The latest surge in US gas prices has sent politicians into a creative frenzy of problem solving but it is the auto industry that is really taking the lead in combating price rises.
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Gas is now well over $3 a gallon in much of the US and Americans, who often have long car commutes and a taste for vehicles with poor fuel efficiency, are suffering. Gas prices are a dominant issue in the news and in everyday conversation.
Politicians are desperate to be seen doing something about an issue that affects virtually every voter in the country, particularly as there are congressional and senate elections in November that could hand power to the Democrats for the first time in over decade.
President Bush has suggested suspending environmental standards for air quality and using the strategic oil reserve to boost supply (neatly reversing the position he held in the run up to the 2000 election when he said the reserve shouldn’t be used to reduce prices).
Meanwhile, Democrats have proposed scrapping the 18.4c a gallon federal fuel tax and there are calls to remove tax breaks for Big Oil.
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By GlobalDataThe Dems also want all vehicles sold in the US to be capable of running on alternative fuels by 2030.
The Republicans have struggled to sound authoritative on the subject after majority leader Bill Frist proposed a $100 rebate for every driver. This idea was dropped after widespread ridicule (talk radio host Rush Limmbaugh said the leadership was “treating us like we’re a bunch of whores”.)
The Republicans did agree to allow more drilling in the Arctic reserve last week but the benefits of this policy might take longer than November to filter through to gas pumps.
However, it is in the commercial sector that the most innovative responses to rising gas prices are appearing. Numerous radio stations are running “get a tank of gas” promotions and hotels.com was recently giving people a $30 gas rebate if they booked a vacation.
But the biggest effort is being made by the automakers. A whole raft of new adverts are now appearing on television promoting the fuel efficiency of cars, hybrid SUVs and vehicles that run on alternative fuels.
General Motors has also started offering consumers a promotion that discounts their gas to $1.99 for a year. Recent polling suggests that 19 per cent of non-GM owners would be more inclined to buy a GM product as a result of this promotion.
Art Spinella of auto analysts CNWMR said: “While this program will likely cost GM about $1,200 to $1,500 per vehicle, it is money well spent instead of a straight cash-back incentive. Consumers place this incentive’s “positives” on themselves by changing the view of GM from one of simply using an incentive to sell products to GM “caring” about car-buyer financial concerns.”
This is smart marketing by GM and other automakers are likely to follow with similar promotions.
However, the biggest opportunity for the auto industry is in the hybrid sector. One of the few ideas gaining widespread acceptance in Washington DC is an incentive program for hybrids, which could really drive sales in this market over the next couple of years.
David Robertson
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