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Paying at the Pump

Americans are having a number of reactions to the relatively high price of gasoline — among them, confusion, anger and resignation. But compared to past price peaks, fewer drivers are blaming their neighborhood gasoline retailer. Even so, many have changed their gas-buying behavior.

Industry players credit more balanced media coverage, attempts by retailers to explain the factors influencing the price of gasoline and even the war in Iraq for creating a better-educated driving public.

"Last year, when gas prices spiked, there was a real knee-jerk reaction [by some claiming] price gouging and wanting Congressional oversight," said Lyle Beckwith, senior vice president, government relations, National Association of Convenience Stores (NACS), based in Alexandria, Va. "The media was running stories on price gouging."

But public relations efforts by NACS, the Petroleum Marketers Association of America (PMAA) and, more recently, the Automobile Association of America have made a difference.

"The debate has changed," Beckwith said. "Now the media are coming out with stories on what actually causes gasoline spikes — such as seasonality and boutique fuel problems."

Holly Tuminello, PMAA's vice president, agreed, saying, "The press is focusing on refining capacity, supply and demand and the market influences. You see more about SUVs and global demand, such as in China. That coverage has really helped [the local gasoline station operator].

"I would never have thought we'd see prices over $2 a gallon and not see the phones ring off the hook every single day. They did for a while, then the story disappeared off the front page."

Still, a person would be hard-pressed to find an auto owner who'd consider today's gas prices "fair." (See chart, Page 62.)

"I know convenience stores aren't making money on gas, but I think those higher up do — I just don't know who," said Daughdrill, who drives a large van and fills the tank one to three times per week, depending on where she drives in her rural Virginia community.

In late July, Daughdrill paid $1.82 per gallon of regular gasoline and spent, including her husband's gasoline purchases, close to $100 per week on motor fuels. She usually buys her gasoline at one of three c-stores, which offer comparable prices.

"The one I usually go to is most convenient. One place is two or three cents cheaper per gallon, but the guy who operates it is an [expletive deleted], so I won't go there."

This year's high gasoline prices have greatly affected how much Daughdrill drives. "When my kids had problems on the school bus, I'd pick them up every day," she said. "When the gas prices started skyrocketing, I said we just couldn't do it — it's too expensive."

Daughdrill said she and her husband find themselves at the end of the month discussing two issues of equal importance. "We have to have money for gasoline and we have to have money for food. There have been times when some bills were late or we put off things we wanted to do. We are increasingly aware we need so much money for gasoline and can't spend that money."

Making Sacrifices

On the other side of the country, 26-year-old Zach Monge, the driver of a Chevy Tahoe who lives in Toluca Lake, Calif., paid $2.27 per gallon of regular in late July. He "looks back fondly" at the days when he paid $1.85 and believes the price of gasoline is influenced by much more than supply and demand. "It's politics. It's our dependence on Middle Eastern oil, when we have so many problems over there. It's not offering as many incentives as we could for buying a hybrid or other vehicle that doesn't use as much fuel. It's our energy policy, and in part, consumerism — and it's seeing how far people can make a profit as well."

OPEC and oil refiners make the most profit when gasoline prices increase, he asserted. "I'm sure the people on the corner would rather sell gasoline for $1.50 than $1.60 a gallon, because they'd have more people coming to them."

Monge, who spends $45 a week on gasoline — "which isn't even a full tank," he noted — buys motor fuel at whatever retailer offers the lowest price. "It doesn't matter what the brand is."

He doesn't take as many road trips as he did when fuel prices were lower, and said he has changed other spending habits, too. "I'm spending less on groceries, for one. I had my insurance premiums lowered. These gas prices are cost-prohibitive."

He's eyeing a smaller, more-fuel efficient car for the future. "And I love my car!"

In the Detroit area, where auto ownership is celebrated, Syme, of Sterling Heights, Mich., drives a Chevy Suburban or the family's minivan. "Our driving habits haven't really changed," she said, noting she recently paid $1.95 for a gallon of regular gasoline, spending approximately $50 a week at a nearby Mobil station, because she thinks Mobil offers higher-quality gasoline than secondary marketers and she's able to use her Speedpass.

"Even if prices went higher, I'd still want to drive a bigger car, because my family's safety is more important to me than what I pay for gasoline. I don't want to be in a car as big as a shoe when others are driving Excursions. But we are definitely getting a car with better mileage in the future — maybe a hybrid."

Who's Winning?

In New York, where gas prices are among the highest in the country, 78-year-old retiree Henry Molinari of New Rochelle, who drives a Jeep Cherokee or Chrysler Concorde, pays $2.39 per regular gallon at a nearby Exxon station, but feels a fair price would be $2, with the war in Iraq and other "extenuating circumstances. But it bothers me there is such a difference between towns. In Bedford [a town 25 miles to the north], premium is $2.77.

