Buyers Need to Look at Hidden Costs of Fuel Promotions to Determine Total Value
BLOOMFIELD HILLS, MI– June 9, 2008 – Although automotive fuel promotions can be attractive to potential new car buyers, the hidden costs…and savings… of these promotions need to be understood to make an informed decision on the overall value. A recent study by Vincentric, an automotive data analysis firm from Bloomfield Hills, MI, looked at the current “Let’s Refuel America” promotion from Chrysler being offered on a variety of Chrysler products.
“Because the Chrysler promotion offers buyers the option of a cash rebate vs. ‘locked in’ fuel prices”, the buyer needs to look at the impact on total cost of ownership when deciding which promotional offer to select”, commented David Wurster, President of Vincentric. “For instance, Sebring Sedan buyers give up a $500 rebate if they select the fuel promotion. As a result the expected fuel savings of $1752 over three years is offset by increased fees, taxes, depreciation, and financing costs of over $500 resulting from the higher vehicle price.
However, the study also found that the promotion creates hidden savings as well due to a reduction in the opportunity cost. Opportunity cost is the interest that could have been earned on the money spent on the vehicle, and because buyers’ who select the $2.99/gallon promotion can expect their fuel costs to go down over the three year period, they can earn interest on those savings.
The end result showed that the value of the promotion to Sebring Sedan buyers is reduced over 21% from $1752 to $1379 when hidden costs and hidden savings are measured. Similarly, the Jeep Compass showed the same reduction in promotion value of 21% when hidden costs and hidden savings were included as part of the analysis.
Although the Vincentric study showed that Sebring and Compass buyers are probably wise to select the fuel option, even when considering hidden costs, that isn’t so for the buyers of the Dodge Ram 1500. By giving up $2,500 in rebate cash to earn the discounted fuel for three years, buyers are expected to increase expected ownership costs by over $500 if they select the fuel promotion.
The Vincentric analysis used $3.95 per gallon as the starting point for estimated fuel prices, and applied an inflation factor resulting in an estimated fuel price to $4.22 at the end of the 3-year discounted fuel timeframe. The study showed that although the results will differ as fuel prices change, understanding impact on total cost of ownership is critical to making an informed vehicle purchase decision. When asked to summarize the program, Wurster commented, “Consumers should give consideration to both the “rebate only” offers and the Let’s Refuel America promotion. They aren’t of equal value. However, if fuel prices continue to skyrocket, the program can end up being a great value for consumers.”
To review or download the “Let’s Refuel America” study, visit www.vincentric.com.
Vincentric (www.vincentric.com) provides data, knowledge, and insight to the automotive industry by identifying and applying the many aspects of automotive value. Using Vinbase(TM), its comprehensive, proprietary cost-of-ownership database, the company measures and analyzes the overall cost of owning and operating vehicles and its impact on the value provided to buyers. Vincentric data is used by organizations such as Yahoo! Autos, Cars.com, NADA Guides, General Motors, Kiplinger's Personal Finance, Volkswagen, JATO Dynamics, Business Fleet Magazine, Audi of America and Fleet-Central.com as a means of providing automotive insight to their clientele. Vincentric, LLC, is a privately held automotive data compilation and analysis firm headquartered in Bloomfield Hills, Michigan.
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