Chrysler recently announced a program that guarantees $2.99 a gallon gas for the next 3 years to anyone who buys a Chrysler, Dodge or Jeep vehicle between May 7 and June 2. It didn’t take long for this plan to draw critics.
The fact that the plan likely only saves customers somewhere in the $1,000 range and that a larger amount of money could be saved with greater fuel efficiency (a savings that would last more than 3 years) irks economists. It’s also unclear how likely it is gas will stay over $2.99 the next 3 years.
However, Steven D. Levitt, co-author of Freakonomics, loves the plan (at least from Chrysler’s perspective):
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).
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