The Petroleum Industry - Jim Lawson
Mark Murray introduced his long-time friend Jim Lawson, who has started a number of small businesses which he has since sold, was a former high school teacher and coach and now serves as Chairman of the Board of United Bancorp Inc. He is also General Manager of Avery Oil & Propane in Tecumseh who spoke about the oil situation in this area and around the world.
Jim began by telling the audience that he did a little study about Rotary in preparation for today’s presentation and said that two things stood out in particular: one was Rotary’s motto – Service Above Self and that it was reflective of everyone in the room today who are serving the greater community and the other the original purpose of the founding fathers to create the Rotary Club – to exchange ideas and grow a business. Jim said that throughout his life he has always wanted to emulate successful people and successful organizations which, in turn, has greatly impacted his own growth as an entrepreneur.
Jim said he left the high school arena to take over a family petroleum business due to a serious illness in the family. Twenty years later he sold his interest in that business and retired and then realized he was bored and missed the challenges being in business posed.
He is also involved in commercial real-estate ventures in the Dundee and Ann Arbor areas. He said he was then lured back into the petroleum business having been asked to lunch by a representative of the Michigan Petroleum Association Board who was going to purchase an independent business and wanted him to run it for him which he accepted.
He posed a pop quiz to audience members and then shared these startling statistics about the petroleum business:
· A typical local gas station owner who charges $3.09 for a gallon of gas realizes a gross profit of $.018 from the sale of each gallon sold.
· That station owner pays taxes amounting to $.542 - Federal (18.4 cents) and State (19 cents gas tax and 6% sales tax) for each gallon sold.
· Since 72% of all transactions are done on a credit card, the swipe of that card costs the owner of the station 1.75% of the $3.09 per gallon price! So, if a person buys 12 gallons, the owner pays $.064 on 70% of the fuel purchased bringing the cost to the owner down to $.052.
Yet, people say that gas stations make all kinds of money, Jim said. But they don’t! He went on to say that the petroleum business is a very tough business to be in. However, that’s not where gas station owners make the real money. They make it on the sale of other items in their stores. Independent owners are up against big competitors like the bog box stores, Jim said. These businesses provide a customer base for stations who are in close proximity to their stores. Look at our local Meijer and Wal-Mart at the south end of town.
Gas stations in Ohio do not pay sales tax on gasoline like Michigan owners do but instead pay 25 cents per gallon which is 6 cents higher than in Michigan which is why prices over the border are always less than they are here. Gasoline sales in Michigan have declined over recent years, Jim said.
No oil refinery (generally a $2B investment after a 7-10 year permitting process) has been built in the US since 1973 simply because, Jim said, is due to N.I.M.B.Y – not in my backyard! All money made in the petroleum business, he said, is made at the refinery.
He closed by answering a question about where the crude oil that is currently being pumped in this area goes to which he answered the Marathon refinery in Detroit. The market sets the price for crude oil based on supply and demand and that average consumption of crude is traded 29 times a day by hedge fund managers and various speculators.