When good news sparks a crisisPosted: April 28, 2006
In the last week the major oil companies including Exxon, Chevron and ConocoPhillips have all been announcing record profits and revenues. Good news for those that invested in these businesses. But it’s interesting to see how this relatively good financial news has worked against them. Earlier this week Senator Byron Morgan announced his desire to see a Windfall tax imposed on these oil giants. You can see why such a suggestion has been made but most economists seem to feel it would be counterproductive and only lead to them finding ways of reducing their profits to avoid taxes – such as even higher pay deals for their CEOs.
The other side effect of the news as been a raising of people’s consciousness about how much it really costs to drive a typical car in this country. It’s still a lot less than it costs in Europe but if things continue as they have the gap will be gone in less than 18 months. This is forcing people to rethink their lifestyles and choice of transport. This morning on NPR they ran a feature showing how many people are now looking at car pooling or public transport simply because of the increase in gas prices. In other words, the gas companies are in danger of having customers finding ways to avoid buying their product. That’s not something most businesses want to see.
So if you couple the great earnings news with the CEO pay scandal that emerged around Exxon’s CEO and then add the fact that consumers are starting to rebel you get a great PR and potentially real commercial crisis brewing. It’s rather interesting at that level. Most crises are driven by bad news such as product defects, plunging sales and crime ridden management teams, not businesses that have managed to hike the price of the product and make super profits. Perhaps this is why the oil industry is struggling to deal with an issue even our Pro Oil President is starting to get angry about. Only today in a piece the Associated Press ran entitled “As Profits Soar, Oil Industry Unapologetic,” Bush was said to be “outraged” by the profits the oil companies are making.
Of course the fact that the profit margins being made by the oil giants is actually pretty modest is getting little coverage or sympathy. Why? Because even though they are only generating around $9 of profit for every $100 in sales, compared with the roughly $20 of profit eBay and Microsoft make on similar revenues, the scary part is not the margin but the sheer amount of profit, coupled with the fact that every consumer is starting to feel it impact them directly. Not everyone buys and sells something on eBay every day but most of us get in a car that regularly.
Time for a good old fashioned crisis plan to be brought out by the oil barons I feel. But it needs to start from a very different place of course.