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Fuming Over Gas: Where the Pennies Go

MELISSA BLOCK, host:

With gas prices averaging close to $3.00 a gallon, drivers are thinking quite a bit about the price of gas so we thought we'd take a little time to tell you where your money is going.

ROBERT SIEGEL, host:

As you might expect, most of it, 55%, goes to cover the cost of crude oil and we'll note that the cost of crude oil has more than tripled in the last four years.

BLOCK: Twenty-two percent goes to the oil refineries. Their profits have increased in recent years as well. Four percent of the money spent on each gallon goes to advertising and marketing and an average of 19% goes to taxes. That number, of course, varies by state. The federal gas tax is 18.4 cents per gallon.

SIEGEL: And, of course, the retailer, your local gas station, makes a small profit, too. And that's where we go now. We're joined by Jim Haddock, who is the vice president for retail sales for Gas America, which is based in Greenfield, Indiana.

Mr. Haddock what are we talking about here? What's your margin of profit on a gallon of gasoline?

Mr. JIM HADDOCK (Gas America): Well it's very low. It's no different than it was when we sold gasoline for $1.00 a gallon.

SIEGEL: Well $1.00 or $3.00, how many pennies stick with you?

Mr. HADDOCK: Well not enough, under ten, I'll say that.

SIEGEL: Under ten cents?

Mr. HADDOCK: Yes.

SIEGEL: And when you're selling gasoline for, you say, $1.00 a gallon you make ten cents a gallon and for $3.00 a gallon you make ten cents a gallon?

Mr. HADDOCK: Well we've always, gasoline's always been marketed as cents per gallon instead of a margin per cost. In other words when the gas goes up, we don't make more profit just because the cost of goods goes up.

SIEGEL: Less than ten cents a gallon profit, is that enough to keep a service station afloat, or do you assume you're doing a lot of repairs in order to make a go of it?

Mr. HADDOCK: We don't do any repairs at all. We have convenience stores in our chain where we sell other products and services.

SIEGEL: Shall we assume that the soft drinks and the candy are more profitable than the gasoline?

Mr. HADDOCK: Yes.

SIEGEL: Really?

Mr. HADDOCK: That assumption would be correct.

SIEGEL: So you are a candy store owner with a bunch of gas tanks attracting people in the store?

Mr. HADDOCK: That's right.

SIEGEL: So to think of this as an automotive, as a petroleum industry, one branch of it, is missing the point of the business you're in.

Mr. HADDOCK: You know we need both things. It's, we couldn't run the store we run without gasoline, and we couldn't just sell gasoline without the store. So we have a nice combination of sales and if we can get a little margin on the gas, we're just fine, but we can't operate without some margin, that's the problem, so.

SIEGEL: Let's say the price of a gallon of gasoline were to go down precipitously another 50 or 60 cents less than it's selling for right now, do you assume that more people are going to pump more gas, for example? Does your volume go up if the price goes down?

Mr. HADDOCK: We've seen some decreases in our volume in the store sales and in the gas sales when the prices have moved up a substantial amount in a short period of time, such as the last 30 days. I think the biggest reason is that, you know, a lot of our customers have so much money to spend and if their budget's squeezed because they have to spend $20 more a week on gas, they give up the pop or the candy bar or the small luxuries of life.

SIEGEL: Which is your meat and potatoes there at the gas station. Yeah. You have, I assume, competition from national brand gas stations?

Mr. HADDOCK: Absolutely, yes.

SIEGEL: At what level does the differential in price between what you're charging and what Exxon Mobile is charging or somebody else is charging, at what point do you starts affecting where people go buy their gasoline?

Mr. HADDOCK: Well as independents, we've always felt like we should be a minimum of one cent cheaper a gallon than the major oil companies such as Shell, BP, Marathon. I think the consumer today is so tuned in on the price of gasoline that a lot of customers aren't really loyal to a store anymore. They really search out that lowest price for gas to save a few pennies here and there.

SIEGEL: Well, Mr. Haddock, thank you very much for talking with us.

Mr. HADDOCK: Well, thank you.

SIEGEL: Jim Haddock who is vice president of Gas America, which owns about 80 service stations. He spoke with us from corporate headquarters in Greenfield, Indiana. Transcript provided by NPR, Copyright NPR.