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Gas Dealers Say They Aren't Guzzling Profits

Service station owners deny making more money because of price surges, but many motorists aren't buying it.

March 11, 2003|Elizabeth Douglass | Times Staff Writer

Duane "Bernie" Bernard is charging more than ever for gasoline, but he's not happy about California's record-setting prices.

"The neighborhood dealer like me is not getting rich off this," said Bernard, who owns two 76 brand stations in San Diego County.

Bernard said he pockets about the same profit whether gas sells for $1 a gallon or twice that.

Angry motorists think otherwise, and their discontent is rising in lock step with prices, which went up again last week.

On Monday, the federal government said regular-grade gas in California hit another record, jumping 7.2 cents a gallon last week to $2.084. San Francisco had the highest average price at $2.15. In Los Angeles, a gallon averaged $2.06. Nationwide, it was $1.712.

State officials don't know exactly what gasoline dealers' profit margins are, though the California Energy Commission does compare what stations pay for gasoline supplies with what they charge at the pump -- minus taxes -- to come up with what is called the dealer margin. Out of that margin, dealers pay rent, salaries and other expenses, and take their profits.

The state estimated last week that right now, the margin for retail stations selling branded gasoline is 14 cents a gallon, compared with a five-year average of 10.2 cents. And because most expenses are relatively stable, state officials claim, higher margins reflect higher profits as well.

Bernard and other dealers disagree.

For one thing, they say the state underestimates dealers' costs because it uses the wholesale rate typically paid by traders and distributors. Dealers say the price they pay, the so-called dealer tank wagon price, is higher. And, they add, they're usually bound by contract to sell a certain brand of gasoline, which means they can't shop around for a better deal.

Bernard explained his situation: Back on Dec. 7, he paid $1.033 per gallon before taxes for regular gasoline. That was when the retail price at his stations was $1.1359 before taxes. So his gross margin was 10.29 cents a gallon.

Three months later, he said, the dealer tank wagon price was $1.5343. And on Sunday, Bernard's customers were paying $1.6557, not including taxes. That put Bernard's gross margin at 12.14 cents a gallon -- 18% more than in early December.

But, Bernard said, that 1.85-cent-a-gallon boost didn't do him much good.

A few extra pennies in profit can be quickly erased by mounting expenses and by the way customers' buying habits change when pump prices go up, according to Bernard and other dealers.

For example, a dealer who sells 90,000 gallons for an extra penny each will reap an additional $900.

But when prices spike, customers tend to "buy down," filling up with a cheaper grade that yields lower margins. In addition, customers typically reduce gas consumption and use credit cards more often.

And higher credit card use means higher credit card processing fees, which are based on the dollar amount in sales. Bernard's sales have increased to $25,000 per station -- and that has pushed his credit card fees up by $1,000 at each location.

"Right now, I'm making less money because the slight increase in gross margin is offset by credit costs and other internal expenses as well as reduced volume," Bernard said. "My bottom line is worse than it was before the spike."

Dealers say that as their fuel costs began climbing in January, they resisted for as long as possible crossing the psychologically important $2-a-gallon barrier at the pump, absorbing some losses.

"If you hang out a price of $2, that's eye-catching, so you want to prevent that as long as possible," said Tom Schmachtenberger, a 76 dealer in Santa Monica.

When it's clear that pump prices will have to surpass and then stay above $2, dealers tend to raise the price in one fell swoop -- leaving motorists wondering why prices went up 5 cents a gallon in a single move, said Rob Schlichting, a spokesman for the state Energy Commission.

"The dealers are the only ones along the way who can get into a negative profit margin situation," Schlichting said. "So there are times when a dealer will be losing money from gasoline sales, and to make that up later can't really be seen as gouging."

Will Wood, executive director of the dealer trade group AutoCA, acknowledged that station owners may later keep prices high as their costs drop.

"On the downswing, hopefully, they can lag a little bit to get a penny or so back," Wood said. "But if the guy down the street goes right back down, they have to do the same thing."

State figures suggest that refiners also are getting a boost from higher prices.

The Energy Commission calculates the refiners' margin by taking the cost of crude oil and subtracting it from the wholesale fuel price.

The five-year average gross margin has been 29 to 32 cents a gallon, and the gross margin for refiners on March 3 was 51 cents a gallon.

The oil companies won't discuss their margins, saying higher gas prices are a function of supply, demand and competition.

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