I’m with you, if you’re thinking: why are new vehicles subject to freight and delivery charges when almost any other retail product is not?
Buy a Kenmore refrigerator from Sears and you pay the advertised price, and the necessary taxes. Nothing more.
Buy an Elantra from Hyundai though, and you pay the advertised price (or a lower one through negotiations and/or special offers), the necessary taxes, and $1,495 for something called “delivery and destination.”
Visit any automaker’s website, and you’ll see similar charges for getting the vehicle from the factory floor to the dealership (usually called “freight”), and a charge for inspecting the car and making it all nice and pretty (usually called PDI, for pre-delivery inspection). Sometimes it’s billed in a combined charge.
Whatever they are called, or however they are packaged though, consumers don’t care for them.
“Those items are just operating and overhead expenses… They shouldn’t be separated from the original charge,” says Bruce Cran of the Consumers Association of Canada, fresh from briefing a Senate Committee in Ottawa looking into why Canadian retail prices remain so much higher than U.S. prices, despite five years of relative dollar parity.
Cran notes an old, sly business rule: once you separate something out of a price, you give yourself another opportunity for “profit mark up.” They’ve created “another profit opportunity,” from what are essentially the automaker’s own expenses, says Cran.
Paying the freight
Automakers assign one freight price per vehicle nameplate, no matter which province or locale that vehicle ultimately gets dropped off at. So freight charges don’t reflect actual distances.
“Freight charges are amortized in an effort to be fair, so all Canadians pay the same freight whether they live in Victoria or St. John’s,” emailed Chad Heard, public relations manager, Hyundai Auto Canada.
This seems like an egalitarian way of dealing with this charge, but Cran is unconvinced. “I don’t believe there is any altruistic intention behind that (one-size freight) strategy. That’s not the way these guys work.”
“Delivery” is obstensively the charge for a dealership technician to inspect the vehicle, to ensure it has no mechanical or cosmetic issues, and for the wash crew to make sure the vehicle is clean and presentable for its new owner.
Delivery or PDI charges vary by dealership and by nameplate, but they typically range from $300 to $400. But lots of dealerships charge more.
Mohamed Bouchama of Car Help Canada estimates the cost to dealers to do these activities, “is probably about $150.” He also noted that both freight and PDI charges have risen dramatically. “They used to total about $600 to $700… Now the average is about $1,400.”
Luxury makes are higher yet. Acura for example charges $1,895, while Lexus asks $1,950. “They go up every year,” says Bouchama, adding that even when manufacturers lower vehicle prices, they still increase freight and PDI charges.
All-in pricing legislation
A big development on the Freight and PDI scene is the introduction, in several provinces, of legislation pertaining to “all in” price advertising.
In Ontario and Quebec, for example, dealerships can only advertise prices that clearly state the “all in” or “walk-away” price, inclusive of all fees, expect HST and licensing. So in those provinces, when you see a price advertised on a dealer’s website or in a dealer’s newspaper’s ad, that price would include Freight and PDI.
But it’s important to note that manufacturers are exempt from this legislation. According to Frank Notte, the director of government relations for the Toronto Automobile Dealers Association, this exemption has the potential to cause a bit of confusion in the market place.
He said many consumers are aware of “all-in” but not aware of the manufacturer exemption, so when consumers see advertised prices they assume it’s “all-in.” Not helping matters is that it is often quite difficult to distinguish between dealership and manufacturer advertising.
Industry practice, and practicing patience
The all-in pricing regulations are a great development, and possibly point to a future where additional fees, like Freight and PDI, get pushed out of the picture entirely.
But we’re not there yet. As a Ford Canada spokesperson told us, every automaker charges freight and it’s been that way for decades. It’s an “industry practice” folks, and one with very deep and strong roots. Good luck trying to prune that back by just complaining.