Is it possible to drop your gas price & stay competitive?

[BIgJohn83]

I wonder if it's possible for an oil co. or maybe a couple of oil cos to band together and drop the price of their gasoline... I'm not really into the facts and economics behind the industry, but supply and demand being what it is... if EXXXon is at $4 per gallon, and Citgo decides to drop to $2 per gallon, who will get more customers?.. it means a smaller paycheck at the end of the year, but what the hell can you buy with $400 million that you can't buy with $200 million? Obviously you can't sell a $5 meal for $2.50 and stay in business, but imagine the good press and lasting financial benefit of being the oil company that relieved the burden on the American people...

[lauren_victoria]

1. I have thought a lot about this too. I mean if companies lowered the price

obviously they would have more customers. Which could end up making them more profit, since they have a higher quanitity of customers. But if competitors are making more money of a few customers, then it's not fair. But it would still be good hearted for them to lower the price, they'd get a lot of press and a lot of nice emails.

[HockeyMom]

2. Bought at cheaper price days ago

the station MORALLY should sell at the cheaper price until supplies run out and they get their new shipments. Obviously, they don't. They watch what the day to day price of crude is and jack up their prices by the day.

[BIgJohn83]

5. This is even bigger than just the local station...

What if the Oil Co. sent a memo saying, as a Citgo Gas provider your price per gallon will not exceed $X per gallon... Maybe even offer a range of pricing, naturally some folks pay a higher price because of location, but "This is our drop dead price".

[napi21]

7. It's NOT the station who's make the $$$. They are told what to charge,

and even the station owner has to incease his price when the supplier tells him the next tank full is going to cost $XXXX. The station only makes a few cents a gal.

[napi21]

3. It all depends on PROFIT!

Yes you CAN sell a $5.00 meal for $2.50 IF it only costs you $1.00! At the $5.00 price, you'd get wealthy a lot quicker is all.

Same thing with oil. Almost every other company very successfully operates on a 15% to 20% prifit margin at the most! Many are quite happy with 6%.

If I remember right, the oil co. ceo's who testified at a congressional hearing a feww months ago were declaring above 35%!

[BIgJohn83]

9. I am an idiot when it comes to economics...

but 20% is generally accepted as a good profit margin? So 35% is over and above the 'good'. I guess greed won't allow them to cut into the 15% over and above to ease our pain.

[napi21]

12. That's right, and that 35% is in reality much higher than that too.

When the $$ is rolling in, as an accountant, you expense all those dirty little secrets you've been keeping on the books as inventory, or PP&E, and you get real generous with bonuses to ALL your Senior Mgmt too! You don't HAVE to watch how $$ is spent or on what because there's lots of it!

[brmdp3123]

17. I don't think that 35% figure is correct.

Last year profit margin was 10.87%

http://finance.yahoo.com/q/ks?s=XOM

[napi21]

20. Perhapse what they were discussing at the hearing was 1 or 2

most recent qtrs. I remember the number, and one of the female Dems really beating up on the CEO's for an explaination of how it's possible for raw crude to be so high, gas prices at an all time high, bonuses at an all time high, and they were still showing such a high profit margin! BTW, they all danced around that question with all kinds of "inside the industry jargon, but never answered the question!

[Telly Savalas]

21. Actually Exxon's net margin in 2005 was 10%

Over the last 5 years, it'd been hovering in the 5-8% range.

Other big oil companies like BP, Chevron, and Royal Dutch Shell have generally performed a tad lower than this.

The low margins make sense though, because the inelastic demand of their product means that its not an incredibly risky business.

[ayeshahaqqiqa]

4. Local distributors have some leeway

up until recently, there were basically two gasoline distributors in the town where I work. Even though they get a state gasoline tax break (because they are in a county bordering MO), they kept their prices higher than surrounding places and about a dime higher than prices in MO. Even now, when they have a little competition, they keep their prices artificially high for the area. I know because I drive around a bit and go to other towns and counties bordering MO.

[Iblis]

6. What do they owe YOU?

Who asks about what they need anymore? It's about what you can get.

