Chrysler tries fuel-price guarantee to boost sales

DETROIT, May 5, 2008; Kevin Krolicki writing for Reuters reported that Chrysler LLC will let U.S. consumers lock in gasoline prices for three years under a new incentive program launching at a time of sliding vehicle sales, rising oil prices and deepening consumer uncertainty.

The U.S. automaker, which has seen sales drop by almost 18 percent this year, said it would offer anyone buying one of its vehicles a pre-paid card that could be used to cap fuel prices at $2.99 per gallon for three years.

The sales incentive, which will be rolled out on Tuesday, will only cover the first 12,000 miles (19,000 km) driven based on the estimated mileage for the Chrysler car or truck purchased, executives with the privately held automaker said.

The novel Chrysler incentive offer is introduced at a time when high gas prices have hammered sales of the SUVs and trucks that dominate Chrysler's line-up.

"This could be a game-changer in terms of how vehicles are sold in the marketplace," Chrysler's head of North American sales, Steve Landry, told reporters.

Chrysler, now owned by Cerberus Capital Management [CBS.UL], said it would hedge its financial exposure to rising gas prices as a result of the incentive offer.

Other automakers have experimented with pre-paid gas cards as an alternative to traditional showroom incentives, such as cash rebates and zero-percent financing.

But Chrysler said its program marked the first effort to set a ceiling on fuel prices for consumers across the United States and was prompted by its own research showing that uncertainty about gas prices had become a major drag on sales.

"One of the things that weighs heavily on people's minds is the volatility of fuel prices," said Jim Press, Chrysler's vice chairman and sales chief.

Chrysler said its "Let's Refuel America" program would be offered for May and would exclude gas-thirsty performance cars like its Dodge Viper and new Challenger muscle car.

Because of the way the program is structured, it amounts to a heavier subsidy on bigger, less-fuel-efficient vehicles.

For example, the program would cover some 2,100 gallons of fuel for an entry-level Dodge Ram pickup but only about 1,300 gallons for the Dodge Caliber, currently the smallest car in Chrysler's line-up, based on published mileage estimates.

Chrysler said a more detailed estimate based on gallons of fuel covered by the guarantee would be available this week.

Based on the current national average of $3.61 per gallon for regular unleaded as tracked by AAA, the incentive would be worth about $1,300 for the pickup truck and about $800 on the smaller hatchback.

Chrysler said consumers would have the option of choosing between the fuel-price cap and more traditional incentives.

For example, a Caliber buyer would have to pick between a $750 cash-back offer and the fuel guarantee. In the heavily discounted truck segment, buyers will have the option of taking a $5,500 rebate on the Dodge Ram or a reduced $3,000 rebate plus the fuel-price guarantee.

Chrysler, which lost $1.6 billion in 2007, has been criticized for its truck-heavy line-up and the low mileage of a line-up that also includes the Jeep and Chrysler brands.

Press, a former Toyota Motor Corp executive, has said Chrysler will look to cut its SUV line-up and the company has announced a tie-up to get Japan's Nissan Motor Co to build it subcompact car starting in 2010.

With just under 12 percent of the U.S. market, Chrysler now ranks as the No. 4 player by sales volume, although Honda Motor Co has closed the gap on the strength of its small car line-up and reputation for fuel economy.

Industry-wide U.S. auto sales dropped 14 percent in April to their lowest annual rate in a decade. Analysts and automakers now expect sales to fall below 15.5 million units this year, marking the industry's weakest year in a decade.

Chrysler's larger Detroit-based rivals General Motors Corp and Ford Motor Co have responded to the downturn by cutting production without resorting to the kind of cut-rate incentives the industry used to bounce back from the brief recession in 2001.

Editing for Reuters by Braden Reddall