Exxon: How much is too much?
Filed under: Transportation, Wealth
At the beginning of this month, Exxon/Mobil announced its profits for 2007. Being a good-hearted, eternally trusting sort, the kind of guy who believed in the Easter bunny until he was old enough to drive, I had hoped that Exxon might have made a tidy, respectable profit in 2007. After all, with gasoline prices soaring, unemployment on the rise, a recession looming on the horizon, and people paying record prices for heating oil, one would hope that an oil company might be willing to sacrifice a little bit of profit in return for a productive economy and a contented public. Only the most self-important, short-sighted "corporate partner" would use the current situation to gouge the consumer, right?
Did I mention that I believed in Santa until I reached the age of 21?
Well, I was really, really, really wrong. In 2007, Exxon netted profits of $40.6 billion, an increase of a little more than a billion dollars over 2006's revenues. According to The Washington Post, that amounts to earnings of $4.6 million per hour. It is also the largest yearly profit ever reported by a publically-traded company. Ever.
I pumped a lot of gas in 2007, so I have to wonder how much I contributed to Exxon's bottom line. For that matter, you might want to ask how much money it sucked out of your pocket as well. While we're on the subject, it's worth noting that, while Exxon's the biggest offender, it is not the only gas company to reap obscene profits from the gas crisis: the profits of the five largest international oil companies have tripled since 2002.
According to Exxon, last year's record earnings were the product of long-term investments and disciplined corporate stewardship. I, on the other hand, would attribute them to corporate profiteering and would liken Exxon's actions to the pirates who jerk up the price of penicillin during wartime.
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Bruce Watson is a freelance writer, blogger, and co-author of Military Lessons of the Gulf War and A Chronology of the Cold War at Sea.
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Reader Comments (Page 1 of 1)
2-13-2008 @ 3:34PM
Fred Flintstone said...
Gouging? Obscene profits? You act as if the gas prices are controllable by the oil companies rather than supply and demand (OPEC aside). If $4/gallon (or whatever you pay) is worth it to you, which it obviously is since you're paying it, how can you claim that the price is too high? If people didn't pay $4/gallon, prices would drop. It's simple supply and demand. Exxon's profit margin is 10%, which is very normal in American business. Compare that to Microsoft's 28% profit margin or Google's 25% profit margin. Are Microsoft and Google "gouging" or generating "obscene profits"?
There's a rule of thumb in finance and economics: when someone accuses a company of gouging, stop listening to them because they don't understand simple economics.
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2-13-2008 @ 3:57PM
FRANK LAVENDER said...
HOW DOES SUPPLY AND DEMAND APPLY HERE WHEN YOUR IN A LIMITED CHOICE. CONSIDER YOU NEED GAS TO RUN YOUR VEHICLE AND HEATING TO HEAT, DOES THAT NOT PUT EXXON IN THE DRIVER'S SEAT. DON'T GET ME WRONG, PROFIT IS NOT A DIRTY WORD BY ANY MEANS..........BUT HOW ABOUT FAIR PROFIT. I PERSONALLY AM IN CAR SELLS(LEXUS) AND HEAVEN FORBID YOU SHOULD ASK A BUYER TO PAY MSRP!
TO IMPLY THAT WE TRULY HAVE A VIABLE CHOICE IS RIDICULOUS. EITHER YOU HAVE A LOT OF EXXON STOCK, ARE EXXON EXEC, OR LIVE ON ANOTHER PLANET. OH, BY THE WAY, WHO DOES ULTIMATELY CONTROL THE PRICE OF GAS?
2-13-2008 @ 4:29PM
troy.hakala said...
I don't own and never have owned Exxon stock. I am not and have never been an Exxon employee. And I do live on Earth, I've never even visited another planet. I'm just someone who understands economics and I don't get emotional when I hear companies making profits with lots of digits.
Supply and demand controls the price of gas, in fact, it controls the price of everything. If the oil companies control the price of gas, why don't they set it at $5/gallon, $10/gallon or why not just go up to $1000/gallon and really make some huge profits? You don't have a choice but to pay it, right? If they control the price and they don't set prices that high, then you have to admit they're being nice. They don't set prices that high because they can't, because they don't control the price. Supply and demand controls the price.
You aren't in a limited choice. You chose to buy a car and to drive a car. You can walk, ride a bike, take the bus, buy a more fuel-efficient car, etc. You do have options, but you imply that you're being forced to buy gas. You WANT to pay less, but that doesn't mean that you have no choice.
If you sell a Lexus for invoice price, the dealer made 3% and Toyota makes 6%. 9% profit is built into cars at invoice. MSRP prices on a Lexus are typically an additional 10% over invoice (almost 15% for an LS). So that's why people don't like to pay MSRP for a car, but I'd bet that you've sold several Lexus' for MSRP. But even if not, I'm sure you're doing fine financially or else you'd be in another line of work (or are you a slave to the car industry the way you're a slave to the oil industry?). ;)
And FWIW, I own a Lexus LS460 and love it! :)
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2-13-2008 @ 7:02PM
CSCM said...
