Margin Squeeze Causes Dry Pumps

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Margin Squeeze Causes Dry Pumps

NEW YORK -- While it isn't the gas shortage of the 1970s, there is an increasing number of c-stores with empty tanks, either by abandoning the sale of motor fuel altogether, or closing the business entirely, in the face of decreased margins, BusinessWeek reported.

If increased credit card fees due to record gas prices aren't enough, bargain-shopping customers make it hard to raise the cost a few pennies to make a profit, and as a result, stations can't stay in business, or are barely hanging on, the report stated.

A number of filling stations have already been affected. Last year, 3,184 of the nation's164,292 gasoline stations closed their doors -- the most in five years -- the report stated, citing National Petroleum News. And experts believe there are more to come.

The U.S.'s No. 1 oil company, ExxonMobil, recently announced it was getting out of the retail business by selling the more than 2,200 c-store and gas stations it has in the nation. But the independent operators are really those at risk, according to the BusinessWeek report. For example, Eranell Miller, owner of a gas station and repair shop in Baldwin, Pa., for more than 30 years, has recently been losing money on every gallon of gas he sells, and some weeks, can't come up with enough cash to fill his tanks.

"If it gets worse I'll close my pumps down and just rely on my garage," Miller told the magazine. "I don't want to go bankrupt."

Meanwhile, an increasing number of consumers are paying for gas with credit cards. In high volume stations, fees can average 10 to 12 cents per gallon, the report stated. At Tampa-based J.H. Williams Oil, about 75 percent of the 20-unit chain's gas sales are paid for by credit card, up from about 25 percent four years ago, Mike Convey, a gasoline salesman for the company told BusinessWeek.

A few have found ways to pass on the cost, including Paul Kelly, owner of Kelly's Sea Bay Sunoco in Lavallette, N.J., who passes his 12 cents a gallon fees onto customers buying with credit, according to the report. If he did not, Kelly wouldn't make any money on gasoline, he told the magazine.

Liquidity has also become a problem for smaller operators, as they may order $34,000 worth of gasoline and have to pay for the entire order in two days, Ben Brockwell, director of data, pricing and information services for the Oil Price Information Service, told BusinessWeek. Or, stations will have $10,000 worth in inventory, but can't afford a full load, and must buy less and run the risk of running out of fuel.

"Some dealers either can't buy more or they're buying quarter- and half-loads," he said. While there will not be a fuel shortage, the result will be less competition, as smaller operators are eaten up by larger ones. At that point, consumers will take a hit as lessened competition could result in higher prices, the report stated.