Do Gas Stations Break the Bank When Gasoline Prices Rise?

Over the past three years the United States – and the world for that matter – has seen a sizable jump in the price we pay for each gallon of gasoline. As I type this, the current price of gasoline (right around $3) is about 70% higher than what we were paying three years ago (right around $1.80).

As the price of gasoline has continued to climb, many different groups or people have had to defend themselves against the claims that they were the cause behind soaring fuel prices. Whether it’s the Bush Administration, China, OPEC, Big Oil, et al., we’ve certainly had no problem finding alleged conspirators behind our pain at the pump.

One group that has, for the most part, been able to avoid wide-scale blame is gas station owners. According to Smart Money Magazine, this is probably a good thing.

In his article entitled “10 Things Gas Stations Won’t Tell You” Jim Rendon explains that as gas prices increase, the profit margin for a gas station actually goes down. In the article, Rendon goes on to say:

“Stations ear on average between 10 and 15 cents on a gallon of gas. Ironically, they ear the least when prices are highest. As fuel climbs, gas stations must shrink their profit margin to remain competitive, meaning they ear less per gallon than usual.”

Based on Rendon’s statement, when using the national average gas price of $3 per gallon as a baseline, a typical gas station’s profit margin is anywhere between three and five percent. In today’s market, that profit margin is pretty razor thin, especially considering many Big Oil companies have a profit margin two or three times higher than what the gas stations are seeing.

According to a recent poll on GasBuddy.com, it appears as if many of us are aware of the fact that gas stations shouldn’t bear the brunt of our ire. When asked, “For every dollar you spend on fuel, how much do you think a retailer is making in profit after subtracting costs such as the cost of fuel, taxes, rent, insurance and employee salaries?,” here’s how nearly 23,000 people responded:

• 16% said 1 to 2 cents (1 to 2 percent profit margin)
• 32% said 3 to 6 cents (3 to 6 percent profit margin)
• 18% said 7 to 10 cents (7 to 10 percent profit margin)
• 8% said 11 to 15 cents (11 to 15 percent profit margin)
• 4% said 16 to 20 cents (16 to 20 percent profit margin)
• 13% said more than 20 cents (greater than 20 percent profit margin)
• 9% said they were unsure

I was pretty surprised by the number of people (32%) that pretty much hit the nail right on the head (if I had taken the poll before I read Rendon’s article, I would have said 11 to 15 cents) and even more startled that 16% of respondents underestimated the typical gas station’s profit margin.

Looks like we can cross gas stations off of our list of “People We Blame For High Gasoline Prices.”