FORMER EXECUTIVE DIRECTOR OF THE N.J. GASOLINE RETAILERS ASSOCIATION DIES
Jerry M. Ferrara the former executive director of the N.J. Gasoline Retailers Association has died of a heart attack. He was 82.
Jerry was the most influential gasoline dealer executive director in the U.S. He set an example in the gasoline industry which is respected by his friends and foes. We will miss him.
July 2000 NEWSLETTER XII Edition
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As we enter the summer season, confusion in our industry increases as time goes on. A major oil company has changed the way they charge dealers for the wholesale price of gasoline. The major Oil Company takes a survey of the marketing area and determines the wholesale price; the dealer then adds a margin of 7 cents for the retail price. It’s against the law in Florida for an Oil Company (supplier) to set the retail price of gasoline. MFMPA of Florida (state statute) prohibits any supplier of gasoline to a location and set his/her retail price for gasoline, this is a back door way of setting the retail price. In other states, the Oil Company can set the retail price for gasoline because of a Supreme Court Decision State Oil V Khan.
MURPHY OIL SUES SHELL FOR BELOW-COST SALES
Murphy Oil has sued Shell Oil Co. and one of its jobbers, claiming a monthly 5% rebate given to Shell MasterCard customers brings pump prices below cost. Murphy Oil has repeatedly argued in court that the 3-5 cents a gallon Wal-Mart discount it pays at the pump is no different than the 5% rebate Shell gives Shell MasterCard customers. What a coincidence, we‘ve been saying that for many years, that Shell and Murphy Oil plus other Oil Companies have been breaking the law in Florida with complaints filed by dealers from all parts of the state. It finally happened that an Oil Company admitted breaking the law. A Florida jobber and two dealers had succeeded in obtaining an injunction against Murphy Oil for selling gasoline below cost that allowed Wal-Mart customers to receive 3-5 cents a gallon discount off the street price.
GASOLINE PRICE INCREASES
A little over a year ago the climate for the service station industry was much different. Evening news reports contained stories about how the price at one station or another had reached a new low. Driving around to find the best price became a consumer sport. Conversations at the office often included co-workers one-upping each other on the bargain price they found that day.
Times have changed. People now discuss how much they had to pay for gas. The question of carpooling to save money is re-emerging. What has happened in the span of one year?
Numerous explanations have been given. OPEC for the first time in years was successful in enforcing production cuts. Non-OPEC producers pointed the finger at them, while in some cases their own production dropped. For example Alaska’s North Slope production has fallen presumably because the fields are running dry. Others merrily joined into the price increase frenzy, at times even leading the charge. Mergers between major oil companies were permitted, reducing competition. On the refining side, numerous fires and explosions have forced shutdowns of plants or at least curtailing of output.
The simple fact is that someone has figured how to make more bucks off oil. From the pricing surveys we have done, we know that it is not the station operator. You on the front line, are the one who hears it from the consumers. When they complain, let them know you are doing everything possible to hold the prices down. Ask them to write their legislators and request an investigation. History has shown when government gets involved, mysteriously, prices level off.
GASOLINE PRICES COME DOWN IN THE MIDWEST
As gasoline prices fall in the Midwest, prices have been going up in the rest of the country. There is no justification for increase profits of 200% to 500%. Those profit increases are called price gouging. The independent gasoline dealers have not profited from the increases; the reality is the gasoline dealer margin is shrinking. Many of the phone calls from dealers is about how difficult it is to make a profit. The longer the gasoline crises continues, the less competition there will be as independent gasoline dealers go out of business the more Oil Company ops will open and less choices with no competition at either wholesale or retail. National “Divorcement and Open Supply” is the true competitive marketplace. Retail gasoline prices are set by thousands of individual small businesses instead of a few (very few) Oil Company pricing managers that there sole purpose is to maximize the Oil Company profit even if its price gouging the consumer. Divorcement has been enacted in Nevada, Maryland, Virginia, Washington D.C., Connecticut, Delaware and Puerto Rico.
PORTLAND OREGON POLICE HAVE ISSUED A BOMB ALERT FOR TANKER OWNERS
Police in Portland Oregon have issued a security alert after a homemade explosive device was found on a tanker parked at a terminal on June 8.
Police say no note was found, there were no phone messages making threats, and have no idea who planted the bomb. Warnings have been sent to all major oil companies marketing in the area.
AN INVESTIGATION INTO HIGH GASOLINE PRICES
There will be an investigation concerning high gasoline prices. Nine Oil Company executives will testify and explain why gasoline prices are extremely high!!! Historically, prices start to drop when there is a government investigation. If our legislators really want gasoline prices to come down, pass national “Divorcement and Open Supply” where thousands of independent gasoline dealers will be competing for the consumer instead of a few (very few) Oil Company executives where there is no competition at the wholesale level because the captive gasoline dealer is forced to pay the high gasoline prices. Why are the Oil Companies opposed to true competition?
Once the independent gasoline dealer is eliminated, the consumer will be at the mercy of the Oil Companies for supply and high gasoline prices. Congressional hearings are also scheduled to look into high gasoline prices. The hearings will make a lot of noise and nothing will be done.
