$2.99 Gas

I love Chrysler’s new incentive program that guarantees consumers who buy one of their new cars or trucks won’t pay more than $2.99 a gallon at the pump for the first three years they own the vehicle.

When you sign up, you get a special credit card that can only be used to buy gas. When you swipe it, $2.99 per gallon goes to you, the rest of the cost is paid by Chrysler. (There are some limits on how many gallons per year you can buy, whether you can use the premium grade gas, etc.)

I think this is a brilliant idea on Chrysler’s part.

I believe consumers systematically exaggerate the importance of gas prices to their budgets. The typical American just doesn’t spend that much money on gas.

The way we buy gas — every week or two, with the prices staring us in the face as we stand at the pump — makes price fluctuations far more visible than for other goods. Someone who signs up for this program will think about Chrysler and how they are paying part of the cost of the gas every time they fill up. I suspect that will increase the brand loyalty of people on the program.

There is also every reason to believe that gas prices will be lower in the future than they are now, in spite of the peak oil rhetoric. So I doubt the program will cost Chrysler much (although presumably they’ve hedged the risk anyway).

It is a program that can catch people’s attention. Twice in the last two days I have entered a conversation in which Chrysler’s $3 gas was the topic. (Both times it was economists talking; maybe regular folks are not so enthralled). The last car manufacturer incentive scheme I can think of that generated this much buzz was the “employee discount” plan from a few years back.

If it works, I don’t think it will be that easy for the competitors to copy, at least not quickly (in contrast to the “employee discount” plan which spread like wildfire across the various car manufacturers). Setting up and administering this program must be a logistical nightmare. I could imagine it taking another company many months to get all the pieces into place.

And most important of all to the academic economist, the data generated by the program could be the basis for some great research papers.

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  1. Guan Yang says:

    Competitors may be able to use the Wright Express system, which is what Zipcar uses for their gas cards. The card can be used at most gas stations and users have to punch in their mileage when they fill up.

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  2. Matt, Ohio says:

    Hillary would like you to know that she thought of this idea first, and thus she is more in tune with working class Americans.

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  3. Mason says:

    This is actually not a good deal for consumers. In order to get the discount card you have to give up $5500 in rebates. There are a few sites out there doing the math to demonstrate that, based on the way Chrysler calculates the MPG and the amount of gas you get per year, gas prices will have to be extremely high (>$5.50/gal) in order to break even on the rebate you give up and this doesn’t even count the time value of money.

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  4. John Graves says:

    This is a great idea! Recently I’ve been wondering why there isn’t really a robust market for gas insurance. A large and often overlooked part of the success of Southwest Airlines is the fact that they were able to lock in the price of jet fuel for several years. My question is: why can’t regular consumers do this? I’m sure there are a lot of people out there who will gladly pay a $40 premium per month so that they can fix the price of gas at, say, $2.50 per gallon.

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  5. jonathan says:

    The “employee discount” program worked because it let you “inside” or at least gave you that feeling. This one creates a continuing relationship and I wonder if it will differ in success from OnStar. I haven’t seen any data on whether OnStar subscribers keep their cars longer, buy GM again, etc. – though it hasn’t worked miracles for GM’s market share.

    Again, haven’t seen data but many people buy gas with cash or with debit cards. Higher gas prices should then see a switch from cash / debit to credit so the pain is deferred. I’ve wondered when standing at the pumps if that switch wouldn’t generate some additional spending as people use up the immediate cash they normally use for gas.

    If you pull up to a pump and realize you’re paying $60 to fill up, you can swipe a Visa or MC instead of a debit card / cash and then you have that $60 in your “pocket.” I would think any change in sales methods would be easily tracked.

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  6. David says:

    It’s trivial to set up. There are tons of fleet cards out there, and the banks that administer them would love to have the volume a program like this provides.

    We’ll see how well it works in a few months when sales figures are out, I’ll bet it isn’t as big a bump as hoped. Once people buy a car, they start to become more economically rational. It’s the small decisions, like driving an extra few miles to save 2 cents/gallon where people are economically irrational. On houses and cars, people are more rational, partly because they are likely to ask for help.

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  7. Matthew says:

    Mason: Few of the promotions offered by mfrs/dealers are good for consumers. As long as the general public doesn’t understand the concept of NPV people will continue to overpay for cars. I went looking at cars once and the salesperson was not amused when I started typing values into a financial calculator.

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  8. jeff says:

    Seems like Chrysler is ducking the real problem – gas mileage and supply by letting their consumers not care about how many miles their car gets to the gallon (due to cheaper price) and letting them afford to BUY MORE GAS. I read somewhere that Chrysler consumers would save more if the company increased gas mileage by 3 MPG on the same cars over three years – any source on this?

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