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| Thu May 8 21:37:23 2008 Bad Gas |
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| Thu May 8 21:37:23 2008 Bad Gas A bad idea that will likely make the problem worse. |
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| I've been reading a lot lately about the supply and demand of oil, and the
impact on gas prices. (See
High Oil and Gas Prices and
Peak Oil, for instance). In the 1970's, high gas prices made
consumers buy more energy-efficient cars, or back off on buying new cars
altogether. And the same thing is happening now.
Chrysler has gotten worried about that (not surprising, given their double-digit sales declines). In response, they are now offering a guaranteed price of 2.99 per gallon for 3 years. That way, you can buy a car with low gas mileage, but not worry about your fuel costs exploding in the future. They have a few caveats. They don't let you buy more than a certain amount each year. Premium gas costs a bit more. And they have attempted to limit their own exposure by "using a hedging strategy." Practically, that can only mean they are placing orders for options to buy gas in the future at limited prices. The idea is that consumers don't have to worry about gas prices anymore, so people can go on buying cars again as if gas was still cheap! And as the article notes, "...other carmakers will be watching the program closely as everyone grapples with the negative effect of fuel costs on sales." Chrysler may make some money in the short term, especially if they are the first and only to market for a while. It could be a way to shore up sales while they update their product line with more gas-efficient models. But in the long term, this is a bad idea for everyone. The high cost of oil doesn't go away. Chrysler can hide it behind slightly higher auto costs, or pass it on to other speculators via their hedging strategy. But if oil costs keep climbing--and they probably will--then eventually Chrysler won't be able to buy the options necessary to fund the program. Given the uncertainties in supply, I suspect 3-year gasoline options will become expensive very fast, especially if multiple automakers want to buy them in volume. So as a gimmick, this could work in the short term. But it just means more people will buy less efficient vehicles for a while longer, and that will ultimately push gas prices up even more. Comments |
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