Paying at the Pumps: Who's Making Money?

Paying at the Pumps: Who's Making Money?

Gas station owners cry foul at rising gas prices.

When Tom Harvey switched from selling branded gasoline at his Hollin Hall service station and became independent, he anticipated that he would pay less for gasoline and be able to charge his customers less. Yet, his prices are right up there with the rest of them.

Harvey said that last year, the price of unbranded gasoline was less than branded and he was charging less than other stations. Now, however, there are so few major oil companies — major ones have merged — that they are controlling the prices of all gasoline. In this current market, unbranded gasoline is no less than branded.

They have them over a barrel.

According to Harvey, the people making money are the refineries, the federal government, the state government, credit card companies and Fairfax County.

“I blame the government for letting the companies buy each other out,” Harvey said. “There are only a few major companies left — Chevron, Exxon, Shell, and BP. They’ve eliminated half the competition in the market. They have so much control and are making absurd prices. At my level, I’m getting hammered.”

As a result, Hollin Hall Service Station charges prices comparable to Belle View Texaco, Boulevard Shell and Sherwood Hall Shell. These four local stations try to stay competitive with each other. It is hard for them to compete with places like Woodbridge because the oil companies determine that the Mount Vernon stations are in a higher priced zone and thus charge them more than other areas.

ROBERT MAHMOOD, owner of Sherwood Hall Shell, tries to stay competitive with the neighborhood stations, but he also has to compete with the stations on Route One, which lately have been 10-15 cents cheaper than the neighborhood stations. He recently lowered his prices to try to stay competitive.

“The guys on Route One make two to three cents above their cost,” Mahmood said. “They’re trying to keep the oil companies happy.”

How are they able to charge so much less than the other stations? The reality is that when gasoline prices are high, local gas station owners make very little money selling gasoline. They have to rely on their repair bays, car washes and convenience stores. Harvey also pointed out that there’s a big difference between stations like his that employs over 15 people and one that has one or two cashiers. Harvey said that so far his customers are willing to pay for the service he provides. Mahmood is also thankful for his loyal customers; that’s who keep paying the bills.

Ky Trung, owner of Alexandria Service Station at 7501 Richmond Highway, is struggling in this current economy. Being on Route One, Trung is surrounded by four stations — Crown, Exxon and Mobil. When one reduces their prices, all the others follow suit. This makes it even harder to make money.

“When gas goes up all the dealers lose. When prices go down, we win,” said Ky Trung. “When gas is cheaper, you pay less tax and make more money. When you only make five cents a gallon, it’s not enough to pay a cashier. You can’t control the oil companies — they charge us more, but we can only raise our prices one to two cents at a time.”

A report from National Association of Convenience Stores (NACS) states, “When wholesale prices go up, prices at the pump typically lag as retailers absorb some of the wholesale price increase by reducing their margins to remain competitive. Price volatility in 2003, for example, helped lead to gasoline margins that were at their lowest levels since 1985.”

PERCENTAGES ARE a major reason why stations struggle with higher oil prices. Because a service station owner is operating on such a slim margin to begin with, when the prices go up, owners pay more in metro tax (2 percent on every gallon) and more in credit card fees (3-3.3 percent). According to a study done by the NACS, credit card fees are the fourth-largest expense at the store level.

Tom Harvey, owner of Hollin Hall Service Station, said that credit card fees are killing them and gave an example of a customer who had a large repair bill. The husband charged it to one credit card, but when the wife realized which card her husband used, she asked to have it credited and put back on another card. Harvey explained to them that if he were to do that, it would cost his station almost $300. Not only do the credit card companies charge the 3 percent fee for a charge, but they also charge for a credit. Charging to two credit cards and crediting one would result in a 10 percent fee on the initial bill.

He blames the rising prices on the increased demand for oil by India and China.

“They are demanding more and more, and you can only produce so much,” Mahmood said.

He and Harvey are lucky in that they own their property; station owners who lease from the oil companies are facing increases in their rent, further hampering their ability to make money. These properties are becoming too valuable to be used as service stations.

Yet, an independent owner has the added expense of maintaining their own tanks and terminals, so there are expenses either way in this business.

Mahmood likes to maintain a positive outlook, and said, “There’s still more good than bad.”