Industry Fuel for Thought

By  Paul Reuter, Chairman emeritus and contributing editor

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Last month’s NACS SOI findings once again illustrated clearly that the story at the pump is not the best news. Gasoline margins keep trending down, retail prices are rising and overall consumption trends and volumes are declining. The good news is that break-even cents per gallon fell from 10.46 in 2011 to 9.2 in 2012.

The headline on my column last month said it’s time for some good news. Despite the story around fuel, the industry mood remains positive. As we jump headfirst into the summer, the best sales time for our industry, consumer sentiment remains upbeat. It is reported that 85% of us will hit the road this summer to vacation, so we must be ready!

Yes, weather always plays a big part in sales, so keep checking your weather app. But as the recent NACS Consumer Fuel Survey reported, “As consumers enjoy summer vacation, they are feeling better about the economy.”

The survey, conducted with gas customers in early May by Penn, Schoen and Berland Associates LLC, showed that 45% take trips outside of their own state and 63% will take at least a six-day trip, with others taking long weekends and holiday road trips. The big news from this survey: Eighty-four percent say gasoline prices affect their feelings about the economy, but they feel better today and are likely to spend more. It’s a timely survey with interesting findings. Thanks to NACS for funding the survey—it’s good to see our industry money being so well spent.

A related issue that is a headline grabber: the future of the fuels market. Will electric cars and the like be a major factor and, if so, what are the possible implications? What is the overall outlook for the auto market? An April report in The Economist said that “in the two decades prior to 2008, the number of miles driven by Americans in their 20s fell by 8%.”

Another concern for car manufacturers is that half the world’s population now lives in towns and cities where there is only so much space for cars. Other interesting trends to watch: young urban residents using car-sharing plans on a need basis, biking more, being value conscious and at least for now dealing with high unemployment and stagnant wages.

But as with all news, there is another side: older, healthy folks (me), who learned to drive early and expect to for a long time!

At the top end of the market, RollsRoyce sold a record 3,575 cars last year. It just introduced its new Wraith, listed at $320,000. Bentley’s sales were up 24% last year. And whether Tesla ultimately succeeds or fails, it offers some important lessons: If such a small company can produce a new car so quickly, surely carmaking giants can become leaner, too.

The overall outlook for the market: more cars, fierce competition and—good news for the consumer—flat retail prices. Why? Well, the auto industry is sexy, so investment money chases it. As manufacturers meet regulators’ emission targets, improved systems will allow carmakers to offer a wider range of models, supplemented by a steady stream of niche products from new entrants.

In NACS’ 2013 Future of Fuels Report, a prediction for the industry: “All the technology that will go into making cars cleaner will also make them far more fuel-efficient and more economical. For motorists with short, predictable daily drives, all electric cars may prove adequate and, as batteries improve, increasingly cost-effective. Others will be able to pick from a range of propulsion systems, including hybrid, natural gas and hydrogen.”

So what about the girl who brought us to the dance, the gasoline and diesel engines? They will improve, and improve again.

Another paragraph says it best: “EIA’s projection concerning the continued reliance on liquid fuels to power America’s transportation system can provide assurance to market participants and observers that even with unpredictable developments, gasoline, diesel and biofuels are likely to remain the dominant fuel choices for the coming decades. Yet to be determined is the extent to which this market share will erode and give way to new alternatives.”

However, the last sentence is the entrepreneur’s mantra: “Operators or regulators, pay close attention to the changing landscape and adapt preparations to accommodate new market realities.”

As a lover of change, for me the payday is in finding that change and capitalizing on it. As the saying goes, I am all in. 

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