Is Chrysler's $2.99 Gas Deal a Good Bet?
Pickup and SUV drivers of the world: You are able once again to explore the open road, free from concern that ever-spiking gasoline prices will drive you to the poor house.
Or so the "Let's Refuel America" campaign might have you believe. Chrysler, Jeep and Dodge are offering $2.99 per gallon for 12,000 miles each year for three years on select models.
But as gas prices approach $4.00 a gallon, can you really lower your fuel bill by buying a gas guzzler?
Alas, no.You'll pay a chunk of change upfront to lock in the $2.99 rate. And even with the locked-in rate, your spending on gas per mile driven will be well higher than it would be driving a fuel-efficient car, unless gas prices exceed even the most pessimistic estimates. Say, for example, you buy the Dodge Ram 1500. You can get either a $5,500 consumer cash allowance or the $2.99-a-gallon deal and get only $3,000 cash back. Effectively, you pay $2,500 to lock in a $2.99 rate for 2,400 gallons of gas --about $1.04 a gallon. So you're overall cost per gallon is a bit more than $4.03 if you buy all 2,400 gallons. And you're paying for a chunk of that gas upfront -- money you could otherwise lock into a CD and earn a couple percent a year on. If you're financing your car, you'll likely be paying interest on that $2,500 well in excess of inflation. Still, the decision to go with the "Let's Refuel America" deal rather than getting more cash back is a good one if you think the average gas price over the next 36 months is going to exceed about $4.15 a gallon. It's a pretty safe bet, given that nationwide prices are fast approaching $4 and show no signs of leveling off. But when you're balancing your checkbook, it's not the cost of gas per gallon that matters. It's the cost of gas per mile driven. At $4.03 per gallon, it'll cost you 27 cents per mile to drive your Dodge Ram 1500 -- which gets only 15 mph -- around town. Average gas prices over the next three years would have to exceed $8 per gallon before the gas per mile charge on a car that got 30 mpg (think Honda (HMC) Fit 28 city/34 highway, Toyota (TM) Corolla 27/35 and Kia Rio 27 city /32 highway) would be less than the bill for your Ram 1500. That's not very likely. Of course, you can't haul very much hay in a Toyota Corolla. But "$2.99" per gallon in a Dodge Ram is no free ride, no matter how you slice it.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV