The Exxon key to profitability
The news today is that Exxon posted a $39.5 billion — with a B — profit last year, making it the largest ever corporate earnings for a single year in U.S. history.
Just how much is a billion? Here’s a simple explanation.
A million dollars is a stack of freshly printed $1,000 bills stacked four inches high.
A billion dollars is a stack of freshly printed $1,000 bills stacked 33 stories high.
A trillion dollars is a stack of freshly printed $1,000 bills stacked 63 miles high.
In other words, when you hear the government talking about overspending their budget by a trillion dollars, realize that you could drive for an hour over a stack of $1,000 bills at posted highway speeds knowing that every four inches you pass is the equivalent of $1 million.
But, back to Exxon. On my way to work today, I passed an Exxon gas station and instantly realized how sneaky the oil company is — and it’s that craftiness which holds the key to their profitability.
If we adopted the Exxon approach to pricing, the RV industry could also enjoy record profits. Simply add 9/10th of a cent to everything dealers sell — every part, service work order, new RV, rental hour, etc. You’d be surprised at how quickly things would add up.
The average RV dealer carries about 5,000 SKUs in inventory in the parts store alone. Assume each hook has at least six items on it, and the dealer turns the inventory four times a year. By adopting the Exxon pricing plan, the average dealer would drop $1,080 to the bottom line just on parts sales every year (5,000 x 6 x 4 x .009). Multiply that by 3,500 active RV dealers and the RV industry would enjoy a $3.78 million windfall on parts alone. Now add service hours, LP gas, dump charges, campground registrations, etc., and who knows what could happen. The industry might be able to pool together and buy all the available National R.V. stock.
Well, maybe it’s not a windfall. But can anyone explain why oil companies continue to get away with such deceptive pricing strategies. Perhaps there is someone much older than I who can explain how this practice started in the first place.
The bottom line is that I tip my hat to Exxon and the other oil companies for developing a pricing strategy that collects nearly one penny under the consumer’s radar for each of the 320,500,000 gallons of gasoline sold in America every day. That $2.9 million a day or more than $1 billion a year.
Hopefully the government won’t see this as an exciting new taxing strategy.
February 3rd, 2007 at 8:49 am
Now isn’t that a wonderful incentive for corporate America to make a lot of money so that Hillary can decide how to spend it. Her healthcare fiasco didn’t work so now she’s going to try to run the finances of companies that drive our economic engine, provide jobs for our citizens, and reinvest this money in growing their business. What a sorry excuse for a presidential candidate.
February 2nd, 2007 at 12:58 pm
Here’s the Democratic response to corporate profitability:
Hillary tells DNC Winter meeting: ‘I want to take those profits, and I want to put them into a strategic energy fund’
What should American corporations do now? Spend their profits so the government doesn’t confiscate it or keep their profits to improve the fortunes of millions of stockholders?
February 1st, 2007 at 3:08 pm
It is not the .9cents on every gallon that is the marketing genius that makes the oil companies these record profits. It is the fact that when the hurricanes hit the gulf coast and the oil companies started charging $3-4/gal, it became the new normal in the eyes of the public. So when they dropped the prices by $.50/gal, the public became relieved that fuel prices had dropped significantly and life was all good again, when in fact the prices were still well above what the pre-hurricane prices were, but the public is no longer complaining beacuse it is still cheaper than when it was at it’s highest.
The US has nothing to complain about though. Here in Canada, the fuel prices can fluctuate as much as $.15/litre (that’s $.57/gallon) overnight, and does very regularly. Two days ago gasoline was at its lowest in over a year when it fell to $.72/litre. The very next morning the price had jumped back up to $.87/litre. That kind of variation in price happens on a day to day basis, and it is at the point that we now just stand idly by and watch it happen, knowing that the oil companies have us in the palm of their hands.