"L Alpert" wrote in news: snipped-for-privacy@comcast.com:
No, just that operating margins are about as low as they can go.
There IS a floor, you know. People forget this. They tend to think that if prices are not highly variable for a commodity, that the suppliers are colluding.
Yes, but margins are built off of COGS. I work for a fortune 500 company, and we have sites all over the world. Even amongst sites no one can agree on the exact same accounting methods for figuring LOH and calculating operating income (or loss).
I cannot believe all oil companies have the same operating expenses, as cost per unit produced is based on too many factors, with one of the main drivers being volume. If company A refines 100MM gallons a week, and Company B refines 150MM gallons a week, the overall cost per unit should be driven down. If it is, it sure isn't seen by the consumer.
Price for the oil is only one factor. Operating expenses, LOH, city, state, local taxes, health insurance is just a small example of all overhead that the higher volume manufacturer can use to drive down these other costs in a commodity business.
Higher volume means more personnel, which means better bargaining for health insurance, lower prices for volume of ingredients for processing (except the oil, of course), lower cycle time and more inventory turns. If this isn't happening, then someone is not doing their job.
True. But, the biggest determining factor is what the guy across the street is selling the same commodity for.
The discussion revolves around how stations supposedly make only pennies on the gallon. If that is true, then all are paying the wholesalers about the same. The distributed price from all suppliers should not be the same. There is no true competition in the industry.
selling price, yes, but not cost of operations, and therefore net profit. net profit between two operations/should/ be different!!!
"L Alpert" wrote in news: snipped-for-privacy@comcast.com:
They do. That's the reason they all operate convenience stores and car washes. Margins are a lot higher.
You're making a fundamental mistake here in assuming that competition is manifested as price differentials. It is not, if margins are already very low, as they are.
In this case, the effects of competition have already been realized. If there were no competition, the oil company would have margins more like Microsoft. 27% vs 9%.
Sure. But we *are* discussing pump price, aren't we?
True competition will foster competitive pricing, of which there is none. Not every operation has the same expenses, and thus, the same cost per unit produced, as previously explained.
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