Bite Size Bad News 7–Gas Stations

 

I saw something rather startling in Northwest Connecticut on the weekend. Each pump at the local gas station had a handlettered sign taped to it, informing customers that all purchases must be paid for in advance. I asked Michael, behind the counter, if he had a lot of customers drive off without paying. “Not anymore,” he deadpanned.

Mind you, this is an area where many people don't lock their houses; hell, some locals don't even have locks. But drive-offs have become a national problem as soaring gas prices in this car-dependent society have more and more people desperate. Up 60% this year in the Lynchberg, VA area. 10% in Pell City, AL. Almost doubled in Bismarck, ND.

This hits gas station owners pretty hard. As a rule they make a profit of 1.5 to 3 cents per gallon — at best — on gasoline sales. So if somebody guns it out of the station after topping off the tank with $60 on the pump, they have sell an extra 2-4,000 gallons to make up for it.

And drive-offs can be controlled by demanding pre-payment, like Michael has been forced to do. Station owners face other, less tractable problems. Soaring fuel prices have meant that more drivers are using credit cards to buy gas, because they simply don't have 50 or 60 bucks in their wallets. On top of an initial transaction fee, the credit card companies charge 2-3 percent. In a low-margin, price-competitive business like selling gasoline, that's a nasty bite. The Robinson Oil Corp. of California, for instance, is no mom and pop operation–they own 34 stations. At six of them, credit card fees are the largest single expense, more than rent or labor!

Perhaps the biggest problem of all for station owners is operating capital–they need more. They are paying twice what they did a year ago to fill their storage tanks, but competition keeps the profit per gallon in the same 1.5 to 3 cent range. They just don't have the dough on hand to handle the increased nut. Suppliers resist giving additional credit or stretching out payment schedules, and, as you may have noticed, banks aren't doing much lending these days.

To rub salt in the wounds, the owners have to listen to jokes about how rich they're getting with the higher prices. But thanks to the magic of the free market, the picture isn't totally gloomy. True, drivers are in a world of hurt. True, the small businesspeople who own most of the gas stations are being stretched beyond their limits. But look on the bright side: Exxon Mobil's take last year was $40.6 billion, the largest corporate profit on record, and they are on track to beat that number this year.

Oh, yeah, company spokespersons announced Monday that Exxon Mobil will be selling all 2,200 of the U.S. gas stations they don't license, but own outright. Just not profitable enough, the company says.

[This is one more in a series of short snapshots of aspects of the economy I've been posting over at Fire on the Mountain under the heading “Bite Size Bad News.”]

11 comments

Skip to comment form

    • dennis on June 18, 2008 at 11:49 am
      Author

    What kind of ground level impact is $4+ a gallon gas having where you live?

  1. One point:

    “credit card fees are the largest single expense, more than rent or labor!”

    Of course, what about the gasoline itself?

  2. i love the “bite-sized” aspect and drawing the line from the big picture right into our living rooms.

    v.v.v. good.

    • brobin on June 18, 2008 at 3:34 pm

    I am moving from Greensboro, NC (130 mile round trip to and from work) to the Raleigh, NC area mostly because it is costing me between $500 – $600 a month in gasoline right now.  I prefer Greensboro, but I do really like where I am moving, however that isn’t the point.  I’m moving so I can take advantage of living closer to work and to others that car pool to my place of business. Also  my wife will have a more densely populated area in which to sell homes (she is a Realtor) which will hold down her gas prices as well.

    I will miss my home of the last 11 years, but HEY!  You gotta do what makes sense in this world.

  3. use at gas stations….  I’m old enough to remember when credit cards first came into use.  All gas stations charged an extra penny or two for their use unless it was a gas credit

    card.  So, if you went to a Shell station and used your Shell card you paid the same price as cash.  This went away as oil companies dropped the push of their own credit cards and the

    stations were making enough money to get by.  I don’t see why

    the practice of charging extra for credit card use can’t be re-instituted now.  

Comments have been disabled.