Gas Subsidies Might Not Be Consumers' Best Deal

If you want to save money, look at the fine print. Other car-dealer incentives or more efficient cars may be better.
By Jeffrey Strain ,

Gas at $2.99 a gallon isn't the great deal it may first appear to be.

As fuel prices continue to rise, last week Chrysler

announced aplan to subsidize gasoline for those purchasing certain new Chryslervehicles.

It guarantees that gas will cost no more than$2.99 a gallon.

On the surface, it sounds like a great bargain. Who wouldn't want to get their gasoline for a guaranteed price of $2.99 agallon?

The problem is that these deals often come with restrictionsthat make them much less valuable than they first seem.

Here areseveral issues you need to make sure you get the answers to before yougrab any supposedly great deal:

Read the Fine Print

Virtually every promotion these days comes withan asterisk by it. The Chrysler$2.99 per gallon promotion, for instance, is limited to the first three years ofownership, not the entire life of the car. It is also not forunlimited mileage, but for 12,000 miles per year. You also need to buy87-octane unleaded gas, since purchases of higher octane gas come witha surcharge.

Since Chrysler can't know exactly how far you aredriving, it will determine the number of gallons you get at the low price by theestimated miles per gallon from the EPA of the vehicle model you purchase -- not your actual gas mileage.

The fine print will show you the limits and traps that may be part ofthe promotion and if you sign up before fully understanding them,you'll likely be disappointed when you figure out the deal was nothinglike you first imagined.

Do the Math

Once you know the details, do the math to see if it makes sense. Gas at $2.99 a gallon sounds great,but is it really all that great?

With the average price of gascurrently

about $3.70 a gallon (you can also plug in numbers

for your state) and, assuming the EPA estimated mileage is 20 on the Chrysler vehicle you purchase, you would save a total of $426 per year -- $1,278 over the lifetime of the promotion.

An extra $1,200 is nice, but many of the cash incentivescar dealers are currently offering are much bigger than that.

Of course, gas prices could continue to increase, makingthis offer more valuable -- but prices could also fall, which would lower thevalue of the offer.

Look at the Big Picture

If you focus exclusively on the price of gas, this will look like agreat deal. But if you get caught up in that, you forget about the ultimate goal -- saving money on gas.

Another way to do this is to get a car that gets good gas mileage. If, instead of the 20 mile-per-gallon Chrysler,you instead buy a car that gets 25 mpg., you come out about even insavings over the three-year period if you drive 12,000 miles a yearwhen using the $3.70 a gallon gas price.

The difference is that whenthe Chrysler promotion ends after three years, you'll continue to savemoney with the 25 mpg vehicle for the entire time you own it.

Understand How You Will Use It

The way that you plan to use somethingwill often affect when a promotion is a good deal or not.

All thecalculations have been for 12,000 miles since that is the limit thatyou can claim per year in the Chrysler promotion. In fact, it'sunlikely that you will drive exactly 12,000 miles per year.

If youdrive less, the promotion is worth less to you; the more youdrive beyond 12,000 miles, the more value you will get on purchasing avehicle that gets better gas mileage. Understanding how much you willdrive will make it easier to determine a vehicle that is best for you.

Remember Time Value of Money

If the savings is going to be gainedover a number of years, don't forget the time value of the money.

Asmentioned before, many car dealers are offering cash incentives wellabove $1,278 today -- but even if it were exactly the same, the savingstoday is worth more than the same amount of savings over three years.

Money saved today can be put into an account thatearns interest. If the $1,278 isn't on hand and needs to befinanced, it's worth even more, since the interest rate on the car loanwill likely be more than you can earn in a bank account.

Jeffrey Strain has been a freelance personal finance writer for the past 10 years helping people save money and get their finances in order. He currently owns and runs SavingAdvice.com.

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