Cars, unfortunately, don’t come with straightforward price tags.
Most of what you pay for a new car comes from the manufacturer’s suggested retail price (MSRP). That is the figure the company that built it recommends dealers sell it for. But window stickers can include all kinds of other charges, from taxes and registration fees to markups the dealer makes to try to capture profit from the sale.
One of those fees is not negotiable. It’s the “destination fee,” which the automotive industry justifies as the cost of shipping the car to the dealership. Destination fees have grown in recent years, and have grown controversial. The logic behind them isn’t always obvious — why does Hyundai charge $1,195 to bring a Palisade SUV to the U.S. from Ulsan, South Korea, and Dodge charge $1,595 to bring a Durango SUV from … Detroit?
The fees can easily seem arbitrary, leading to suspicion that they’re just profit for automakers.
Demand High, Drivers Scarce, Diesel Costly
But the fees are increasing in part because the cost of transporting cars is increasing, says Joe Kichler, vice president of Manheim Logistics. Manheim Logistics and Kelley Blue Book share a parent company, Cox Automotive.
Manheim Logistics, Kichler explains, helps move about 10 million cars per year. “And while those are almost all on the used car side, the logistics supply chain challenges are the same for both new and used vehicles,” he says.
Among the trends the company has seen, according to Kichler:
- COVID caused a shortage of carriers, which persists to this day. The American Trucking Association says that the problem went from a shortage of 61,500 drivers pre-pandemic to 80,000 today. Filling that gap is becoming harder as consumer delivery companies are increasing their wages to attract more drivers, and many potential drivers are finding it’s much easier to deliver a package than a 1–2-ton vehicle.
- There’s increased demand for transporting wholesale vehicles farther distances due to low supply and more dealers buying these vehicles digitally. The average vehicle move in Q1 2020 was 225 miles. In Q3 2021, that number more than doubled to 460 miles.
- The price of fuel continues to rise. In October 2021, a gallon of diesel was approximately $1.30 more expensive than the same time a year ago.
It May Get Worse
The price increases may not end anytime soon, Kichler says. As the microchip shortage riling the market eases, he notes, “The already overtaxed transportation supply chain is going to be squeezed further – perhaps leading to more cost increases.”
That may not explain the difference between automakers. But we may get more clarity for consumers on that from court proceedings soon. Automotive News reports that “class action lawsuits filed this year against General Motors, Ford Motor Co., and Jeep parent Stellantis argue that the companies are unfairly padding their profits with inflated shipping charges.”
