GAS AND GO BROKE

After more than 20 years in the service station business, Raman Sethi thought he had seen it all.

He didn’t see this coming.

Earlier this year, Mr. Sethi, 53, began withdrawing money from his son’s $150,000 college fund to keep his five Northern Virginia gasoline stations from going belly-up.

“I haven’t seen anything like what’s going on now,” he said. “I’m hoping I can sell one of my stations to pay the bills. But times are so tough, I can’t sell. So what else can I do?”

Looking at gas prices these days, consumers might think that service stations are striking it rich. However, gas station owners are dealing with escalating costs that are digging into profit margins, making it hard for them to continue.

Business has been so bad for Mr. Sethi that he was having panic attacks. He now needs medication to deal with the stress.

At his Pure gas station in Arlington, it costs about $120,000 to fill up his 30,000-gallon tanks. Five years ago, he had three days to pay the distributor. He now has one.

It used to be easier, he says. He’d buy gas for $1.85 and sell it for $2 and pocket the 15 cents profit. But now, with gas prices soaring, he doesn’t want to price himself out of range of customers already burdened with high prices. So he buys at $3.96 and sells it for $4.07.

Competition also plays an integral part. If Mr. Sethi sells his gas at a penny or two more than one of his competitors, he could lose much-needed business.

“It can be hard,” he said. “You want people to keep coming back, keep them happy.”

To make matters worse, his profit is no longer guaranteed. If a customer uses a credit card, Mr. Sethi has to pay an interchange fee to the patron’s credit card company.

Interchange fees are transactional costs that credit card companies charge gasoline retailers. If a customer swipes a card at one of Mr. Sethi’s stations, the company takes just under 2 percent of the total.

The percentage is fixed to the dollar. So when gasoline prices spike, so do the charges, causing Mr. Sethi’s profit margins to shrink.

Gas prices are hovering around $4 a gallon, meaning the fees are about 10 cents a gallon. The mounting costs are putting station owners like Mr. Sethi out of business, says Paul Fiore, director of government affairs for the Washington, Maryland, Delaware Service Station & Automobile Repair Association.

In light of these concerns, Visa lowered its interchange fees 17 percent last week. Starting in October, if a motorist uses a Visa card to fill up a 15-gallon tank at $4 a gallon - or $60 total - the station would pay about 95 cents total instead of 2 cents on every dollar, or $1.20. In April 2007, MasterCard decided to cap interchange fees at $50.

Mr. Fiore says these moves are a step in the right direction, but it hasn’t given station owners enough relief.

“These stations are getting hammered by high credit card costs,” he said. “We’re getting calls from plenty of guys who are at their wits’ end.”

The fees weren’t such a big issue several years ago when profit margins were larger and credit card users weren’t as prevalent. But that’s changed, Mr. Fiore says, as 78 percent to 80 percent of gasoline sales come from customers using credit cards.

Last week,PMG/E&C Enterprises began rewarding customers at four of its stations who paid in cash rather than credit. Cash-paying customers received a savings of 5 cents on every gallon purchased. The company owns more than 160 Shell, Chevron, Texaco and Sunoco gas stations throughout Virginia, Maryland and the District.

Mark Hall, a company spokesman, said there were some concerns on whether people were willing to pay cash. But after issuing questionnaires and asking customers for their thoughts, the response was overwhelmingly positive, he says. People would pay in cash if it saved them money. So this week, the company is rolling out the offer at 14 additional stations.

“It’s a matter of surviving,” Mr. Hall said, “if we want to see our way through this difficult time.”

Exxon Mobil, the world’s largest publicly traded international oil and gas company, is opting not to ride out the volatile market. The company recently announced it will sell its 2,220 company-owned U.S. gas stations.

“The exit of Exxon is indicative of the desperation of the industry,” said Jeff Lenard, a spokesman for the National Association of Convenience Stores. “The retail fuel industry is the most challenging and least profitable of any part of the oil distribution system from oil head to consumer.”

Both Mr. Sethi and Mr. Fiore agree. They say gas station owners who do not have a repair shop or a large convenience store at their stations will have a hard time surviving.

“The gas business is gone,” Mr. Sethi said, throwing up his hands in disgust. “Whatever money I’m making, I’m making out of the repair shop.”

Over the past five years, Mr. Sethi says the average rent at his stations has more than doubled from $6,500 to $15,000 a month. This increase - in addition to his other costs - are pushing him into the red. Until things turn around, he says, he has no choice but to continue to withdraw money from his son’s savings account to make ends meet.

“The real question is: How long do I stay in this business?” he asks himself. “I just hope it’s not too long.”