Hyundai Gas Price Guarantee Program: What to Choose?

9 Pages Posted: 30 May 2017

See all articles by Robert M. Conroy

Robert M. Conroy

University of Virginia - Darden School of Business

Abstract

On July 1, 2009, Fred Blake decided to buy a 2009 Hyundai Azera, and the dealer had accepted his offer of $24,567. Then, at the same time Blake made his offer, Hyundai announced a new promotion that offered the purchasers of a new Hyundai the choice of $1,000 in cash or a guaranteed price of $1.49 per gallon of gas for 12,000 miles during the car's first year. Blake needed to choose.

Excerpt

UVA-F-1734

May 26, 2015

Hyundai Gas Price Guarantee Program: What to Choose?

On July 1, 2009, Fred Blake was sitting at a Hyundai salesman's desk, waiting for him to return with the paper work. Blake had just decided to buy a 2009 Hyundai Azera. The manufacturer's suggested retail price was $ 25,695. The dealer had accepted his offer of $ 24,567. Then, at the same time Blake made his offer, Hyundai announced a new promotion that offered the purchasers of a new Hyundai the choice of $ 1,000 in cash or a guaranteed price of $ 1.49 per gallon of gas for 12,000 miles during the car's first year. Blake needed to choose. He thought gasoline prices were on the way up and wondered if the guaranteed gasoline price would be the better deal.

Automobile Industry in June 2009

Between 2000 and 2007, total new vehicle sales of passenger cars and light trucks totaled more than 13 million each year. In 2008, this total dropped to just under 11 million. The 20% drop between 2007 and 2008 is shown in Figure 1. Adding to the dismal situation, 2009 was turning out to be an even worse year for the automobile industry. June 2009 sales were down more than 30% compared with June 2008. Also, as of the end of June 2009, U.S. light vehicle sales were down almost 35% in a year-on-year comparison between year-to-date earnings for June 2008 and June 2009 (Exhibit 1).

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Keywords: Black-Scholes option pricing model, auto sales, industry promotion

Suggested Citation

Conroy, Robert M., Hyundai Gas Price Guarantee Program: What to Choose?. Darden Case No. UVA-F-1734, Available at SSRN: https://ssrn.com/abstract=2974547 or http://dx.doi.org/10.2139/ssrn.2974547

Robert M. Conroy (Contact Author)

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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