Station owners say more drivers are paying with credit cards as the cost of a tank of gas soars above $50 for even the most fuel-efficient models.
Paying the card-processing fees cuts into profits margins, which are usually about 10 to 12 cents a gallon, says Paul Reid, president of the Society of Independent Gasoline Marketers of America.
Tom Robinson, president of Robinson Oil Corp of California, says credit cards fees, – which are approximately 2 to 3 per cent, plus a transaction fee – are a bigger expense than labour or rent at six of the 34 retail stations his company owns.
Mr Robinson says the highly competitive nature of the business makes it difficult for retailers to pass along their higher card-processing costs to consumers. Stations are reluctant to raise their posted prices before their nearby competitors, he said, leaving all the stations with smaller margins.
Sales volume is also shrinking as Americans drive less, a trend that has continued since last November, according to the US Federal Highway Administration. The Department of Energy said petrol consumption in May was down slightly, about 150,000 barrels per day, compared with the same time period last year.
But with wholesale petrol prices doubling from a year ago – up to $30,000 or $40,000 a tanker load – retail stations need increasing levels of operating capital.
Many station owners are seeking additional credit from their wholesale suppliers, or seeking to pay bills later. This is putting addition pressure on suppliers, who are running to keep pace with the rising cost of purchasing petrol from refineries.
Mark Mitchell, president of Coast Oil, a California-based wholesaler, recently started twice-weekly meetings at his company to discuss its credit exposure because of the rising number of its customers struggling to settle their accounts.
“Most of our customers are paying a little later, wanting us to be the bank,” he says. “I’m looking at having to cut off some customers I’ve been doing business with for 15, 20 years.”
The rising price of petrol also means that wholesalers are delivering supplies that are worth much more than what their customers have paid in the last billing cycle, exacerbating the wholesalers’ concerns about their credit exposures.
Coast Oil, Mr Mitchell says, realised last December it would need 37 per cent more capital to serve existing customers once oil reached $120 a barrel. Its bank had extended them credit two years ago as oil approached $70 a barrel, but “this time around it was a little more difficult” to get the needed loan, and even though interest rates are low, the cost of capital adds to his rising operating costs.
Companies will also have to become better at managing the process of extending credit to customers so they will be able to maintain stable supplies without running up excessive levels of debt.
