Chrysler's Gas-Price Incentive May End Up a Winner
May 12, 2008
By Dale Buss
Chrysler executives feared that their new gas-price rebate program would nick the company's already-shaky green credentials. But they also hoped that the "Let's Refuel America" price-protection plan would create a buzz among consumers - and maybe even an uptick in Chrysler's dismal sales.
Just days since the incentive's unveiling, it's become clear that their fears were well-founded: Environmentalists are inflamed by Chrysler's decision to offer to indemnify buyers of most of its vehicles against gas prices above $2.99 for the next three years. They're flaying Chrysler as a technologically backward cadre of ecologically callous opportunists.
But just as quickly, signs have emerged that Chrysler's hopes might have been well-founded too.
For one thing, the program already has an imitator in Suzuki. And more important, early readings of consumers indicate that the offer of relief from soaring gasoline prices single-handedly has raised their esteem for the company and the likelihood that they would consider purchasing a Dodge, Jeep or Chrysler vehicle.
Among 913 "new-vehicle intenders" in a national survey conducted within 36 hours of Chrysler's announcement by CNW Marketing Research, 11 percent were aware of the offer. "That's not bad for a single day," notes Art Spinella, president of the Bandon, Ore.-based company that specializes in auto-market consumer research.
What's more, of the intenders who knew about the program already and didn't have a Chrysler product on their shopping lists, 16 percent said they now would consider a Chrysler product. And of the CNW respondents who did have a Chrysler vehicle on their list of possible purchases, about one-quarter said they would likely buy or lease the vehicle somewhat sooner than they had intended.
A New Imperative
Though preliminary, these are soundings from an American public that is expressing unprecedented levels of concern - for some, near desperation - about gasoline prices that are rising so high and so fast that they have outstripped the ability of any existing paradigm to forecast the ultimate effects.
A much more telling indicator is how fuel-price worries have prompted the most sudden and significant segment shift in U.S. automotive history, as consumers since the beginning of the year have flocked to small cars and crossovers and away from traditional SUVs and pickup trucks.
"The compact-car market is up 3.7 percent compared with two years ago," observes Jessica Caldwell, industry analyst for Edmunds.com. "Another indicator that consumers are placing greater emphasis on fuel economy is that the hybrid segment now makes up 3.2 percent of the market, double its share of just two years ago."
Gasoline prices nationally are averaging about 71 cents a gallon higher than they did two years ago, according to Edmunds.com analysis. And there is constant news-media attention to the new crude-oil price records being set almost daily in commodities markets.
Chrysler's own recent online poll, of members of its new Customer Advisory Board, confirmed the public's extreme focus on gasoline prices: 76 percent of respondents were "very concerned" or "extremely concerned" about fuel prices. And 83 percent said that fuel prices would affect their summer vacation plans.
The company and its dealers also have been feeling a public rebuke, of sorts, over the issue of whether it is offering the right vehicles for such times. It has come in the form of a recent sales performance for Chrysler that is worst among the mainstream players in the U.S. market. It has been so dismal in large part because Chrysler remains the OEM that is most dependent on fuel-hungry SUVs and pickup trucks.
Pale Green
At the same time, Chrysler executives must take into account another of their major problems: The company's lack of green credentials.
Chrysler touts the fact that it is currently in the midst of a $3-billion surge in investment to develop new fuel-efficient powertrains and axles for next-generation models. And this fall, it will be launching its first hybrids, new versions of the Dodge Durango and Chrysler Aspen SUVs.
But it is bringing up the rear among major automakers, along with Nissan, in finally fielding hybrid models. And Chrysler simply has lacked any other kind of distinction in the increasingly important fuel-economy derby. So, not surprisingly, Chrysler finished at the bottom of a recent ranking of auto-company environmental performance by the Union of Concerned Scientists, which called the automaker "Public Polluter Number One."
Chrysler executives acknowledge their vulnerability in this area. In fact, Peter Arnell, recently appointed the company's acting chief innovation officer, said altering the perception that Chrysler is a back-bencher on environmental initiatives may require some sort of huge, game-changing development that could single-handedly catapult Chrysler to industry green leadership.
