With gasoline topping $4.50 a gallon, you'd think gas station owner Harry Norris would feel like he's sitting on a gusher of oil riches.
"I don't know of any gas stations making a profit on gasoline alone," said Norris, who owns the 76 station at Highway 50 and El Dorado Hills Boulevard. "I've always liked it until now. It was profitable up until about a year ago."
That's when gas prices really began to rise. And that's when an already tight profit margin built on pennies on the gallon started evaporating.
Station owners at first blamed competition, state and federal taxes and rising overhead costs for the tightening squeeze. Now they say they're in the grip of a foe that cuts much deeper into profits as gas prices continue to rise – credit card fees.
"Every time you buy gasoline, I ask you to remember this: The station you are buying it from is paying more than twice as much money in fees than it is making. And every time gas prices go up, the card fees go right up with them," Tom Robinson, president of San Jose-based Robinson Oil Corp., told a congressional committee recently.
The charge in question is something called the "interchange fee," a percentage of the sale price paid to credit card companies on every retail transaction, including filling up at the pump.
On average, the fee across the country is about 2 percent. Credit card companies charge that whether gas is $2.50 a gallon or $4.50 gallon. That means that as prices rise and drivers pay more to fill up, the amount station owners pay for interchange fees rises, too.
Here's why: A 2 percent fee on $4-per-gallon gasoline comes to 8 cents a gallon. When gas was $3 a gallon a year ago, the same fee came to 6 cents.
U.S. station owners typically mark up gasoline by 11 to 12 cents a gallon. In California, where prices have topped $4.50 or more a gallon of late, the interchange fee can run 9 cents to 10 cents per gallon. That cuts into profits. The fees apply only to mainstream bank cards such as Visa and MasterCard, not cards issued by the oil retailers.
Competition, station owners say, keeps them from pushing prices higher.
"If I'm 2 or 3 cents off, I'm going to lose 500 gallons a day … because (customers) will go somewhere else where it's cheaper," said Dennis DeCota, who owns a 76 station in Marin County and is executive director of the Santa Rosa-based California Service Station and Auto Repair Association.
In El Dorado Hills, Norris' 76 station is in a prime spot, hard along the Highway 50 corridor that is perpetually packed with commuters and Lake Tahoe-bound travelers. At his busy station, he said he makes a profit of about 6 cents a gallon on combined sales of all three grades of gasoline – regular, mid-range and premium.
"That's my profit before expenses," Norris said. "Then I have to pay for the lights, my insurance, workers' comp and other costs. I've got to be honest with you. With gas alone, it's a negative."
Some station operators in other states reportedly have banned the use of major credit cards to purchase gas. Norris said he hasn't seen that in California, but he has heard that some of his colleagues may start offering a discount for customers paying in cash.
Still, "you run the risk of driving customers away because most of them pay by credit card," Norris said.
The retail fuel industry estimates that more than 50 percent of U.S. customers pay for gasoline with a major bank credit card. In some locations, such as convenience stores, it's estimated to be as high as 70 percent.
Speaking for the industry, Trish Wexler, a spokeswoman for the Washington, D.C.-based Electronic Payments Coalition, said interchange fees allow for faster payments and better fraud protection for businesses.
"It's a system that helped start the e-commerce revolution in the global marketplace, with faster payments and with more customers," she said.
MasterCard and Visa did not return calls seeking comment. But in an e-mail response to the Associated Press recently, MasterCard spokeswoman Sharon Gamsin said her company now charges interchange fees only on the first $50 of gas purchased.
The retail gas industry contends the $50 cap has limited benefits. Officials said most drivers fill up before their tanks are half empty, often charging $50 or less.
Gas station owners and the National Association of Convenience Stores, which says it sells the majority of gasoline in the United States, are taking their concerns to Congress. Legislation pending in both houses would allow merchants of all kinds to bargain collectively with major credit and debit card companies on fees.
Robinson, the operator of 30 Rotten Robbie convenience stores in the Bay Area, argued that legislative relief is necessary because "the price for the cashless society is way too high if you let the credit card industry set the rate."
In El Dorado Hills, Norris said his auto repair work is what keeps his shop, built in 1989, in the black.
"I have a successful auto service/repair facility," he said. "It fortunately keeps me in business."
Call The Bee's Mark Glover, (916) 321-1184.
