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Sunday, May 25, 2008

Gas Profits Not High Enough for Exxon

You see it in the papers and news reports all the time that the price of gas at the pump is market driven but that is not the complete truth. All of the good old boys on Wall Street and in the boardrooms of big oil companies would prefer to have you believe that that factoid is the truth. If you believe that the price of gas and oil is market driven then you need to check into your local UFO outpatient clinic. Health insurance is not required.

Traveling the streets of your city and town and you see the prices at the pump proudly posted in big numbers at the curb where neighboring stations are almost always a penny difference per gallon in pricing. That would be simple competition at its basic form. Now travel five miles down the street where you just might see the same name brand gas station but the prices are higher or lower? Did the super tanker trailer truck from the same corporation come from a different distribution facility? Chances are that the same tanker truck delivered the exact same gasoline to both of the gas stations on the same day. Zipping over to the Washington Post you can see what Exxon thinks and how they treat their franchisees.

Peeved at Prices? Don't Blame the Dealer
Awash in Profit, Exxon Fights for Pennies While Raising the Rent

By Steven Mufson
Washington Post Staff Writer
Sunday, May 25, 2008; Page A01

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. - Washington Post

One of the things I found interesting in this article is the manipulative factor that Exxon has built into its franchise agreement. Every facet of the business is dictated by the Big Oil company down to the exact location as to where you the consumer will grab your favorite candy bar from. That’s no different than being the owner of a Big Burger franchise. But the Big Burger franchise do not have different prices from neighborhood to neighborhood for the same burger and fries do they?

Then there is the mega corporation making ten billion in profits per quarter that manipulates it franchise owners to such a point that supposedly only an eight penny margin is allowed by the Exxon station owner. The only ones making a sizable and excess profit on gasoline at the pump is Exxon. That still isn’t enough cash flowing into Exxon so the stations where they own the land Exxon is allegedly pushing the rental or lease fees up thirty percent simply because they can. That would be similar to those old comedy skits starring Lilly Tomlin as a phone operator where she snorts at the customers complaint and simply states “We are the phone company sir, we can do whatever we want!”

One of the only assumptions you can get out of reading the article is that Exxon sees a bigger piece of the greed pie down at the local franchise level and is slowly pricing them out of business. When one station owner is told by the Exxon district manager to leave the keys for them when they are forced out of business then the writing and business plan is on the wall. Ten billion in profit is not enough for Exxon and they want more!

Pay attention Congress! It’s starting to look like the Exxon Mobil merger was a huge mistake and the all powerful corporation born of that merger has started to eat its young to get even fatter. Time to break out Teddy Roosevelt’s big stick and break up the mother ship.


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Anonymous atua utu said...

Exxon is not alone in their control of every aspect of the franchise.
In New Zealand the four main oil companies do exactly the same. One even takes all the rebates(advertising space payments) that the tobacco companies etc give to retailers. Certainly the oil companies have no problem in changing wholesale prices to individual retailers if they step out of the company promoted price bands.
Have a look at this link to see what one oil company in Australia thought of its retailers.

1:38 AM  

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