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Saturday, April 20, 2013

Momma - What's a gas rebate?

With everything going on in Cleveland sports lately, the topic of rebates for gasoline seems to be a recurring theme. People seem to have a lot of questions about how the process works and feel like it's a shady business practice.  I thought I'd take a little of your time this morning to explain fuel rebates; what they are, how they work, and why a company offers them.  I am not referencing any specific company or it's policies, but providing a general understanding of rebates so you can be more comfortable with the stories flying around in the media this week.

Most of us are familiar with product rebates.  Companies offer rebates as an enticement to you, the customer, so they will get your business instead of a competitor.  Whether it's a car, a set of tires, or a computer, the process is the same:  You buy the product, the company then gives you the rebate money. Sometimes it's done on the spot, sometimes you have to mail-in a form, but either way, you have to buy something first.

Seems simple enough and we are all familiar with these type of rebates.  Fuel, however, is a bit different.  The easiest to understand is the rebate you get by using points accumulated through a rewards program, like Speedy Rewards Points or Giant Eagle/Get-Go. You may not think of this discount at the pump as a rebate, but that is exactly what it is. An incentive from the company to shop at their store instead of someone else's by promising you a reward later. By shopping at their store, you earn points and those points are translated into cents-off per gallon. You buy merchandise from them and later you get a rebate in the form of a fuel discount.  The actual dollar amount is up to you:  did you fill up the tank?  only put in 10 gallons, forget to use the points and they expired? have your teenager use your points to fill up THEIR car?  (yeah, it's happened to me - dang kids!)

In the truckstop industry, it's a very similar thing. It's just a bit complicated because the driver who is doing the "shopping" isn't paying the fuel bill. If a trucking company is getting discounts from multiple truck stop chains, they are saving money each time the driver fills his truck with diesel so they don't care where the driver goes. Now, the driver is in control of where he does his shopping. Remember, these truckers are on the road nearly all year. They buy clothes, food, gifts, etc at truckstops. They spend quite a bit of their money in these stores. And they get to choose where they go.  Mostly.

Now if Smith Truck Stops offers the trucking company 2 cents off per gallon for the first million gallons and then increases that to 4 cents per gallon once they hit the million mark, the trucking company will be directing it's drivers to Smith Truck Stops. They promise this as a rebate, paid quarterly or yearly.  Drivers don't get a discount when they fuel, but the company gets the payment later on. Same as a typical rebate: buy first, rebate later.

If Jones truck stops offers them 2 cents at the pump on each purchase, they are equal for the first million gallons, but since the company wants to earn the double discount, they will encourage their drivers to fuel at the Smith sites.  This gets the trucking company a large check at the end of the year, and gets the Smith truck stops guaranteed customers who are spending money in their store.  And let's be clear on this: margin on diesel fuel is nice, but the big money is in things like twinkies, blue jeans, crystal figurines, etc.  When ANY gas station offers milk at $2.00 per gallon or gasoline at a 3 cent discount for the week, it's because they want you to come inside and buy the high-margin items. You really didn't think they were giving stuff away for free, did you?

Fuel Rebates at a national truck stop chain are designed to get more customers into the store. Just like any other business, they are incentivizing the fuel to get you inside to buy the good stuff. The problems come later during the accounting phase. With a simple rebate on tires, I mail-in the form and I get $60. With gasoline rewards points, every receipt I get tells me how much of a discount I've earned and when it expires. Unfortunately, in the truck stop business, accountants have to run reports and balance receipts and compare notes to see who is owed how much.  That's where things seem to be getting complicated.

This all being said, there is a certain amount of trust involved in the process. I trust that my grocery store receipt has the correct amounts on it.  Frankly, I've never held on to all of my receipts and added them up to make sure Giant Eagle isn't shorting me on my fuel perks.  They could be, and I'd never know.  Who would? And if it is wrong and I never noticed, is that my fault or theirs? Either way, it's small peanuts compared to other things.

Which brings me to the recent issue we are hearing about in Cleveland this past week. It involves one basic question:  Did a truck stop company make accounting mistakes and short-pay customers?  Or did they purposefully short-pay those customers hoping they would never "total up their receipts" and notice the mistake. That is the difference between an honest mistake and fraud.  Or between civil and criminal actions. I am not nearly qualified to judge. I just wanted to explain a bit about rebates to you, so as you hear more information in the coming weeks, you have a better understanding of the "whys" and "hows" of the rebate process.

Respectfully Submitted,

Cleveland Kate