is willing to negotiate.

This trend is not expected to reverse itself any time soon either.