Chrysler Puts Up a Prayer

Here we go again:

19:05 05/05 =DJ Chrysler To Offer $2.99 Gas Guarantees To New Customers

DETROIT (Dow Jones)--Chrysler LLC, looking to spur sales while connecting with
financially stressed consumers, will offer new car buyers a $2.99 gas guarantee
starting Wednesday.
  The auto maker will give new customers a Chrysler, Dodge or Jeep branded fuel
card that will lock their gas price at $2.99 gas per gallon for three years,
Chrysler co-Chairman Jim Press said Monday. The money allocated to each
customer will be based on 12,000 miles a year divided by a vehicle's estimated
miles per gallon.
  "We aren't in a position to know what the cost is but we hope it helps the
customer," Press said in a conference call Monday. "We feel this is necessary
to help our customers through difficult times."
  Chrysler is looking to rejuvenate sales despite the slumping U.S. economy, as
customers are delaying or skipping purchases. The auto maker's April sales fell
23% to 147,751 vehicles.
  The card will be available through June 2 and apply to high-volume vehicles,
such as the Dodge Caliber and Chrysler Sebring.
  Chrysler announced a similar program in 2005 when it gave two tears of free
gas on select models. The deal also included two years of free scheduled
maintenance. Chrysler gave customers a $2,400 debit card for the gas.

So, lets run some numbers, quick & dirty:

Irrespective of any other offers or fine-print, this offer clearly provides less incentive for consumers to purchase the more fuel-efficient vehicles in Chrysler's fleet (e.g. Dodge Caliber, EPA 24 mpg city/29 highway) than for gas-guzzlers like the Chrysler Aspen V-8 (335hp, 15mpg combined).  We'll see what happens as they release more details on this program, but at the very least, it seems pretty clear that Cerberus-owned Chrysler, LLC is concerned about propping-up sales of SUV's, Trucks, and other gas-guzzlers in their fleet as the price at the pump continues to rise.

I don't know what other tricks Bob Nardelli and Jim Press have up their sleeves, but this program seems to reek of desperation.  I'd like to get my hands on Chrysler's internal projections as to how they see this fitting into the larger restructuring plan, but for now I'm pretty-much stumped.  As I pointed out in my run-down of the New York International Auto Show, I'm at-best disappointed with Chrysler's product offerings, and similarly skeptical of any financial trickery designed to boost sales.  As much as I want to see this thing work out for all parties involved, I've yet to see any real signs that Cerberus is going to emerge the victor from this battle.

Update: Fixed the calculation to account for the 3-year gas-price guarantee

Comments

[anonymous]

This is just begging for a "Reality Bites"-style risk arbitrage play.

[Stupid Equity Guy]

Sir Anal,

Can you reverse the data flow and see how much stress this will put on Chrysler for every dollar in gasoline price increase per X cars sold with this feature... My guess is this could put the nail in the coffin if we have a blow off spike in gasoline prices after they ramp up sales.

~SEG

[Anal_yst]

Good Point SEG, I'll see what I can do tomorrow, but I too - in a blowup spike scenario - can see the potential for much pain to 'Berus (thats its hood name btw)