May 25-31, 2006
City BeatGas Pains
Motorists aren't the only ones getting squeezed by Big Oil.
: Michael T. Regan
That's all changed in the past two years, as gas prices have gone up about 50 percent.
While Sunoco and other oil companies have reaped profits the size of Saudi sand dunes, Lalli is sinking into financial quicksand. He's some $52,000 in debt and is about to be evicted by Sunoco for not keeping up with increasing rent. He blames the homegrown oil giant's retail pricing strategy.
"They're the kind of company that's been like vultures," Lalli proclaims. "They'll pick your bones."
While motorists complain about getting gouged to fuel the oil companies' record profits, Lalli and other dealers say Sunoco is gouging them too, by inflating the wholesale price of gas. Even though he's only about a mile from Sunoco's gasoline terminal at 26th Street and Passyunk Avenue, he's paying up to 30 cents a gallon more for gas than the dealers or company-owned outlets in Northeast Philly or Reading. That's because Sunoco simply thinks folks in South Philly will pay it. However, just two blocks from Lalli, a Getty dealer at 21st and Oregon has been selling gas for about 20 cents a gallon less. With that competitive disadvantage, who can blame folks for cruising by Lalli's to line up for the better price?
The Getty dealer gets his fuel from an independent distributor who is paying close to the lowest wholesale price, which last week beat Sunoco's price to Lalli by about 23 cents a gallon. While other dealers could buy gas for as low as $2.799 wholesale a week ago, Lalliforced to buy from Sunocowas being charged $3.029 a gallon.
Crunching numbers last week, Lalli figured he needed to raise his price to $3.259 to make do.
"It's putting me out of the business," he complained. "It's putting me out of the ballgame."
Sunoco spokesman Gerald Davis said the company wouldn't discuss how it prices gasoline, but didn't dispute Lalli's explanation.
"We price competitively and fairly based on prevailing markets," Davis says, deeming it "inappropriate" to comment on Lalli's troubles, which are "commercial issues between Mr. Lalli and Sunoco."
So Lalli is stuck paying basically whatever Sunoco wants to charge, a decision made by looking at the price signs outside competitors' stations. He says that until two years ago, Sunoco was less aggressive with its zone-based pricing system and he was able to price his gas competitively and help pay his monthly bills of about $25,000. But then Sunoco got "just radical" in reducing the margin to just eight cents below the nearby Getty. (The Getty's advantage in pricing? The dealer doesn't pay for the gas; he only pumps it.)
On top of it all, Sunoco drains an additional 2.2 percent of every gas sale paid for by credit or debit card. Last week, he calculated, that meant about five cents a gallon in fees.
As such, Sunoco last week was pocketing at least 23 cents a gallon from Lalli before motorists even filled up at one of his pumps, a 9 percent return for sending a tank truck one mile from its refinery. When all expenses are taken into account, he clears three cents per gallon.
"There is no industry where a small businessman can make a living off of a one percent margin," he observes.
To survive, all he can do is substantially raise prices, but that drives even more customers away, thus deepening Lalli's debt.
Having made about $25,000 last year, and only $22,000 the previous year, Lalli has taken out a personal loan for a line of credit, remortgaged his home and sold another piece of property to keep up. He's now on a monthly lease, while trying to close a deal on a repair garage nearby, where he can move himself and two other employees. Now, Sunoco wants to raise his monthly rent from $7,000 to $11,200 over the next two years.
Ross DiBono, executive director of the Pennsylvania Gas Retailers Association, says Sunoco is fueling debt and hardship for other dealers, too. He's working with about five others.
Many, if not most, of the people leasing gas stations are being squeezed by rising wholesale prices, but Sunoco's prices are generally higher, as are their rents, DiBono says. Operators at Sunoco's APlus convenience stores get a slightly better deal because of retail franchise laws, he adds, but mechanics leasing about 100 Sunoco service stations are in more of a bind because the same laws don't cover them.
Lalli thought he could perhaps buy his station, which would at least stop the rising rent. Sunoco finally offered it in December for $1 million, as long as Lalli still bought gas from Sunoco. After a certified appraiser valued the station at only $650,000, Lalli decided against it.
Sunoco chairman and CEO John G. Drosdick could perhaps help Lalli out with a favorable loan; Forbes reported last month that Drosdick took home $46 million in compensation last year, second best in the nation's oil industry. Davis declined to discuss Drosdick's compensation, other than to note the company's income in recent years, which has shot up like a jet with afterburners.
"When a company has been turned around," he says, "all of our employees benefit," said Davis, ignoring that Lalli is not a Sunoco employee.
Speaking about a company that raked in $974 million last yearafter paying a $95 million penalty for manipulating the price of a petrochemical productLalli notes that the firm has had environmental troubles, with refinery pollution suspected of seeping into the ground beneath the homes of South Philadelphia residents.
"The least they can do," Lalli says, "is give them [the residents] a good price on gas."