Yes, I want to spend less for gas. I work 10 miles from my home. There are no buses, trains or subways. Biking to work isn't an option either. Instead of paying $3.45 in town, I fill up in the city @ $3.06 for gas. Instead of a gas guzzler SUV, I drive a mini van, which does get better milage than a SUV, and it was cheaper, too. With 4 kids, I do need a larger vehicle-a sedan wouldn't cut it for us. The article is pointing out that there gets a point where the consumer is stuck-gas is an expense that I can't reduce any further (I already and always have combined trips, trying to keep the car in the driveway as much as possible). I feel the same way about the heating oil prices we've been paying and my electrical rates. Ugh.
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2-14-2008 @ 10:55AM
Fred Flintstone said...
What gas mileage does your minivan get? 20MPG? What was the price of gas when you thought gas was reasonably-priced? $1.50/gallon?
You drive 10 miles each way to work, 20 miles/day. The rise in gas prices has cost you $1.50/day, or $31.25/month. If that's breaking the bank, you'll have to look to other ways in your budget to cut expenses.
Driving yourself to work in a minivan seems wasteful. Can you get others to ride with you to share the cost of gas?
FWIW, gas prices today are the same as they were in the 1970s, adjusted for inflation. In real dollars, gas prices have not risen in 30 years! Gas prices will fall again, but that's an economic lesson I think few are willing to pay attention to. Face it everyone, demand for gas is high because everyone likes to drive their cars so we're not going to see $1/gallon ever again. If the high cost is not worth it to you, you'll find ways to use less gas. But if you refuse to "suffer", then you are admitting that gas is still less expensive to you than the alternative.
2-13-2008 @ 7:42PM
Gump said...
I don't see Exxon's profit growth as huge or out of the ordinary.
$1 billion growth from their 2006 profits is about 2.5%. Impressive, considering how large Exxon's profits already were, but I'm sure there are plenty of other companies that posted that amount of growth or more.
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2-13-2008 @ 8:14PM
PMW said...
I understand spply an demand. What I would like to see is Exxon and other oil companies, do is put large amounts of their profits into research for cleaner and alternative energy sources for vehicles. f we are at peak ol then tey re making s muc mone a ssibe right now and i not sustainable. As soon asI find a oil cpmany thadoes that Iwill spend all my money there and never go to other gas stations.
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2-14-2008 @ 10:54AM
Fred Flintstone said...
Companies do put their profits into R&D. Many people hear "profits" and assume the execs are drinking champagne and eating caviar with the money. Many oil companies are also investing in alternative fuels, they'd be crazy not to try to find a cheaper way to make fuel because searching and drilling for oil is very expensive.
But going to another gas station isn't going to help you vote for that gas company. All gas stations get their gas from the same trucks (follow one around one day to see for yourself), Exxon doesn't sell "Exxon gas", Shell doesn't sell "Shell gas", etc. Some brands put additives in (such as detergents) after it's delivered but other than that, gas is gas.
2-14-2008 @ 6:06PM
CSCM said...
Fred-
Understand that our family budget is being squeezed in many areas, so all parts of the budget are scrutenized for areas to reduce. My electric rates went up 100% (due to conservation measures, we're hit with an actual 86% increase) or $144/mo; gasoline went up and is costing us an additional $94.38/mo for our 2 cars-just for work related commutes, based on miles driven to/from work and # of days worked/year-I didn;'t factor in any additional drives esp as many of our errands are done on the way home from work; our fuel oil went up 100% and is costing us an additional $103.13/month. How many can handle a monthly increase of $341.51-never mind grocery prices? As far as carpooling goes-there is only one other co-worker who lives on the other side of town, near the parkway-wouldn't work and I have a flex schedule, so that wouldn't work. DH & I live here instead of down county, due to lower priced real estate. Houses where we work go for at least 1 million
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2-14-2008 @ 8:21PM
Fred Flintstone said...
I understand the price has risen and it affects your budget. The cause is that the population that has placed a higher value on oil. Get everyone else to not want gas and the price will drop and you'll meet your budget. All the oil companies can do is make a less desirable product so people want it less.
3-13-2008 @ 3:15PM
kerijay said...
It is a sin what their CEO's make, alone with the insurance CEO's and drug CEO's while people can't afford health ins and feed their family.
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3-13-2008 @ 3:46PM
Bruce Watson said...
Kerijay-
You're absolutely right; while the CEOs have made tons of money for their companies, the human cost of their policies has been brutal.
3-23-2008 @ 12:43AM
Zafa said...
Take a look at the slideshow on Exxon Mobil on my slide share website. If we still don't understand where our money is going when we are paying $4 at the gas pump then we never will.
http://www.slideshare.net/zafanoor/follow-the-money-why-are-you-paying-4-at-the-pump/
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4-16-2008 @ 8:42PM
Thomas said...
One of the top executives from a New Zealand oil company here was yesterday asked why oil prices have risen so high, and he said that it is the people pulling it out of the ground that are making all the profits.
This executive was also reminded that Exxon has apparently made a profit of around fourty billion dollars in the past year, while at the same time Mr and Mrs áverage' are suffering like hell trying to pay for their petrol, so where do President Bush and company stand on this issuse ....isn;t it time to legislate against these perverse and unecessary oil company profit levels.
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