respond | preferences | login | unsubscribe

Dear PEI Member:

Suppose the economy has fallen into a recession, as so many people on and off Wall Street think. If we are in a recession, what will the effect be on the petroleum equipment industry? We posed that question to 20 PEI distributors over the past two weeks. Here's what we learned.

Almost 30 percent of them think our industry is as close to recession-proof as you can get. On the retail side, gasoline margins are more important to our customers than to the general economy. It's difficult to imagine motorists cutting back on their driving until the price of fuel reaches the $4 level. Existing regulatory compliance programs will continue without regard to economic conditions. Fortunately, most customers should be able to absorb the additional costs, with the exception, perhaps, of the very small retail customer.

Government and commercial endeavors still have access to money that funds refueling projects. Construction projects might be cut back a little, but service will stay strong since marketers have to continue to attract customers to their stores. Expect the sale of new equipment to decline some, but look for the sale of service parts that keep the older equipment working, to put total sales on par with previous years.

As the economy slows and perhaps slides deeper into a recession that may be already underway, members view this as an ideal time to cut underperforming employees. They also expect the employees who stay to be grateful they have a job and less likely to hop from one job to another, or to demand large pay increases. The caliber of job applicants should improve—especially in the construction area—as workers displaced from the housing industry look for employment. 

As customers feel the economic pinch, demand for better pricing from PEI distributors and manufacturers may increase. If PEI members' margins drop, competitors on the edge could suffer. A prolonged recession might cause them to drop out of the industry altogether, or become an attractive candidate for acquisition by a better financed distributor.

We don't want you to get the idea that all distributor members think we are a recession-proof industry. About two-thirds of those interviewed believe we will be affected in some way and that a recession would cause problems that would somehow impact the majority of our members. Accounts receivable are already inching up. The commercial, non-retail side has a lot of work on the books but may be cut back if the recession is long and deep. And credit—both for customers and PEI members—might be tougher to find for less creditworthy companies. They are quick to point out, however, that banks and other lending institutions often offer better deals to their good, rock-solid customers during times of trouble. 

We also talked to a few manufacturers over the past two weeks about this issue. They tended to be a bit more pessimistic than the distributors, especially if they make products that are not service-related or driven by regulation. They voiced some of the same concerns (accounts receivable, available financing) and reasons for optimism (a more stable workforce and better-than-average job applicants) as the distributors. Almost all manufacturers mentioned the weak dollar and an increasing reliance on exports as a viable strategy to offset any decline in domestic sales.

PURCHASING & INVENTORY CONFERENCE
PEI's Purchasing & Inventory Managers Conference has been scheduled for May 16-17 at the Wyndham O'Hare, Chicago, IL. The conference is designed for Distributor, Service & Construction, and Affiliate division members.

The conference will feature two days of roundtable discussions and general session topics. Prior to April 11, the cost to register is $295 for PEI members. After April 11, fees increase to $395 for PEI members. Deadline to register is May 2. Registration can be completed online at www.pei.org/conference.

Conference registration does not include overnight accommodations. PEI has secured a room rate of $139 single/double at they Wyndham O'Hare. Reservations must be made prior to April 15 to secure this special rate. Complimentary transportation to and from the hotel is provided to the hotel from O’Hare International Airport via the hotel shuttle bus.

To reserve your room, call 847-297-1234 and indicate the PEI ROOM BLOCK.

While conference registration is not open to Manufacturer members or to Manufacturer Reps, limited sponsorships are available to these groups. Please contact Tena Wooldridge at tw@pei.org for more information.

REGULATORY BRIEFS
Federal Air Quality. The Environmental Protection Agency (EPA) has issued new rules aimed at improving air quality. The new standard limits the allowable amount of smog-forming ozone to 0.075 parts per million (ppm), down from the previous limit of 0.080 ppm. The Petroleum Marketers Association of America (PMAA) reports that the new standard "is an enormous concern to petroleum marketers" who see the change as likely expanding the use of reformulated gasoline (RFG). The Society of Independent Gasoline Marketers of America (SIGMA) suggests that the new standard "could throw more counties into nonattainment, and increase pollution-control requirements for those counties."
California. The California Air Resources Board (CARB) has issued a letter to each of the California air pollution control officials throughout the state, encouraging them to revise their motor fuel vapor recovery rules and eliminate the requirement for Stage II vapor recovery equipment with pumps dispensing E85.
Oregon. The Oregon Environmental Quality Commission has adopted a revised rule that increases the annual compliance fee for underground tanks and the penalties for storage tank violations. The maximum penalty per violation discovered through field inspections will increase from $100 to $500, and the total penalty per facility will increase from $300 to $1,500. The rule also requires operating facilities to renew valid operation certificates annually, and to show proof of pollution liability insurance.

