Lifestyle

When Gas Stations Run Out of Gas


Consumers aren't the only ones getting squeezed at the pump. Many gas station owners can't afford to buy gas either

Don't be surprised to see more filling stations with empty pumps. But don't panic either. There isn't a gasoline shortage like there was in the 1970s.

What's happening is that filling stations have had their margins squeezed. Credit-card companies charge by the dollar, pushing up costs per gallon that filling stations pay to work with banks. And forget about sneaking in a few pennies' worth of profit. Consumers are bargain-shopping like never before. The upshot: Some filling stations either can't stay in business or are just barely hanging on.

Plenty of filling stations have already gone under. Last year, 3,184 of the nation's 164,292 gasoline stations closed their doors and went out of business, the biggest drop in five years, according to National Petroleum News. In the mid-1990s, there were more than 200,000 stations in the U.S. Experts think there are more closures to come.

Even ExxonMobil (XOM), the world's largest integrated oil company, is getting out of the retail business. On June 12, the Irving (Texas) company announced it would be selling all of its 2,225 U.S. filling stations and convenience stores.

Independents Worst Hit

But the independents are really getting hit. Take Eranell Miller. He has owned a filling station and repair shop in Baldwin, Pa., just outside Pittsburgh, for 31 years. But lately, he has been losing money on every gallon of gas he sells. Some weeks, he can't come up with enough cash to fill his tanks and has run out of fuel. "If it gets worse I'll close my pumps down and just rely on my garage," Miller says. "I don't want to go bankrupt."

Here's why small independent filling stations like Miller's are hurting. He buys his gasoline for $4.04 a gallon from a local distributor and charges $4.09 a gallon. Since credit-card companies charge fees that are a percentage of the dollar transaction value, higher prices at the pump just mean Miller pays more for the service but without anything padding his margins.

Miller says the credit-card fees now add up to an average of about 5¢ a gallon at his store. That means, including shipping costs and overhead, he loses money selling gasoline. If not for his three-bay repair garage, he'd be out of business.

Stations Run Low on Cash

Other service stations with a higher volume of credit-card sales say their fees add up to an average of 10¢ or 12¢ a gallon. What's worse, says Mike Convey, a gasoline salesman for Tampa-based J.H. Williams Oil, is that most consumers are now paying with credit cards because the price to fill the tank has gotten so high. About four years ago, approximately 25% of the business at his company's 20 or so filling stations was done with credit cards. Now about 75% of their gasoline is sold on credit, pushing up his firm's credit-card costs.

A few have found ways to pass on the costs. Paul Kelly, owner of Kelly's Sea Bay Sunoco in Lavallette, N.J., has started passing his 12¢-a-gallon fees on to customers buying with credit. And why not, he says. Every penny adds up to $20,000 a year in profits. And if he doesn't, he won't make any money on the gasoline.

In other situations, filling stations run low on cash and can't afford to buy another shipment. So they wait until they have sold every drop they have to raise cash flow and buy more gasoline, says Ben Brockwell, director of data, pricing, and information services for the Oil Price Information Service.

For small independent filling stations, liquidity has become a problem, Brockwell says. They may order $34,000 worth of gasoline and have to pay for the entire order in two days. But at the time, the station may have, say, $10,000 worth of gasoline in its tanks. That means they are $10,000 short of buying a new full load. So they buy less than a full order and risk running out. Forget about credit. Banks aren't expanding credit terms for small mom-and-pop shops, Brockwell says. "Some dealers either can't buy more or they're buying quarter- and half-loads."

Competition Dying Off

There will still be plenty of gasoline to be bought. In fact, during the three-year rise in gasoline and oil prices, there hasn't really been a shortage of fuel anywhere in the supply chain, says Don Bowers, manager of logistics at Superior Petroleum, a Pittsburgh-based gasoline distributor that also owns about 30 of its own retail stations.

What's likely to happen is that larger stores owned by big retailers such as Altoona (Pa.)-based Sheetz or Dallas-based 7-Eleven will get bigger as the small fries go by the wayside.

But then, says Convey, the consumer will take the hit. Less competition could mean a few more pennies per gallon at the pump.

Kelly, the Sunoco franchisee in New Jersey, says that competition is dying off on the 13-mile strip island where he has owned his filling and repair station for 26 years. In the past year, Kelly says, three of the area's six filling stations have shut down. And another has been for sale for five years. He thinks the Exxon station that's up for sale will be sold to make way for pricey beach condos.

His station, which sells almost 2 million gallons of gasoline a year, picked up 500,000 gallons' worth of business last year when the other stations disappeared. If filling stations keep closing or selling out, "I could end up with a near monopoly here," he says.

Welch is BusinessWeek's Detroit bureau chief.

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