Written by Jim Rendon
1. “Good luck finding the best deal.”
When it comes to gas prices, most stations are branded — meaning the name of a major oil company hangs out front — and must buy gas from their proprietary company. They can’t shop around.
With a lock on sales, the oil companies charge each station a different price depending on various factors, such as the station’s competition and its location. That means a station might have to pay a lot more than one down the street, and that cost gets passed along to you.
Faced with such instability, Gainesville, Fla., resident Steven King plans ahead: “If I know I’m going out of town, I try not to buy gas, so I can fill up after I leave.” King says he can save 10 cents a gallon by purchasing gas on the road. You’d be similarly wise to shop around because with prices constantly in motion, the cheapest gas may not be at the same station every time.
2. “I hate it when gas prices go up.”
Stations earn, on average, 10 to 15 cents on a gallon of gas. Ironically, they earn the least when prices are highest. When fuel climbs, gas stations usually must shrink their profit margins to remain competitive, meaning they earn less per gallon.
But another big cost during tough times is something they can’t do anything about: credit card fees, which add up to about 2.5% of all purchases. When gas is at, say, $2 a gallon, stations pay credit card companies 5 cents a gallon; when gas hits $3, that fee becomes 7.5 cents, at least half of the stations’ average profits.
“Those credit card fees are miserable for the gas station business,” says Mohsen Arabshahi, who owns five Southern California stations.
How do station owners make up for lost revenue? “Prices go up like a rocket and come down like a feather,” says Richard Gilbert, a professor of economics at the University of California, Berkeley. For several weeks after wholesale prices drop, stations can earn as much as 20 cents a gallon before retail prices are lowered to reflect the change.
3. “My gas isn’t better for your car; it’s just more expensive.”
Oil companies spend lots of money explaining why their gas is better than the competition’s. Chevron’s gas, for example, is fortified with Techron, and Amoco Ultimate is supposed to save the planet along with your engine. But today, more than ever, one gallon of gas is as good as the next.
True, additives help to clean your engine, but what the companies don’t tell you is that all gas has them. Since 1994, the government has required that detergents be added to all gasoline to help prevent fuel injectors from clogging.
State and local regulators keep a close watch to make sure those standards are met; a 2005 study indicated that Florida inspectors checked 45,000 samples to ensure the state’s gas supply was up to snuff, and 99% of the time it was.
“There’s little difference between brand-name gas and any other,” AAA spokesman Geoff Sundstrom says.
What’s more, your local Chevron station may sell gas refined by Shell or Exxon Mobil. Suppliers share pipelines, so they all use the same fuel. And the difference between the most expensive brand-name gas and the lowliest gallon of no-brand fuel? Often just a quart of detergent added to an 8,000-gallon tanker truck.
4. “If you’re smart, you’ll put that debit card away.”
Your debit card might be a convenient way to pay for gas, but it’s a no-win proposition. When you swipe a debit card at the pump, the bank doesn’t know how much money you’ll be spending until you’ve finished pumping. So to make sure you have the funds to cover the purchase, some stations ask banks to automatically set aside some of your money: That amount can be $20 or more. That means even if you just topped off your tank for $10, you could be out $30, $50 or even $100 until the station sends over its bulk transactions, which can take up to three days. If your funds are running low, you might end up bouncing a check in the meantime, even though you had the money in your account.
Unfortunately, paying inside with your debit card isn’t much of a solution either. Many banks charge their customers 50 cents to $1 for the privilege of using their debit card in any PIN-based transaction. The American Bankers Association estimates only 13% of consumers pay these fees, but critics say the practice is on the rise and that consumers are often unaware of these charges.
5. “Don’t even consider applying for our gas card.”
When it comes to gasoline credit cards, a little research goes a long way. The good deals are great, but the bad deals are really bad. Similar to store cards issued through retailers, gas cards are riddled with drawbacks, says Curtis Arnold, the founder of CardRatings.com. Annual percentage rates are high, starting above 20%; many don’t offer rebates on gas purchases; and they often lack standard protections such as fraud monitoring and zero liability for unauthorized transactions.
What about a Visa or MasterCard affiliated with a gasoline brand such as Exxon or BP? They often offer lower interest rates and significant rebates but limit your ability to shop around. In December 2005, a few months after gas hit $3 a gallon, Justin Andringa of Minneapolis considered a branded credit card that came with a 15% rebate on gas purchases of that brand. But the rebate was temporary; he decided to stick with the card he had, which then offered a 5% rebate on gas purchases no matter where he bought it.
“I’m a college student,” Andringa says. “I need to save money.”
The deals on cards are constantly changing. CardRatings.com is a good place to find updated information.
6. “Looking for the cheapest gas in town? Try the Internet.”