"I feel the big bucks are going to the guys who take it out of the ground, refine it and transport it, not the guys pumping the gasoline. We don't have enough refineries; that is part of the problem," he said.

Molinari said the continued high prices concern him — and have made him suspicious. "What about the poor fella making $22,000 a year and has a family of three or four? How does he go into a gas station and get $30 or $40 worth of gas each week?

"I think there is something hidden there that we can't get to. And by the time we get to it — and are on to them — prices will go down."

Even so, Molinari usually buys his gasoline at a station that posts one of the higher per-gallon prices in town. "I have a relationship with him service-wise. My wife has complained about the cost of gasoline though, and she hasn't in the past."

Last spring, Molinari started reducing the grade of gasoline he uses — going from a mid-grade to regular. "I feel like a cheapskate now. I just bought 16 gallons of gasoline, and it was more than $38. But it was 10 cents a gallon less. I didn't save that much, but my wife does the same thing, too. She went from premium to regular, and throws in premium every so often."

Farther north, in Barrington, R.I., Lewis is paying $1.90 for regular gasoline, though she sometimes drives a few miles to Seekonk, Mass., to pay $1.84. She rarely fills the tank of her small SUV. "I just put in $10 or $20, maybe half a tank," she said, noting her husband keeps his car filled up.

Although the Lewises were shopping for a larger SUV a few months ago, this mother of two said she is thankful they didn't buy one. "You definitely don't want to buy something huge anymore. I think hybrids or smart cars or electric cars are the future. But then, those drivers will probably be taxed, since the states rely on the gas taxes."

The high price of gasoline has led her to cut back "cruising" around town — "In the past, if a good song came on, it could take me half an hour to get home!" — and was a deciding factor in having her teenage son fly to his summer camp in Delaware, instead of making the trip as a family in the car. "He flew with a friend for $130 a ticket. Gas prices then were more than $2 a gallon."

Prices Bite Back

Like their customers, most gasoline retailers have felt the sting of high gas prices, and of the competition trying to gain a competitive edge on the corner. David Browning, president and CEO of Browning Oil Co., a 14-store Shell-branded operator based in Bowling Green, Ky., has tried to educate his customers by placing stickers on gas pumps that detail gasoline taxes.

"But I don't think most people have a clue as to why gas prices are what they are," Browning said. "The average person doesn't appreciate the fact we are lucky if we make a dime per gallon."

Bowling Green is an especially competitive market, Browning said. "When the average price of gasoline in the country is $1.90-something, the lowest price in Bowling Green is $1.69. Most competitors are at $1.79, while our cost is $1.70. One independent will price with the lowest cut rate in town and every other independent gravitates toward that."

The majority of drivers in the area, he said, are looking for the cheapest price, period, and Browning has had a tough time competing. "We've been up against below-cost selling for the last four years. I don't know how we are going to survive the next five years.

"I'm thankful, though, we've had most of our locations for a long, long time and don't have outrageous million-dollar costs involved," he continued, noting he borrowed money to upgrade his stores to the newest Shell image and needs to see a payback soon. "[One refiner/marketer] paid big-bucks for their locations and are selling cheaper on the street than I can buy from them on an unbranded rack."

A couple of states away, at Kocolene Marketing LLC's 45 fuel locations, customers are not filling up their tanks, opting instead to buy $5 or $10 worth of lower-octane fuel, said Gary Myers, president of the Seymour, Ind.-based chain.

"This is typical of what we've seen any time prices have spiked and sustained themselves for any length of time," he said. "But this go-round, the consumer is not as adversarial or as angry specifically with our staff people. They vent, but they are not throwing money, cussing them out, pointing their finger at them, using words like 'gouging' and 'ripping off.' They understand these things are a little bit beyond our control."

In terms of gallons pumped, some of Kocolene's locations — most of which are branded Sunoco — are seeing lower volumes, especially those with big-box neighbors, while others are seeing higher sales as local competitors go out of business.

"We learned if you are not competitively priced, the customer remembers and some are offended," Myers noted. "You still want to them to come in and buy convenience items."

Between the high retails and low margins, being a petroleum marketer isn't as fun as it used to be, said Myers, whose family has been in the business for nearly 60 years. "You are never in good graces. Everyone thinks you are ripping him off. I go to a cocktail party and people ask me what I do, and I say I'm in the oil business and am instantly the subject of snide remarks.

"We changed our name from Kocolene Oil Co. to Kocolene Marketing LLC and I just tell people I work for a marketing company and leave it at that!"
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