Tuesday’s Quote of the Day

"I'm concerned about higher gasoline prices. The government has the responsibility to make sure that we watch very carefully and investigate possible price-gouging, and we will do just that." — George W. Bush

George strikes his head against one of the great intellectual challenges of capitalism: Defining price gouging. Traditionally, prige gouging has been defined as "when my competitor gets aways with charging more than I thought to charge." In this case it might be defined as ridiculously high prices charged when I have gotten out of the business. Enlightened self-interest, indeed.

Allow me to quote myself from November 3rd of last year:

There is a problem that every company and industry would like to have: Record profits and ever-increasing demand for your product. So why is it that oil companies announcing third-quarter profits are squirming like Kathy Lee Gifford touring a sweat shop? Three reasons. One, they sell a product whose price fluctuations are posted on practically every street corner. Two, the US public’s knee-jerk reaction is to suspect the oil companies of ripping them off at the pump no matter what. Third, well, these profits all came in the wake of hurricane season when gas prices were at an all-time high. In other words – it sure looks like they were making money on tragedy.

gasprices How much money have they made? During the third quarter of this year Exxon Mobil had $10 BILLION in profits. Collateral Damage Sr. did the math on this: The company has been making exactly $74,879.23 every minute.

How bad is this for the oil cos? If you’re an investor, not bad at all. However, in the public marketplace it is a disaster. Things have gotten so bad that an increasing number of those socialists in the GOP want the industry to kick in 10 percent of their profits to pay for winter heating bills. Iowa Sen. Charles Grassley, who chairs the Senate Finance Committee, said he sent a letter to oil companies to "embarrass" them into contributing to the Low Income Home Energy Assistance Program. The wind seems to be blowing extra cold out in the prairie states these days as Nebraska Rep. Lee Terry, a Republican who sits on the House Energy and Commerce Committee, is also calling for Big Oil to pony up.

How do you address this from a marketing perspective? Have your lobbying group claim that A) you really haven’t made that much money and B) it’s really everyone else’s responsibility.

According to a nice article over at AdAge, American Petroleum Institute prez Red Cavaney says "A number of people in Congress are railing against the industry’s windfall profits, but we made only 7.5 cents on a dollar of sales." Cavaney says that on a per-dollar basis, several companies – including Citigroup, Microsoft and Coca-Cola – all made more money last quarter. (And that’s leaving out the undoubtedly equally ridiculous per-dollar profits of Google.) Big Oil also thinks that, really, consumers ought to be more conservation minded. Drive less. Car pool. That sort of thing. Not sure how that will help this winter, though. Can we all share the same domiciles to pool our heating?

Mr. Cavaney is in one of those impossible positions periodically foisted on industry leaders by capitalism. Clearly he had to say something. Just as clearly his industry is being pilloried for being successful. What do you say? While his response of "No, we aren’t" was never going to fly, is there anything that would have? Quoth AdAge: "A majority of Americans, 87%, said oil companies are gouging them on gasoline prices, according to a survey in mid-September by Opinion Research Corp. for the non-profit Civil Society Institute."

But that begs the question – again quothing CD Sr. – "In a society that has a free market fetish, if not a religion, what is price gouging? Is nine percent profit gouging the price? Or 15 or 50 percent? At what price point does profit change into gouged profit?"

In the public eye, price gouging is when you are charging me too much and profits are when I am making a decent amount. I am sure it is just coincidental that gas prices are falling faster than FEMA’s approval ratings in the wake of all this political hullabaloo. Yep. Just a coincidence.

3 thoughts on “Tuesday’s Quote of the Day

  1. Apropos timing, given that it’s the date Massachusetts taxpayers are forced to come clean to the IRS about their 2005 earnings. Given that according to my accountant, audits of the self-employed have increased upwards of 300% since the start of the war in Iraq, perhaps the government should consider it’s own “price gouging” tactics first?

  2. Pingback: Obama goes back to Bush playbook and declares war on “price gouging” oil companies « Collateral Damage

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