Sunday, June 25, 2006

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Invariably, whenever someone complains about the rising price of gasoline, some oil company stockholder or gullible chump will argue that the rate of increase has been much lower than the rate of inflation. If you look strictly at dollars and gallons, this is correct. However, this is simply the mathematic perspective. What about history?

When I was growing up in the 70's and 80's, gas stations had these people called "attendants". When you drove up to the pump, one of these "attendants" would walk over, pump the gas into your car, clean your windshield and, if you wanted "full service'', they would check your fluids and tire pressure and top off if needed.

But then a new "service", was introduced. It was called Self Serve. Instead of having someone else put gas in your car, this allowed you to do it yourself. It became very popular because it was cheaper for the consumer and most people didn't mind pumping their own gas in order to save a buck or two. For the station owner it meant lower overhead and wider profit margins. All was good... Or was it?

At some point marketers realized that people pumping their own gas were likely to look at the pump. Thus, they put ads there. Furthermore, they noticed that people like to make as few stops as possible. Since you were forced to stop and get out of your car to buy gas, the station was a perfect place to sell convenience goods. Another win-win for consumers and station owners.

But over time, a funny thing happened: gasoline profits disappeared. Instead of providing a station owner with his bread and butter, gasoline is now a zero-profit draw, a means to attract customers to the convenience store. Despite rising prices, stations have seen gas profits shrink to nearly nothing.

Furthermore, the decline in services has continued unabated. Air for your tires, once provided at no extra charge and filled by an attendant, can cost more than a dollar to fill yourself. Windshield cleaning supplies are marketed as a selling point for it can no longer be assumed they are available. How long until we pay for that too?

Thus, the price of gasoline has stayed below the rate of inflation through sacrifice of both service to the customer and profit to the station owner, to the point that neither exists, anymore. Meanwhile, oil companies are enjoying record profits. Think they'll sacrifice profits to keep prices down? Not according to recent history.

Gasoline Prices Exceed Inflation


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