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.
and 
. You can also watch it on 
Let’s set aside all the assorted jabbering that’s been going on over this and assign the blame for the situation at the feet of those who are truly responsible:
1. Oil speculators who are using the “instability” in the Middle East as an excuse to run up crude prices and make a “bubble” so they can make money.
2. Big oil companies who shut down most of their refineries, thus reducing gas supplies, and coupling this with the “instability” in the Middle East and high crude prices, as an excuse to run up their wholesale charges, making a “bubble” to enhance profits.
3. Gas dealers who use all the aforementioned excuses to run prices up, themselves, and enhance their own profits.
How farfetched is this? Not very. It’s all about the profit motive, upon which the market it based. People in the market have become sophisticated enough to know what a “bubble” is, how to profit from them, and they can now engineer them at will. (The “dot-com” bubble was one example, the “housing bubble” and attendant sub-prime lending, meant to bring more money into the market to keep it inflated, is another.) The problem is that the world economy may, eventually, become unable to sustain the “bubble” at a level that’s required in order to maintain high profits (a “bubble” only works if it keeps going up at a sufficient rate). If/when the “bubble” falls or bursts, there will be speculators and oil companies left “holding the bag” as it were, and they will lose … everything. When it breaks, others too will pay the price, as the economy will be affected overall; the standard of living will fall, demand will drop, etc.
In the long run a bubble is in no one’s best interest, even those who hope to profit from one. Unfortunately, too few people know the difference between short-term gain and long-term viability. They focus on the former at the expense of the latter. It’s mostly people OUTSIDE the market, those who must buy the gas at bubble-inflated prices, who will pay.
Jeff, if a car gets 25 mpg, then every $0.12 increase in the price of gas over $3 would be offset by a 1 mpg increase in fuel efficiency. If the car gets 35 mpg, then every $0.08 incrase in the price of gas would be offset by a 1 mpg incrase.
So if you assume gas will average $3.36 over the next 3 years, then 3 mpg is about right.
The comment of “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” was a very interesting one and one I’d like to see some DOE/EIA/BLS data on. I have always felt this was relatively accurate of Americans (then again, my annual gas expenditures are near $0 since I live in NYC), but have yet to see some hard data on this. Would love it if fellow commenters could share some numbers here.
$477.55 so far this year.
I live 11 miles from work.
Didn’t GM do this exact same thing a couple years ago?
Gas is about 5% of the CPI. So it’s not a huge amount, but neither is it trivial.
Most consumers would be better off buying a car that gets better mileage than a car with a fixed price for gas.
I too have long thought that gas prices are a small-talk water-cooler red herring. In my business, I put over 50,000 miles on my Chevy Avalanche annually, and while those dollars may be “written-off” so to speak as business expense, the fact remains that those dollars come out of my pocket. And yet, when you have to do the driving, you have to do the driving. The media and our own need to kill silence have made this issue far bigger than it is.
And yes, there are more than a few ways to solve the problem, including but not limited to exploring more of our own domestic petroleum resources, making the regulatory burden of opening a new refinery less prohibitive, and ending the ridiculous notion that ethanol and renewable fuels are driving up the cost of food.