03 May, 2006

Businessman admits the goal of business is making money!!

The horror of it all...

On the Today show this morning, Matt Lauer was interviewing Rex Tillerson, the Chairman & CEO of Exxon-Mobil. Of course the issue of increasing gas prices was the main topic. In a response to a question on whether or not the gas companies were going to give consumers "a break", Tillerson responded that the primary goal of Exxon-Mobil was to return value to its shareholders. He said quite explicitly: "to make money".

I actually found myself applauding. Especially after I listened to an NPR call-in show last night with caller after caller demanding that the government seize the oil company's "excess profit" and use it to fund public transportation or refund it to consumers.

I found Mr. Tillerson's statement of fact to be refreshing, but is it really the case that anyone needed to say it? Isn't it something we should already know? Is economics not even an elective at high schools and colleges anymore? Is it really the case that the average American (and no, I don't mean the average Jerry-Springer-watcher) doesn't understand supply and demand? Doesn't understand basic Capitalism 101? Or is it just the usual, lazy, "I don't care what's going on unless it touches me. Then, I don't care who I hurt, what laws I have to break, or what principles I must violate in order to get rid of it."

I, for one, am dead-dog tired of hearing citizens and politicians alike whine about high gas prices and blame it on gasoline companies. According to various sources, oil company profit margins tend to be around 7-10%. And they haven't changed much if at all through this latest "crisis". The fact is that oil companies earn a lot less profit (as a percentage of total revenue) than a great many other American businesses and yet we don't accuse other businesses of gouging and try to organize government-sponsored theft of their earnings.

Let's pick a couple of companies more or less at random and do some "back-of-the-envelope" calculations to compare profit margins: Coca-Cola, Proctor & Gamble, & McDonalds. We'll compare them to Exxon-Mobil, BP, and Shell. All figures are in millions of dollars and all are from the companies 2005 10k filings (G.Rev is Gross Revenue & N.Inc is Net Income).

First let's look at the oil companies:

Now let's compare these profit margins with those of the other companies:

If oil companies are "gouging us" for their 8-10% profits, what does that say about these companies? Where's the outrage, I ask?

In reality, of course, there's no "gouging" at all, merely the law of supply and demand in operation. But why on earth should we let facts get in the way of public opinion?

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