Examining Automakers’ New Offer in Times of High Fuel Costs

July 14, 2008

Opening the finance section of the newspaper these days often yield the same story: gas prices are climbing with no sign of stopping, living expenses are getting higher, inflation is threatening the economy. Chrysler has responded to the American automotive and general cost-of-living crisis with a novel kind of offer to new car buyers. Nowadays, when consumers purchase a new Chrysler, they have the option of unchanging gas prices. This deal allows the Chrysler owners to pay a guaranteed $2.99 per gallon for the next three years.

Because American motorists have been so upset lately by the rising price of gas at the pump–at this point, over $4 per gallon in almost every part of the country–Chrysler’s offer has attracted many eyes and wallets. Is this offer a good deal? Analysis says, It depends.

The first rule of buying a new car is that the price of the car, and the degree to which the car fits your needs, should guide what you buy. In other words, your choice should not be determined by automakers’ bonuses such as 0% financing or guaranteed $2.99-per-gallon fuel. Thus, it’s not a good idea to buy a car solely because of the $2.99 fuel guarantee, if you would have otherwise bought another car.

Second, do the math. Check how many miles per gallon the car you want to buy is getting. Then, examine how much you drive, and multiply that number by the likely cost of gas in the next few years. For the purpose of this exercise, assume gas prices will stay high, at about $4.25 a gallon or so. That’s how much you’d be spending on gas without Chrysler’s special offer. Then, use the same numbers to estimate how much you’re likely to spend on gas with the offer. Figure out approximately how much you’d be saving.

Then, compare those savings to other deals you can get. Because you can see those numbers add up at the pump, anything that will cause you to pay less for gas will seem like it’s saving you a lot of money, but it’s not necessarily the case. Sometimes car dealerships will offer you such incentives as up to $3,800 cash back on some car models. This could amount to greater savings than the guaranteed gas deal.

Third, you should never overlook the fact that the price of gas could get lower. The current high gas prices are the result of a complex interplay of economic and geopolitical forces that no one individual can truly control. Who is to say that the conditions causing the gas prices to be so high will stay the same? Gas for $2.99 per gallon is not cheap by the standards of a few years ago. For gas prices to decrease to $2.99 per gallon at the pump in the next three years is not out of the question.

Finally, if you already own a car, the guaranteed gas deal is certainly not enough to justify buying a new one (unless you were already thinking of buying a new car for other reasons). You are unlikely to save enough money on gas to make up for the cost of buying a new car, plus dealing with registration and insurance. If your present car consumes a lot of gas and want to buy a new car to save money on gas, the best option is probably to buy a used car that gets better mileage, rather than take up the $2.99 gas offer for a brand-new car.

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