Recently, the company did poll members of its Customer Advisory Board asking them whether they believe it's more important for a vehicle to be perceived as green or for the auto company behind the product to be considered environmentally proactive. "But so far they have nothing to stand on in this area," Caldwell says. "They can't say, 'At least we have a Prius' or an Escape Hybrid."
So it's hardly surprising that Chrysler got singed immediately after announcing its new incentive offer. The Union of Concerned Scientists charged that Chrysler is "using this cynical deal to distract consumers from the fact that its cars get poor gas mileage."
And the Sierra Club appealed to the company to invest its money into better green technology instead. "If you're a consumer who ends up buying a Chrysler gas guzzler off the lot because of this, do you know what gasoline prices will be three years from now?" says Ann Mesnikoff, senior Washington, D.C., representative for the Sierra Club. "You'll be stuck with that vehicle and you'll have to fuel it."
Blast from the Past
Some observers also recalled the castigation by The New York Times that greeted the auto industry's last attempt to exploit high gasoline prices with an incentive program. Almost exactly two years ago, General Motors launched a Fuel Price Protection Program in Florida and California, locking in consumers there for a year at $1.99 a gallon. Within a week, Times columnist Thomas Friedman was scoring GM for feeding America's addiction to oil while "our military is in a war on terrorism in Iraq and Afghanistan with an enemy who is fueled by our gasoline purchases."
GM's gambit did little to spark sales anyway. Similarly, nearly a year earlier, Mitsubishi Motors actually created the fuel-price ploy with an incentive program it called Gas Comes Standard, launched in September, 2005. The company issued purchasers of new cars pre-paid gasoline debit cards. While the program got credit for inching Mitsubishi's market share up by nearly 20 percent in October, 2005, over the previous month, the share quickly dropped back down to pre-incentive levels. "It wasn't a deal closer for our brand," says Janis Little, a Mitsubishi spokeswoman.
However, such historical lessons - even recent ones - may go only so far in predicting the effects of Chrysler's Let's Refuel America initiative.
For one thing, Mitsubishi's 2005 program did generate lots of attention in the marketplace. "We were able to leverage it into timeliness and newsworthiness," Little recalls. Chrysler may be able to hope for magnitudes greater awareness of its program, given the heavy news-media attention to its offer and to criticism of it. Spinella mentions that "Chrysler has got a much bigger footprint than Mitsubishi did."
And with gas prices and public worries having ratcheted much higher than they were two and three years ago, more Americans may simply be opportunistic about blunting fuel costs than before.
"Buying a Jeep, of all vehicles, may seem like an irrational response to this concern, but risk-averse consumers are attracted to guarantees that protect them from the consequences of outcomes they fear the most," says Richard Devine, chair of the marketing department at Central Michigan University.
Needed to Do Something
For their part, GM, Toyota and Ford already have said that they won't be following suit, preferring instead to beat the drums about the growing variety of fuel-efficient vehicles they have fielded to take the edge off higher gas prices.
But within a day, Suzuki had come up with its own offer of no-interest loans plus a debit card for a set amount to reimburse the estimated cost of three months of gasoline use. Of the respondents in the CNW poll who said that they wouldn't buy a Chrysler product just because of Let's Refuel America, nearly three-quarters of them nevertheless said that they expected their primary vehicle manufacturer to offer a similar program for competitive reasons. And Edmunds.com has predicted a possible spate of such programs.
Edmnds.com's Caldwell also notes that, sometimes, major innovations in incentive programs take awhile to catch on in the industry. GM's last major company-wide initiative, a program that offered employee-level discounts to the general public a few years ago, was echoed only slowly by competitors, she says.
And besides, Chrysler is desperate to reverse its recent sales trend. Let's Refuel America "is their attempt to anything at this point to gain some momentum," says Caldwell. "They're throwing the nets out hoping they can catch a few king crabs."
Spinella adds that Chrysler's announcement "seems to have resonated, which is probably all they cared about anyway. It moved the needle. And salespeople in Chrysler showrooms will be able to use it in talking with anyone who comes in, and so for a month or two it will probably help them with some deals."
Given Chrysler's dire straits, what are a few barbed arrows from environmentalists who already heap criticism on the company anyway? "I don't think they looked at what the green movement was going to say," says David Cole, chairman of the Center for Automotive Research, in Ann Arbor, Mich. "They recognized they had to move some cars and trucks. And everyone else is kind of waiting and seeing what happens."
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