WASHINGTON - If it weren't for a small but loyal group of customers, Channara Keam would stop selling premium gasoline at his College Park, Md., station. Sales of the high-octane fuel are down almost 25 percent over the past year, he said, and it no longer produces the kind of profit margins that dwarf those of lower-grade fuels.
Gasoline sales figures show that drivers are forsaking the higher price in unprecedented numbers. After years of decline, the market share for premium gas dwindled to the single digits last year. Some analysts expect the drop to be more pronounced this summer, as the gap widens between the prices of regular and premium gasoline.
The demand for the top-grade fuel has steadily declined over the past two decades. In the 1980s, premium gas regularly captured market shares of more than 25 percent, according to the Energy Information Administration. But as prices steadily rose and automotive technology improved, the market share of premium gas fell, to about 15 percent by the late 1990s. Premium grades account for only 9.6 percent of gasoline sales from August 2005 to March 2006, the latest figures available.
“Our suspicion is that a number of people found that their cars ran just fine” on regular gasoline, said Mark Routt, senior consultant at Energy Security Analysis Inc. in Wakefield, Mass. “And they never went back.”
Premium gas can prevent an engine from knocking, but fewer cars need it because newer vehicles are equipped with sensors that adjust the engine to the grade of octane in the gasoline, automotive experts said. Higher-octane gas can increase performance in some cars under certain conditions but will make no discernible difference in most cars, they said.
Feeding premium gas to cars that don't need it “probably is a waste of money,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.
Based on the proportion of the premium-only vehicles on the road today, the gas should account for about 15 percent of all sales, Routt said. However, EIA figures show that the last time premium had such a high market share was in early 2000, indicating that many motorists are ignoring the “Premium Fuel Only” reminders etched by auto manufacturers on the gas-tank caps.
It is not uncommon, Kloza said, for premium fuel to be sold for 40 cents a gallon above the price of regular gasoline at the wholesale level. But it's “very difficult to price it up the pump that aggressively,” he said.
Keam couldn't agree more.
Keam, who runs his gas station with his wife, Narvy, used to make up to 15 cents a gallon on premium fuel, almost twice as much as he made selling regular gasoline. But premium is more expensive this year since the addition of ethanol, a cost the Keams have largely absorbed. The profit for both fuels is now about 8 cents a gallon, Channara Keam said. “We're trying to compete,” he said.
Although the public appetite for higher-octane fuels has waned, some oil companies have been aggressively pushing premium brands.
In 2004, Shell launched a $30 million advertising campaign in what it called “one of the company's most significant marketing investments” since it began selling fuel in the United States nearly a century ago. Through television, print, radio and Internet ads, direct-mail promotions and displays at its stations, Shell touted the virtues of its V-Power gasoline, which the company said has five times the amount of cleaning agents required by the federal government. The company followed up with a $25 million campaign in 2005.
BP this summer launched touring exhibits to promote its Amoco Ultimate premium fuel. Among them is a car with a split engine, one side filled with regular gas and the other with Amoco Ultimate.
Scott Dean, a spokesman for BP America, said the company thinks there is a growing network of young hot rodders willing to pay extra for better performance.
“They have no problem with putting more money under the hood to enhance the performance of their vehicle,” Dean said. “And they feel the same way about gas.”
Not everyone is so casual when it comes to buying gas.
Atakilt Mekonnen, who has been driving a cab for 10 years, can talk all about the virtues of premium gasoline. But he doesn't enjoy paying for the pricey fuel.
“That's big money. That's not easy for me,” said Mekonnen, 48, who figures that he spends $50 a day on gas.
For now, he'll stick with premium, Mekonnen said as he filled his 1995 Lincoln Town Car at a station in downtown DC earlier this week, at $3.34 a gallon.
“But I don't know, if the business is slow, I may go down and see what effect it has on my car.”
AP-NY-06-24-06 1202EDT
The demand for the top-grade fuel has steadily declined over the past two decades. In the 1980s, premium gas regularly captured market shares of more than 25 percent, according to the Energy Information Administration. But as prices steadily rose and automotive technology improved, the market share of premium gas fell, to about 15 percent by the late 1990s. Premium grades account for only 9.6 percent of gasoline sales from August 2005 to March 2006, the latest figures available.
“Our suspicion is that a number of people found that their cars ran just fine” on regular gasoline, said Mark Routt, senior consultant at Energy Security Analysis Inc. in Wakefield, Mass. “And they never went back.”
Premium gas can prevent an engine from knocking, but fewer cars need it because newer vehicles are equipped with sensors that adjust the engine to the grade of octane in the gasoline, automotive experts said. Higher-octane gas can increase performance in some cars under certain conditions but will make no discernible difference in most cars, they said.
Feeding premium gas to cars that don't need it “probably is a waste of money,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich.
Based on the proportion of the premium-only vehicles on the road today, the gas should account for about 15 percent of all sales, Routt said. However, EIA figures show that the last time premium had such a high market share was in early 2000, indicating that many motorists are ignoring the “Premium Fuel Only” reminders etched by auto manufacturers on the gas-tank caps.
It is not uncommon, Kloza said, for premium fuel to be sold for 40 cents a gallon above the price of regular gasoline at the wholesale level. But it's “very difficult to price it up the pump that aggressively,” he said.
Keam couldn't agree more.
Keam, who runs his gas station with his wife, Narvy, used to make up to 15 cents a gallon on premium fuel, almost twice as much as he made selling regular gasoline. But premium is more expensive this year since the addition of ethanol, a cost the Keams have largely absorbed. The profit for both fuels is now about 8 cents a gallon, Channara Keam said. “We're trying to compete,” he said.
Although the public appetite for higher-octane fuels has waned, some oil companies have been aggressively pushing premium brands.
In 2004, Shell launched a $30 million advertising campaign in what it called “one of the company's most significant marketing investments” since it began selling fuel in the United States nearly a century ago. Through television, print, radio and Internet ads, direct-mail promotions and displays at its stations, Shell touted the virtues of its V-Power gasoline, which the company said has five times the amount of cleaning agents required by the federal government. The company followed up with a $25 million campaign in 2005.
BP this summer launched touring exhibits to promote its Amoco Ultimate premium fuel. Among them is a car with a split engine, one side filled with regular gas and the other with Amoco Ultimate.
Scott Dean, a spokesman for BP America, said the company thinks there is a growing network of young hot rodders willing to pay extra for better performance.
“They have no problem with putting more money under the hood to enhance the performance of their vehicle,” Dean said. “And they feel the same way about gas.”
Not everyone is so casual when it comes to buying gas.
Atakilt Mekonnen, who has been driving a cab for 10 years, can talk all about the virtues of premium gasoline. But he doesn't enjoy paying for the pricey fuel.
“That's big money. That's not easy for me,” said Mekonnen, 48, who figures that he spends $50 a day on gas.
For now, he'll stick with premium, Mekonnen said as he filled his 1995 Lincoln Town Car at a station in downtown DC earlier this week, at $3.34 a gallon.
“But I don't know, if the business is slow, I may go down and see what effect it has on my car.”
AP-NY-06-24-06 1202EDT
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