You can’t actually buy gas online, but Web resources can help you find the cheapest fill-up in town. Among them, GasPriceWatch.com and Gaswatch.info help people track pump prices. More comprehensive is GasBuddy.com, which includes a network of 174 local sites, complete with maps and message boards that tally gas price by ZIP code.
“People are frustrated by the variation in the price of gas,” says GasBuddy.com co-founder Jason Toews, and they’re using the Internet to take control.
It has worked wonders for Sue Foust. Every day, as she passes roughly 10 stations on her commute across Tucson, Ariz., Foust notes their prices, then posts them on TucsonGasPrices.com, a local affiliate of GasBuddy.com.
Every four days or so, when she needs to fill up, she checks the prices others have posted in her area. It turned out the Shell station she used to frequent is one of the most expensive in the city. Now she fills up elsewhere. “I really do feel like I’m saving money,” she says.
7. “It’s a gallon when I say it’s a gallon.”
It’s hard to know whether you’re getting all the gas you paid for at the pump. But in some places there’s a very good chance you’re not. State or county authorities check pumps for accuracy, but in some areas it can be years between inspections. Arizona, for example, has only 18 staff members to check the state’s 2,300 stations.
That means stations there can expect a visit once every three to four years, according to Steve Meissner, a spokesman for the Arizona Department of Weights and Measures. In 2005, 30% of the more than 2,000 complaints the department received were valid, and it levied $167,000 in fines. The good news is that it’s often easy to catch the most common problem: Older pumps in poor repair may begin charging you for gas before you’ve pumped it. Check the meter to make sure it registers $0.00 before you begin and doesn’t start charging you before the fuel is flowing.
8. “I might gouge you on a soda, but my coffee’s a real bargain.”
With margins on gas taking a hit — in 2006, fuel sales made up 71% of revenue but only 34% of gross margins — stations are increasingly looking to their convenience stores for income. Given that fact, you’d assume the average Kwik-E-Mart would be a terrible place to buy just about anything. But that’s only partly true.
Stock that usually sits on the shelf does tend to be vastly overpriced, so if you forgot ketchup on the way to a barbecue, you can bet you’ll pay a lot more for it at a gas station than you would at a supermarket, says David Bishop, the director of convenience retailing for Willard Bishop Consulting. What about popular beverages? You’ll pay more for a 20-ounce soda at a gas station than you would for a 2-liter bottle in a supermarket; water and energy drinks similarly tend to have high markups.
But there are bargains to be had: Some high-volume goods, such as cigarettes and beer, are often competitively priced at gas stations. And a cup of coffee goes for a fraction of what you’d pay at Starbucks.
9. “If you’re having car trouble, you’re in the wrong place.”
The days of the local gas station staffed with a skilled mechanic have all but come to an end. Most station owners have swapped car lifts for beverage cases and carwashes, or anything else that brings in a high-volume stream of income and traffic, says Dennis DeCota, the executive director of the California Service Station and Automotive Repair Association. The more people who pull over for a soda, the greater the chance they’ll top off their tank and vice versa, the thinking goes. Few owners want the hassle of a business such as car repair, even if it earns the same amount of money as a convenience store.
In addition, repairing cars is increasingly expensive, and the ill will and potential liability from a fix-it job gone wrong are more of a headache than many owners are willing to risk. Today a service station can require $100,000 worth of diagnostic equipment — a significant investment. It’s a risky venture with little payoff, says Southern California station owner Arabshahi. In fact, Arabshahi removed the service station from one of his locations after he bought it.
“I don’t have a service station because I am not a mechanic,” he says. “If he messes up a job, then it’s my name on there.”
10. “You might not need regular gas to run your car.”
Cars run on gasoline, but not all cars need traditional gasoline to run. In fact, 6 million cars on the road today (mostly from U.S. manufacturers and built since 1998) are “flexible fuel” vehicles that can run on E85, a fuel that is 85% ethanol and only 15% gas.
When Minneapolis resident John Schafer bought a car in late 2001, he chose a Chevy Tahoe because it’s a flexible-fuel car. Since then he’s filled up almost exclusively with E85. The big difference he’s noticed: about 15% fewer miles to the gallon. But it’s a drawback he’s willing to put up with.
“I’m committed to the technology,” Schafer says. “With E85, it burns cleaner, so it won’t pollute as much.”
Although E85 generally costs less than regular gas, there is some concern that it may grow prohibitively expensive as demand outpaces supply: By 2006, ethanol was being used more than just in E85; it also composed 15% of every gallon of gas sold. Supplies of ethanol are likely to grow thin, which could drive up the price of E85. And even die-hard Schafer says he won’t buy E85 if it starts to cost more than gasoline.
This article was reported by Jim Rendon for SmartMoney.