NEW YORK (CNNfn) - Priceline.com's plan to sell discount gasoline over the Internet met with mixed reviews Friday: some oil companies refused to participate, while others have already signed up for the plan.|
Specifically, ExxonMobil and Chevron refused, but Sunoco and Citgo retailers, such as 7-Eleven convenience stores, have said they will join and BP Amoco said it was still considering the idea.
ExxonMobil Corp. spokeswoman Laura Kerr declined to detail the company's reasons for making the decision, but said that she thought a Reuters story Friday morning was fairly accurate. Reuters reported that several oil companies were not participating in Priceline.com's plan, listing the reasons as antitrust laws and fear of violating some states' laws against under-pricing gasoline.
Chevron (CHV: Research, Estimates) told CNNfn that it would not participate in the plan because it didn't think enough consumers would log on to the Internet just to get cheaper gas.
But in an interview on CNNfn's Moneyline News Hour Friday, Priceline.com founder and co-chairman Jay Walker said the company already has over one million customers signed up for the program. [142K WAV or 142K AIFF]
He also pointed out that the company did not have broad-based support from the airline industry when it began its "name-your-own-price" program for airfares.
"When we started Priceline for airline tickets, we didn't have United or American Airlines. We didn't have the giants," Walker said. "But consumers are very flexible about where they get gas. If they can't get it at Chevron or Shell, they'll drive to another gas station."
Under the plan, consumers would log on to Priceline.com's WebHouse Club, name a price for gas, have the total amount of their purchase taken from their debit or credit card and get credit on a "Blue Priceline Gas Card." They'd then take that card to the nearest participating gas station and use it to pay for gas. Priceline.com claims customers could save ten to 20 cents a gallon with this system.
Walker said the company will start distributing the cards on Saturday, and he expects all of the consumers who are currently signed up for the program will receive them within six weeks.
One Wall Street analyst said it would be a mistake for major oil companies to be involved.
Lehman Bros. analyst Paul Cheng said there was a simple reason for not participating in the plan, "It really doesn't make sense."
"Selling gasoline on the street, you have a profit margin of 8 cents to 15 cents a gallon," Cheng said. "Selling gas at a discount doesn't work because you lose that margin."
Cheng also said that major oil companies such as ExxonMobil (XOM: Research, Estimates) and BP Amoco are aware of their brand image and if they suddenly sold their product at a discount they may be seen as major discounters, which could hurt their image on Wall Street.
"What you're attracting [with discount pricing] are people who are price-sensitive," he said. "Those aren't the customers these companies need to associate with."
Nevertheless, Sunoco (SUN: Research, Estimates) said it was going ahead with Priceline.com's plan. "We are very interested in e-commerce alternatives," a Sunoco spokesperson told CNNfn.
BP Amoco (BPA: Research, Estimates) spokesperson Sarah Howell said the plan is "under consideration" by the oil company. She said that other oil companies' decisions not to participate would not affect BP Amoco's course. "We like to make our own decisions," she said.
Citgo spokesman Kent Young said Citgo, a Venezuelan company which wholesales gasoline but does not own gas stations, would not participate in the plan but that certain Citgo retail outlets could.
"We don't own or operate any of the branded Citgo outlets," Young said. "We took a look at the Priceline.com program, but concluded that we didn't think we should make that decision for those marketers out there."
Instead, Citgo's marketers will each decide independently whether or not to join Priceline.com (PCLN: Research, Estimates). Young mentioned 7-Eleven stores as one retailer that had already signed up for the plan.
Priceline.com's stock closed Friday at 44-3/4, down 2-5/16. ExxonMobil's stock was up 39/128 to 81-3/4, Chevron was up 2-7/16 to 93-5/16, BP Amoco was up 3/8 to 54-11/16, and Sunoco was down 1/4 to 32-1/4.
--CNNfn's Mindy Spangler and Adrienne Klein contributed to this story