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Gas station owners getting slammed too

Dealers say costs are rising so rapidly that they can't keep up, even though they're charging record prices.

June 10, 2008|Elizabeth Douglass and Ronald D. White | Times Staff Writers

Andre van der Valk hasn't been paid in six months.

He has a job, though, as owner of four service stations in Southern California. He hasn't taken a salary this year so he can pour all his money into buying fuel for his stations.

Despite the jaw-dropping prices at the pump -- they jumped 19 cents a gallon in California to $4.43 in the last week and averaged more than $4 a gallon nationwide for the first time, the Energy Department said Monday -- service station owners aren't making the killing that motorists assume.

That's because credit card fees, the price of tanker-loads of fuel and other costs are rising so rapidly that station owners haven't been able to keep pace despite the record prices they're charging.

For The Record
Los Angeles Times Saturday, June 14, 2008 Home Edition Main News Part A Page 2 National Desk 1 inches; 34 words Type of Material: Correction
Gas station owners: An article in Tuesday's Section A about the financial woes of gas station operators identified the car driven by Tanya Rutter as an 18-year-old Datsun 240Z. Rutter drives a Nissan 240SX.

"People see $4 gas, and they think these retailers are making a fortune," said Ben Brockwell, a director at Oil Price Information Service, which tracks fuel prices. "The reality is these guys are being stressed to the limit."

Gas station operators say the squeeze began years ago, as oil companies siphoned off more of the profits, took a cut of in-store sales and left owners to grapple with higher rents and equipment mandates.

Now, higher oil prices are delivering another big blow -- to consumers and gasoline dealers. On Friday, oil futures exploded to a record $138.54 a barrel, up $10.75, the biggest one-day increase ever.

Crude fell Monday by $4.19, or 3%, to $134.35 a barrel in reaction to comments by Treasury Secretary Henry M. Paulson Jr. that he wouldn't rule out intervening in currency markets to stabilize the dollar and to a call by Saudi Arabia for a meeting of oil-producing and -consuming nations to discuss crude prices.

"There is no good news for gasoline retailers," said Jeff Lenard, spokesman for the National Assn. of Convenience Stores, a trade group based in Alexandria, Va.

Times have gotten so hard that some operators fear they'll have to close down.

Some already have. Pennsylvania-based Uni-Marts, which owned or supplied 283 convenience stores and gas stations, filed for Chapter 11 Bankruptcy Court protection in late May, saying its cash reserves were drained by fuel costs.

"The number of retailers on the brink of bankruptcy is now at a dangerous level," said Bill Douglass of Sherman, Texas, who owns 15 convenience stores and supplies fuel to 150 independent retailers.

"In the past four months, 10 of the dealers to whom I supply motor fuel have relinquished to me the deeds to their businesses," he told Congress last month.

The bad news for consumers: Fewer gas stations further limits choices and competition, and that pushes up prices.

Some motorists said they were surprised to hear that station owners were struggling.

"That just tells me that the oil companies are grabbing all of the profits," said Tanya Rutter, a personal trainer who lives in Manhattan Beach and drives an 18-year-old Datsun 240Z.

On Monday, Democratic presidential candidate Barack Obama said he would push for a tax on record-high oil-company profits like those being collected by Exxon Mobil Corp.

"We'll use the money to help families pay for their skyrocketing energy costs and other bills," Obama said.

Gas retailers are being hurt by several forces, including lower sales, higher credit card fees and fuel expenses, that are directly tied to this year's dramatic rise in the price of oil.

In Van der Valk's case, fuel sales have fallen as much as 10% as customers cut back on driving. The lost volume means fewer customers flow through the convenience store to buy coffee, sodas and other money-making items.

With each price increase, more people use credit cards to buy gas, taking a bigger bite out of station profits. A dealer typically pays a 10-cent transaction fee plus 2% to 2.5% of the total fuel sale for each customer.

The cash crunch is made worse by the soaring cost of buying fuel. Over the weekend, Van der Valk paid $38,000 for 8,700 gallons of regular gas and diesel, up from about $22,000 at the beginning of the year.

It's a strain on Van der Valk and his two grown sons, who work at the stations. Because his sons are also skipping paychecks, he said, "three families are living off of savings now."

Some distributors have started requiring station operators to pay for fuel upon delivery or on a shortened billing cycle. Tim Rogers, owner of Torrance-based Tower Energy Group, said a growing number of his gas station customers were ordering half loads of fuel despite the risk of running dry.

Tower, which supplies fuel to more than 160 Valero, 76 and Tower gas stations in Western states, has seen its inventory costs double. Rogers said he had asked bankers to raise his company's credit limit.

Retailers say they are having trouble passing on the full force of higher costs to their customers -- and doing so risks worsening the cycle by scaring off drivers and further reducing store traffic.

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