$3 Gas!

Chrysler has a new marketing deal Buy one of their cars and get guarantee of $3 gas for three years.

A lot of people are excited about this. At least, a lot of economists. They read about consumer angst regarding higher oil prices and they think, “Wow! Another way that the car companies are fooling those ignorant consumers.”

You see, the gas price doesn’t affect the average household budget all that much. If someone drives 15,000 miles per year, they may use 600 to 700 gallons of gas. So a $1 increase in gas will cost them–$600 to $700.

The prospect of the car company pitching for half of that gets marketers excited, because they think the hype will sell cars without costing the company much. But my guess is that the consumer isn’t so easily fooled. Hummers and big pickups are a testimony to consumer rationality. The $3 gas off may well go the way of free toasters at the dealership.

Douglas R. Tengdin, CFA
Chief Investment Officer
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