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
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
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.
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.
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%.
Motorsforum.com is a website by car enthusiasts for car enthusiasts. It is not affiliated with any of the car or spare part manufacturers or car dealers discussed here.
All logos and trade names are the property of their respective owners.