5-26-08 by dugan
I’ve heard from people who represent gas station owners that oil companies allow only a few cents of profit on gasoline sales, in order to maximize corporate profits. I never quite understood how the controls worked, but the Washington Post laid it out in gory detail on Sunday. The upshot: Exxon gets to make nearly $41 billion a year in profit, more than any other private corporation in the world, and the owners of its branded gas stations get both usurious rent increases and price controls.
From the the story, by Steve Mufson:
Awash in Profit, Exxon Fights for Pennies While Raising the Rent
Every time Sohaila Rezazadeh rings up a sale at her Exxon station on Chain Bridge Road in Oakton, her cash register sends the information to Exxon Mobil‘s
central computers. If she raises the price of gasoline a couple of
pennies, chances are that Exxon will raise the wholesale price she pays
by the same amount.Through a password-protected Web portal, Exxon notifies Rezazadeh of
wholesale price changes daily. That way the oil giant, which is earning
about $3.3 billion a month, fine-tunes the pump prices at the franchise
Rezazadeh has owned for 12 years.Now, however, Rezazadeh says she cannot stay in business.
Credit-card fees are eating her profit margins. Exxon, which owns the
station land, last week handed Rezazadeh a new lease raising her rent
about 30 percent over the next three years. She stuck a copy on the
window of her station to show customers who are angry about soaring
pump prices. Rezazadeh has told Exxon that she cannot make money with
the rent that high. Her territory manager’s reply, she said, was
simple: When you go, leave us the keys.…
Major integrated U.S. oil companies — which produce crude oil, own
refineries and sell gasoline — have been reaping billions of dollars
in profit from high oil prices over the past two years, but they are
still working to extract every penny they can from the marketing end of
the business. Exxon Mobil doesn’t break out its earnings from marketing
alone, but its 2007 profits in worldwide refining and marketing —
known as the downstream part of the oil business — reached $9.6
billion, 43 percent of that coming from the United States.
Although Exxon owns and operates few stations anymore — less than
10 percent of the 12,000 Exxon outlets in the United States — it uses
franchise agreements to maintain tight control over stations that bear
its brand.…
Even some of Exxon’s successful and loyal dealers complain. Jerry
Daggle owns five Exxon stations in Northern Virginia, and even though
they have different competitive conditions and prices, "Exxon magically
lets me make about 8 cents a gallon" at each one, he said.
The Post’s story is just about Exxon, but the stories I hear indicated all the major brands do it. The gas stations exist at the whim of the king, and to feed the king his riches.
What oil companies are doing to dealers amounts to regulation, stiffer than any government regulation on an electric utility company, for instance. Yet the oil companies and refiners throw hissy fits and spend hundreds of millions of dollars on lobbying and advertising to kill any industrywide oversight that would benefit consumers and the economy.