First quarter earnings for the year 2000 set new profit records as high as 476% for the Oil Companies over first quarter of 1999. This is a sample of what is yet to come. The Oil Companies will take advantage of every opportunity to raise prices at the expense of the consumer and the Independent gasoline dealer.
BP AMOCO STARTS ALLOCATING PRODUCT IN MIDWEST
BP cites several reasons for what it calls a “severe supply shortage,” including problems with the Explorer Pipeline, restrictions on the TET pipeline that ships fuel from the Gulf to the region, and an aging barge fleet that makes it harder to move product. There are also late spring turnarounds at Midwest refineries and a tighter gasoline pool because of the need to use more high-octane, low-RVP components in Phase II RFG.
Here is a classic example why “Divorcement and Open Supply” should be law. Without captive dealers (as dealers are today), the oil companies would have been ready for disruptions to be competitive. When dealers have a choice to buy gasoline at the lowest wholesale price, the consumer will benefit with lower prices at retail instead of all the excuses by the oil companies to increase gasoline prices.
OIL COMPANY MYTH #3 ...
Divorcement will cause prices to RISE.
The Reality ...
Not so! Competition is returned to the retail marketplace and that competition brings prices DOWN. Look at Maryland ... the state that was first with divorcement in the late 1970's. Their State Comptroller has repeatedly testified how great divorcement has been for the state of Maryland because it has meant lower prices and more services in a competitive environment. Now look at Nevada ... the only West Coast State with divorcement. The lowest prices in the West... and Nevada gets gas from California, as does Arizona. And every effort by the Big Oil companies to repeal divorcement in these states has been defeated! The people and legislators know it works, so they keep it!
OIL COMPANY MYTH #4...
Existing state and federal laws are adequate to protect consumers and gasoline dealers.
The Reality ...
Not so! Existing laws have allowed these Big Oil companies to maintain their vertical integration (crude oil to motor fuel, ground to nozzle control), while consolidating the wholesale and retail gasoline marketplaces through mergers, acquisitions, market pull-outs, and elimination of independent gasoline dealers. These few oil companies make all of our gas, set all of the wholesale prices for fuel, and they control the retail prices through company-operations and pricing schemes (like zones). Divorcement and Open Supply and eliminating price zones returns competition to the retail marketplace, and the oil companies will have to compete strenuously at the wholesale level to keep their market shares and the consumer will benefit.
GRAY MARKET CIGARETTES
Several companies have found a way to sell cigarettes while avoiding state and federal taxes. The practice involves the sale of what are known as Gray Market Cigarettes. These cigarettes are produced in the United States exported and then are re-imported. They can cost up to $10.00 a carton less than domestic cigarettes because they do not include taxes or price hikes resulting from the l998 tobacco settlement.
A new law that went into effect on January 1, 2000 makes the sale of these cigarettes illegal. It bans the importation of export only cigarettes for the purpose of selling them on the U.S. Market.
FIDA MONEY SAVING PROGRAMS
FIDA has money saving programs like the Dodson Group Workers' Compensation Dividend program paid a 20% dividend on paid premiums for the second consecutive year, February 1, 1999 to January 31, 2000 and expect approximately the same this year for members of FIDA who participate in the program.
CREDIT CARD FEES
Due to higher gasoline prices, dealers are paying much larger credit card fees. We estimate that a 150,000-gal/month station will pay between $2,500.00 and $5,000 per month!
IRS MILAGE RATE
For the second time in 18 months, the IRS has adjusted the standard mileage rates used in determining the deductible costs of operating a vehicle for business use. Under IRS Revenue Procedure 99-38, the standard mileage rate for business use will rise from 31 cents per mile to 32.5 cents per mile for expenses paid or incurred after January 1, 2000.
DEBT SERVICE COVERAGE TEST
This formula measures the number of times operating earnings cover pro forma (after financing) interest expense and other fixed charges (principally rentals). For example, if operating earnings are $180,000 and interest and other fixed charges are $30,000 annually, then the ratio would be a healthy six to one. A ratio of four to one to six to one is good.
TAX INCREASE
In a little known, last minute provision squeezed into the Extenders Tax Bill, Congress enacted a change in how installment sales should be recognized. Prior to enactment of this legislation, installment sales by accrual taxpayers were reported in the year of the receipt of the payment. Under this new tax provision, the entire sale must be recognized in the first year of the installment sale. This means that business owners who are selling their business on contract or "seller financing" have to pay taxes on the total sale in the first year. Under current law, the seller pays tax on the amount received each year during the contract.
EPA GOES AFTER GAS NOZZLES
The United States Environmental Protection Agency once again is issuing fines for nozzles that exceed the allowable flow. Fines of $1,000 dollars or more for stations caught with nozzles exceeding the 10-gallon maximum set by the Clean Air Act have been imposed. The maximum fine allowable is $27,500 dollars per day but EPA will reduce the penalty to $1,225.00 dollars if the dealer fixes the problem, sends test results proving that repairs have been made, signs a compliance agreement, and sends a check to EPA within 30 days. EPA is warning it may ask the Department of Justice to take court action against violators of the flow rate.
Any eligible businessman or woman, who joins FIDA, and participates in a few on-going programs, will find that his/her savings in overhead costs will more than justify the dues that each member pays.
