http://www.businessweek.com/stories/2009-06-30/the-company-behind-the-hyundai-gas-offerbusinessweek-business-news-stock-market-and-financial-advice

Companies & Industries

The Company Behind the Hyundai Gas Offer


CEO Robert Fell explains how Pricelock is capitalizing on consumer concerns about gas prices

Fuel up at a U.S. gas station, and you'll pay an average of $2.52 to $2.91 a gallon (depending on what part of the country you're in), according to the most recent Energy Information Administration figures. But starting July 1, drivers who buy most Hyundai models can get a special card they can use to fill their tanks at just $1.49 a gallon. The arrangement comes courtesy of a partnership the carmaker has made with Pricelock, a technology and risk management outfit based in Redwood City, Calif., that ran a similar offer for Chrysler in summer 2008. To learn about the particulars for consumers as well as for Pricelock, BusinessWeek's Rebecca Reisner recently spoke with Pricelock CEO Robert Fell. Edited excerpts of their conversation follow:

How long does the Hyundai offer last?

Through August and possible longer.

Does Hyundai set a limit on how much gas drivers can buy?

Yes, Hyundai is giving you the equivalent of enough gas to drive 12,000 miles in the model of the car you own. The average is approximately 600 gallons; 12,000 miles is the average miles per year the U.S. consumer drives.

Pricelock says the card will work at 93% of gas stations across the country. What about the remaining 7%—are they clustered in any particular geographic areas?

No. The 7% is made up of gas stations that accept only cash and/or debit cards. Drivers can use the Pricelock card at virtually every gas station that accepts credit cards.

Your Web site says that Pricelock is the only company that "combines technology and commodities expertise to deliver price protection." What do you mean by the "technology" part?

The "technology" is that Pricelock is making it possible for drivers' own credit cards to be charged $1.49 a gallon when the gas station is charging more. For example, when the gas station is charging $3, our technology allows us to pay the gas station the $3 by collecting the money both from Hyundai and the customer, whose credit card we charge only $1.49.

Does Pricelock actually own the gas that drivers can get at $1.49 a gallon?

No. The whole idea of Pricelock is to provide price protection. We buy a hedge, which enables us to cap the price. In other words, if I was a big buyer of fuel and wanted to never pay more than $3 per gallon for the next year, I can buy a call option, which will protect us on the financial market. We've combined our financial experience with technology to enable Hyundai and other companies to make an offer of this type.

As far as this Hyundai promotion goes, how did you come up with the $1.49 figure?

We didn't. Hyundai did. They did consumer research like focus groups to see what price would resonate with customers and make a big difference for them—and make them say, "Wow, Hyundai wants to give something special."

For the Pricelock program with Chrysler, the offer was for guaranteed gas at $2.99 a gallon, but now the price is below that at most gas stations. How did Chrysler get the price of gas so wrong?

I don't think they got it wrong. The price of gas was $4 a gallon when they did their program, and they were offering gas at $2.99 a gallon. All Chrysler wanted to do is sell cars, and this promotion drove people into the dealerships. And some people took additional cash incentives for buying cars instead of [the Pricelock card]. The Chrysler Pricelock program is good for three years, and if gas prices migrate up again, people can use those Pricelock cards again. In some places, prices have exceeded $3 a gallon, so they've started to use cards again. We fully expect that the Chrysler Pricelock cardholders will be using their cards in the future.

What do you think the impact of Hyundai's special offer will be for its sales?

I can only go back to what we did with Chrysler. The offer ran for 87 days and increased dealer traffic by 30%. So we think Hyundai will sell quite a considerable number of cars.

What's the growth trajectory for Pricelock?

We want to be the premier online company for price protection the way ETrade (ETFC) and Netflix (NFLX) and Amazon (AMZN) are the premier online providers of stocks and films and books, I would be disappointed if over the next five years we didn't hit $500 million in sales.

What kind of sales does Pricelock have now?

Combining the Chrysler and Hyundai promotions, our revenues exceeded $10 million since 2008. [But Pricelock has other revenue from programs for other businesses.] We've done more than 100 million gallons of price protection since 2008.

What if Hyundai sells fewer cars than expected, who loses?

The car companies have taken the risk, not us. We are a technology company and a risk management company, but we don't take any risk ourselves. But if the price of gas goes up and Hyundai doesn't sell enough cars, they still have a valuable financial position that they can sell.

Rebecca Reisner is an editor at BusinessWeek.com.

We Almost Lost the Nasdaq
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus