A shift by price-conscious motorists to less-expensive grades of gasoline is cutting service station profit margins to the bone and causing a financial squeeze that some experts say could lead to a shakeout in the gasoline retailing business.

Service station industry officials say many local motorists who used to buy premium grades of gasoline, on which gas stations make a healthy profit, have switched to cheaper, much less profitable, low-octane gas.

Regular unleaded now accounts for 60 percent of gasoline sales in the Washington area, according to some estimates in dealer circles -- up from 40 percent two months ago.

"There has been a shift," said Robert J. McCool, vice president of marketing at Fairfax-based Mobil Corp.'s U.S. refining and marketing division. "As prices go up, you see people moving down from super grades."

The Lundberg Letter, a gasoline marketing newsletter, reported in late August that the average Washington-area gas station was losing 1.4 cents on every gallon of self-serve unleaded regular it sold, compared with a 4.6-cent profit on premium -- and a 5.2-cent profit on unleaded regular in early July.

"Dealer margins are really being squeezed," said Roy Littlefield, director of the Greater Washington and Maryland Service Station and Automotive Repair Association, a trade group. "They're selling 60 percent {of their gas} at a loss."

At the same time, customers who once paid 20 cents to 50 cents a gallon more for full-serve gas now are pumping it themselves, cutting further into gas station profits. Full-service sales, which have dropped to about 20 percent of the total in recent years, now are really skidding, industry officials say.

"We're hurting on full-serve," said Wilson Beach, who operates Beach's Hillcrest Chevron on Marlboro Pike in District Heights. "I've always had a good full-serve business, and it's fallen way off." Beach said his full-service sales have dropped to 10 percent of his total revenue from 30 percent two months ago.

Although the popular public perception is that gas station operators are gouging consumers, dealers say, they have been hard-pressed to pass on their own rising fuel costs to customers in recent weeks. To call attention to the pressures dealers face, Littlefield's organization held a rally of several hundred Maryland service station operators in Bowie yesterday to "tell their side of the story on high prices."

Since Iraq invaded Kuwait Aug. 2, sending oil prices skyrocketing, the average price of self-service unleaded regular gasoline in the Washington area has risen 30 cents, to $1.38 a gallon, according to the American Automobile Association's Potomac division.

Most analysts believe prices will continue to rise until oil companies that have held back some price increases to avoid a political backlash have fully recovered their increased costs -- as much as 20 cents a gallon more at current world crude oil prices.

The financial squeeze and accusations of gouging are making gas station operators defensive and worsening the traditionally testy relationship between the dealers and the major oil companies who supply them.

Gasoline distributors and dealers are showing more support for legislation to make it illegal for oil companies to own and operate gas stations. This policy, known as "divorcement," already is law in Maryland and the District, and it recently was endorsed by the Petroleum Marketers Association of America, a distributors' trade group that traditionally has opposed such legislation.

Some gas station owners and operators say stations owned and run by big oil companies are unfairly undercutting their prices to build market share. Others say the companies are making it hard for dealers to make a profit by raising rents and other costs on stations they own and lease to dealers.

"They'll raise the price to us, and yet to the stations that are operated by the company, they're constantly underpricing us," said David Haddad Sr., an Amoco dealer in Pleasant Hills, Pa., a Pittsburgh suburb, who is president of the Service Station Dealers of America, a trade association. "They're cornering the market."

Oil company officials, however, deny that they are trying to put non-company-owned dealers out of business.

"The perception is that these people are making a lot of money," said McCool at Mobil. "Rather than being awash in cash, our major concern is for the financial health" of dealers.

McCool said Mobil is trying to prop up dealer finances by helping dealers offer additional profitable services, such as quick-oil-change bays, and giving dealers breaks on credit-card processing charges.

Mobil and other oil companies also have toned down their advertising and promotional activities to reduce the public backlash that dealers always feel first at a time of rising prices.

Littlefield said the oil companies do seem sympathetic to the dealers. "They seem to be, at least on the outside, very concerned about what's happening to the dealers right now," he said.