The day will come soon when the gas station as we know it will disappear and in its place, filling stations in parking lots will sprout. All the talk about a competitive market in petroleum products gives the impression that the local oil companies are locked in deadly combat with each other. Perhaps that might be true in some ways in the industrial market, but in the retail market, it is the lowly gasoline station dealer who carries the brunt.
This is the totally Filipino side of the petroleum business. The gas station dealer is the independent entrepreneur who bears almost all of the business risk. The oil company may have advanced the money to build the station, but the dealer pays the rent. The oil company is free from inventory carrying costs, and carries no risk in terms of product loss because the dealer has already paid for it. Dealers get no credit from the oil companies. They pay cash on delivery, sometimes, before delivery.
To get started in the business, a dealer must have at least P3 million in capital to buy dealer equipment and related expenses. That is in addition to the building, gas pumps and other equipment supplied by the oil company. A typical dealer sells anywhere from 200,000 to 300,000 liters a month of petroleum products. Their margin per liter is from 50 to 60 centavos.
With the abrupt rise in petroleum product prices, the dealers have to scrounge for additional capital to pay for inventory. In many cases, they will need as much as half a million pesos more. Yet, they have not been able to raise their share of the increased price in the last five years.
Theoretically, the dealers can sell their products for whatever price they want under the deregulated set-up. But intense competition has prevented them from doing that. I am told that even a three centavo per liter price difference can depress their volumes. And they are under pressure to increase or at least keep their volumes if the business is to remain worth their time.
Because of the hard times, there is the increased security risk in their business. They are dealing with a lot of cash, making them easy prey to hold-ups. And if they are not careful, they could be victimized by haulers who deliver less product volume than invoiced or even adulterated products.
When Shell was determined to build retail market share, Shell dealers were given incentives to increase their volume. Discounts were given to dealers who attained certain volumes. But with the current crisis, all these incentives were revoked by Shell.
In the past, dealers made good money in providing car care services. But they noticed that car owners now are more inclined to bring their cars to the manufacturer's service center. On the low end, it is the sidewalk shops that get the business.
So the dealers are squeezed in. They are the frontliners of the business who are caught between escalating product prices and operating costs and cutthroat competition at the station level. The oil companies, worried about their own costs, are not inclined to give them a helping hand. And with deregulation, they can't go to government to ask for larger margins.
I was doing rough computations. Let us say a dealer sells 200,000 liters a month at an average margin of 60 centavos a liter makes P120,000 a month gross. Deduct salaries, rent, insurance, etc. and it is clear it isn't that interesting anymore, given the risks and the capital required.
Well, in the end the oil companies will have to take care of their dealers. After all, the dealers represent them to the end consumer. A lousy dealer or one who doesn't have his heart in the business because it doesn't pay well, will drag the oil company image down.
It is also in the public's interest that the dealers are not squeezed that badly because they may be tempted to cheat on product quality or quantity. Unless the oil companies take care of their dealers, I can imagine there will be a bright politician who will advocate a law that will make it possible for dealers to buy from any supplier.
That will make the oil companies compete for volumes at the dealer level. In a way, that is happening now and they call it dumping. It is a violation of the dealer contract. But that isn't such a bad thing if that's the only way the really Filipino end of the oil business is to survive. That is also true deregulation and open market competition.
Perhaps even better than an Oil Exchange.
The hot topic among businessmen in coffee shops and cocktail parties is how to survive the next four years of Erap. Some, it was pointed out, are going abroad. The taipans, Lucio Tan, Gokongwei, etc. are said to have invested heavily abroad. Listing in the foreign stock exchanges, be it Singapore or Nasdaq, is also a way of going around the lousy local stock market.
Most of all, everyone is trying hard to remain liquid. That means, they don't mind the lower returns of keeping their money in Treasury bills or similar instruments while waiting Erap out. That also means, there will be little or no job creation.
The magic word is confidence. Unless they have it, local and foreign investors aren't going to move. But because the Palace had taken a "circle your wagons" stance, I doubt if they know how bad the situation is and what ought to be done to make things better.
Reader Trixie Ocampo, using a hotmail e-mail address, sent us today's feature.
Upon serving the passengers their in-flight snacks, one attendant attempted with utmost professional delicacy to communicate with the least risk of embarrassment to the passenger that his pants were unzipped. "Sir, your garage door is open" she whispered.
Several times during the flight she attempted to inform him of his condition but her delicacy was lost on this dumb schmuck until of course he revisited the bathroom and realized that he'd been exposed throughout the entire flight. Realizing now what she had been trying to tell him, he became livid with humiliation.
If she had just said his pants were unzipped in 'plain english' he'd have been spared the embarrassment of having been in flight almost eight hours in that condition. "Garage door" eh! Well, two can play that game he said to himself. I'll show her.
Returning to his seat he waited for that quiet moment when he could be sure that most everyone around him could hear the exchange and called her over to his seat. "Say, when you saw that garage door open earlier, did you by any chance see a l-o-n-g, brown, sleek Cadillac parked in there?" he said smirking. Without a moment's hesitation, however, the attendant replied, "Well, no sir, I sure didn't.....but I did see a little pink Volkswagen with flat tires!"
(Boo Chanco's e-mail address is bchanco@bayantel.com.ph)