It's not just about CEO's, it's about stockholders.

The Capitalist system ultimately means taking from everyone what you can get.

Do unto others, then split with your platinum parachute.

Is Exxon going to show their shareholders the nice emails at the end of the quarter? (YEAR? Who talks in years? It's all about QUARTERLY numbers!!!)

okay, I'm done. :rant:

[BIgJohn83]

13. LOL...diggin the little Rant button...

but I'm not talking touchy feely emails...bla,bla,bla... is it economically or financially advantageous in the long term, to drop your prices now? Will that associate your name with being on the side of the American public? And will that association bring about long term customer loyalty? MY grandfather only ever bought Fords, because 'Ford always did right by him'.

[rpannier]

8. It depends on how its done

It can't violate anti-trust laws by doing so.

[RamboLiberal]

10. Anyone remember local station gas wars?

Where stations in a locale or strip of road would battle for weeks or even months for the lowest price and hence business.

Now there are so few different brands, and everyone is basically the same price it does look like collusion and massive monopolies.

I think gas could be sold cheaper or as a loss leader. In fact a local grocery chain is using it for some very effective marketing in my area. For every $50 you spend at the chain you get .10 a gallon off and you can accumulate the discount. A couple of times it allowed me to buy gas for under $2 a gallon. They have me buying everything I can at their store. Heck I'm even buying gift cards there for myself to other merchants just to get the gas.

[Historic NY]

11. Exxon/Mobil could.........

they topped Walmart in profit for the year. Unfortunately there are very few independant companies in the oil business anymore. The days of the old gas wars were pretty much between various companies and usually amounted to only a few cents here of there. Most people in the gas business do not make as much on fuel as they do selling other stuff.....thats why you find few true gas stations. My buddy would just as soon shut down his pumps for the trouble and expense of keeping them up vs profit. He makes more fixing cars and hates being distrubed by the gas sales. Then again he spent about 200k twice to bring his tanks back into compliance.....this is twice because some rocket scientist discovered that the manufactured tanks of 10yrs past or so which were mandated were no good down the line. So if you ask if it profitable he'd probably boot you out the door.

[stevekatz]

14. they couldn't drop it by that much

No oil company could turn $4 gas into $2 dollar gas because they actual profit margin is about 10%
So on $4 gas thier profit is about 40cents, the gas station only makes a 1 or 2 cents per gallon.

So basically, on $1 gas the make 10cents. On $4 gas they make 40cents.. huge increase right? record profits all around.
but lets say they stuck to that 10cents, $4 gas becomes 3.70 cents.. A difference yes, but not massive to me the consumer.

Where's the rest of that 3.70 going? Costs of producing/refinging/transporting it to market, and to whomever extracted the oil.. such as OPEC nations get the lion's share

No business will sell gas below cost on a large scale.

The moral of the story is, we have to get over our oil addiction. Becoming energy independant should be our national goal

[brmdp3123]

15. Amen to that, brother.

[BIgJohn83]

18. I agree with the idea that we need to depend less on fossil fuels...

but what kind of time frame does that call for? When does the US become self sufficient at producing it's own fuel? I heard Brazil is heavily into the idea of producing ethanol from sugar cane, and their goal is to be self-sufficient...given our dependence on oil...what will it take for us to follow the same track as Brazil?

[stevekatz]

19. we could never

Grow enouph sugar or corn(US) to become energy independant, there isn't enouph farmable land in the entire country.

A combination of nuclear, wind, solar, and hydrogen is our best bet.

[Telly Savalas]

22. In many jurisdictions there are laws against selling gas below cost

It's a predatory practice. A large established firm is in a better position to temporarily eat the loss than its smaller competitors, so it could potentially drive them out of business by doing so. Then after the competition is gone they can jack up prices all they want.

[Ilsa]

16. If there are two stations next door to me, I'm going to the one where

I don't have to go inside. It isn't worth 60 cents to me to have to stand in line behind five people paying for gas and buying Lotto tickets. I'll always go to the "pay-at-the-pump."