PETROLEUM MARKETING BRIEFS
Argentine business conglomerate Grupo Eurnekain has made an offer to buy Exxon Mobil's Latin American assets in association with Brazilian investment group GP Investimentos, Argentine newspaper Clarin reported last month. Grupo Eurnekain's offer was for Exxon affiliate Esso's assets in Argentina, Brazil, Chile and Uruguay. Esso has 500 service stations in Argentina and 240 stations in Chile, while holding 7 percent of the fuel market in Brazil.
BP announced March 3 it has put 146 retail sites up for sale throughout the Columbus, Cleveland and Pittsburgh metropolitan areas. Most of the sites will be sold to franchisees. Some will be sold to dealers and large distributors.
Motiva Enterprises said March 3 it has sold 51 of its Shell-branded retail stations in the New Orleans area to Louisiana-based Lavigne Baker. The stations will continue to operate under the Shell brand. Lavigne Baker is jointly owned by Slidell Oil Company and Lavigne Oil Company, both Shell wholesalers with 43 stations in Louisiana.
Shell Oil Products US has transferred ownership or supply of 84 branded sites in Oregon to PacWest Energy LLC, a joint venture formed between Shell and Jackson Food Stores Inc.
CHS Inc. has signed a purchase agreement to acquire 33 Zip Trip convenience stores in eastern Washington and northern Idaho. The majority of the stores are located in the Spokane area. They will be re-branded Cenex.

ALTERNATIVE FUELS
"The use of hydrogen fuel in road transport is a realistic alternative to fossil fuels and could cut oil consumption by 40% in 2050," a European Union report says. However, a switchover would be lengthy and expensive, the report added. The study, the result of research funded by the EU, estimates that there will be 16 million hydrogen cars by 2030, requiring infrastructure investment of $89 billion, Dow Jones Newswires reports.
—Oil Daily, February 26, 2008.
Top executives of BP and General Motors said March 4 that hydrogen will likely fuel the cars of the future, although it could take 50 years to get there.
—CNNMoney.com, March 5, 2008.
"An ethanol flood is nearing. By next year, a slew of new plants will lift annual output to about 13 billion gallons. That's more than can be used as E85 in flexfuel vehicles on the road and as E10, the 10% ethanol-gasoline blend approved by EPA for conventional engines. Prices will plunge further, and profits will disappear for makers. Expect the feds to face pressure to speed up market development, building infrastructure and helping get ethanol into more of the country and/or letting blends with over 10% ethanol in them be used in all cars."
—The Kiplinger Letter, February 15, 2008.

BRIEFLY NOTED
Western Pump, Inc., San Diego, California, has been awarded second place in the small company-size (50 to 99 employees) category of California's Best Places to Work program. The program was sponsored by Employers Group.
Bottom Line of MN Inc., Osakis, Minnesota, has employed Maria Isabel Betancur to represent domestic and international Spanish-speaking accounts. Her direct telephone number is (320) 589-5333. She formerly worked for an exporter of petroleum pumps.

MEMBERSHIP APPLICATIONS
Kansas distributor. Heartland Marketing & Associates, Inc., P. O. Box 543, Phillipsburg, Kansas 67661, has applied for distributor division membership. Lynn L. Wallgren is president of the firm, which was established in 1990. Heartland represents Cim-Tek, Flex-Ing, GPI, HuskyCorp, Krueger, Morrison, Natl-Spncr and Tuthill. Sponsored for PEI membership by Tom Ingram, Flex-Ing, Sherman, TX.
California engineering and architectural firm. LHB & Associates, Ltd., 586 Higuera Street, Suite 200, San Luis Obispo, California 93401, has applied for affiliate division membership. Jeffrey Lee is president of the firm, which was established in 2006. The company provides engineering and architectural services including preliminary design, entitlement processing and construction document preparation. Sponsored for PEI membership by Christopher G. Fasse, B&TSSCon, Nipomo, CA.
Ohio installation and removal firm. Empaco Equipment Corporation, P. O. Box 535, Richfield, Ohio 44286, has applied for service and construction division membership in PEI. Mark Pawuk is president of the firm, which was established in 1980. Empaco Equipment Corporation offers environmental remediation, emergency spill response, turnkey site preparation, and the installation and removal of underground fuel dispensing systems. Sponsored for PEI membership by Emil Pawuk, EmilPawuk, Richfield, OH.

ADMITTED TO PEI

• Augusta Petroleum Equipment Services, Augusta, GA (dis)
• The Tokheim Company, Marion, IA (mfr)
• MP Pumps, Inc., Frazer, MI (mfr)
• CT Earle Corporation, Gibsonton, FL (S&C)

©2008
Petroleum Equipment Institute
P. O. Box 2380
Tulsa, OK 74101-2380

The TulsaLetter (ISSN 0193-9467) is published two or three times each month by the Petroleum Equipment Institute. Robert N. Renkes, Executive Vice President, Editor. Opinions expressed are the opinions of the Editor. Basic circulation confined to PEI members.