Vincentric: Look for Hidden Costs in Vehicle Purchase Fuel Promotions

A recent study by Vincentric, an automotive data analysis firm from Bloomfield Hills, Mich., 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,” says 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 $1,752 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' fuel costs are expected 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 percent from $1,752 to $1,379 when hidden costs and hidden savings are measured. Similarly, the Jeep Compass showed the same reduction in promotion value of 21 percent 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 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.

To review or download the “Let’s Refuel America” study, visit www.vincentric.com.