Chrysler's Gas-Price Guarantee Now Running on Fumes
June 09, 2008
By Dale Buss
Gasoline prices keep going up. And Chrysler executives keep trying to pump life -- and hype -- into their gas-price protection incentive, which they extended through July 7. But Let's Refuel America hasn't generated as much steam as sizzle, and now it's difficult to call the program anything but a failure.For one thing, Chrysler's May sales fell by 25 percent despite the incentive, the second-worst performance by a major automaker in the month, exceeded only by a 30-percent decline for General Motors, which was severely hampered by a major supplier strike.
Second, Chrysler buyers' take rate in May for a Let's Refuel America gas card turned out to be only 5 percent to 10 percent -- meaning that more than 90 percent of the company's customers opted for a conventional cash rebate or low-interest financing instead of three-year protection against gas prices above $2.99 a gallon, offered on most of Chrysler's vehicle lineup.
And third, even in the arena of marketing buzz, where Chrysler executives insisted that Let's Refuel America was proving its value, the concept has turned into a bust.
"After three weeks, we're seeing virtually no positive impact of the MPG campaign for Chrysler" on the pages of Edmunds.com, parent of AutoObserver, reported David Tompkins, executive director of industry solutions for the Santa Monica, Calif.-based company.
"The first two weeks had some positive numbers, but they've been washed out," Dr. Tompkins said.
People Buy Cars
Shortly after Chrysler introduced Let's Refuel America on May 5, it looked as if the concept might have significant legs. The company reported huge increases in traffic on its Web sites, a surge of consumer inquiries to its dealers, and a lot of customer discussion with salespeople about the idea.
"It was a brilliant idea, because it would be more cost-effective to offer free gas than thousands of dollars of incentives," said Lincoln Merrihew, senior vice president of TNS Automotive, a New York-based market-research concern.
As recently as last week, in commenting on May sales, Chrysler executives were sanguine. The company was actually beginning to send the gas cards to customers. And the program "continue[d] to drive traffic to dealerships and internet sites in fairly big numbers," reported Steve Landry, Chrysler's executive vice president of sales and marketing. It was experiencing "high take rates" on Dodge Caliber, Dodge Charger, Dodge Avenger, Chrysler Sebring and Chrysler PT Cruiser, he said. States where Let's Refuel America was most popular included California, New York, Ohio, Illinois and Michigan.
Landry even said that Chrysler was "leaving open as an option" extending Let's Refuel America into August "because we seem to have built some momentum from May." If take rates kept growing in June, it would tell Chrysler that "consumers are actually utilizing it and actually considering it a service."
So why hasn't Let's Refuel America driven many actual sales? Merrihew believes that Chrysler hasn't been able to overcome the fact that it offers what is probably the least fuel-efficient lineup, overall, of any major automaker. "Consumers fear being perceived as driving a fuel-inefficient vehicle right now more than ever before, and Chrysler couldn't overcome that potential social stigma with this particular offer," he said. "That's where the disconnect came."
Hearing No Second
Another problem for Let's Refuel America is that, while Suzuki quickly echoed Chrysler's program, no major automaker did.
General Motors refrained after having made little impression on its customers with a similar program -- tested regionally with a $1.99-a-gallon guarantee -- a couple of years ago. And this time around, Ford found that the idea "didn't make sense to us for lots of reasons," explained Jim Farley, Ford's executive vice president of marketing and communications.
"Customers understand the zero-sum game of incentives," Farley said, by way of general explanation. He also implied that Ford didn't require something like Let's Refuel America because it has a better lineup of fuel-efficient vehicles than Chrysler does. And when it comes to trucks -- which are a crucial segment for both companies -- other customer concerns loom larger than gasoline prices, Farley said.
"Because they may have negative equity [when they come to dealerships to trade in for new] pickup trucks," Farley said, "what they really want is trading money. So if their choice is between no trading money and subsidized gasoline -- and the trading money for a business user can get them a new truck that is a more efficient working tool -- they're going to take the trading money."
In any event, the lack of a significant second by a competitor left Chrysler's marketing machine alone in promoting the gas-price protection concept.
Spinning in the Wind
So Chrysler executives mainly have been left with trying to spin the results in favor of Let's Refuel America. They're doing it in three ways: by playing a game of after-the-fact lowering of expectations, by pointing to the company's improved relative sales performance, and by suggesting that what the program actually may accomplish is some sort of long-term change in the incentive game.
Chrysler executives didn't publicly identify up front what portion of customers they believed would take the gas card. But last week, Landry said the 5 percent to 10 percent range was "where we thought we would be." That low success rate raises the question, however, of why any marketer would go to trouble that Chrysler has with Let's Refuel America.
Also last week in the context of their May performance, Chrysler executives were emphasizing that their retail sales were "closer to overall industry performance this month than any month so far this year," in the words of Stuart Schorr, senior manager of sales communications. "We really closed the gap [in May], and the only thing that is different this month from last was [the] gas program."
Finally, Chrysler executives have suggested that, regardless of its performance in the marketplace, Let's Refuel America could solidify quickly into a third basic type of consumer sales incentive -- the way that zero-percent financing joined cash rebates several years ago. "I believe that a fuel deal could simply be a different way to do business in the future," Landry said.
In part, he was banking on gas prices going still higher, which seems at the moment like a pretty sure bet.
Old College Try
Nevertheless, it may be that the biggest long-term benefit to Chrysler of Let's Refuel America is the very fact that the company was able to mount the program in the first place.
Against the backdrop of a highly non-cooperative market and amid all sorts of trouble signs for the company generally, being able to pull off Let's Refuel America seems to have developed into something of an internal morale booster.
Rather than come from traditional sources such as the marketing department or an advertising agency, Schorr said that the idea welled up from the company's sales-incentive group last winter because they were convinced that gasoline prices had become a bigger obstacle to sales and consideration than anything else was. Only one company -- an outside source that he declined to identify -- was even capable of supplying the required logistics for the gas cards, he said.
Once top executives decided to embrace the idea, a team of about 40 people met in whole or in teams nearly daily for about two and a half months, Schorr said. And he and colleagues ended up proud that they were able to ready Let's Refuel America in time for May 5.
"What's amazing here is you really see people come together when we can find something that will unite us, when we can do something good," said Deborah Meyer, Chrysler's chief marketing officer. "That's our maverick mindset: We had a mission, and there was something we could do to add value for the customer.
"This would have been difficult to do in a different culture."
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