$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.