I hope that sentence makes sense to you.
I didn't "chide" you for anything. If you're happy with getting screwed
by business types, go for it. IMO, any business that charges
replacement cost for items already in stock and paid for at a lower
rate is screwing the customer. If that isn't the case, why are we so
happy with those who provide stable prices--based on what they paid for
what is in stock--and less happy with those who don't?
Forfeit what? You still have 3000 gallons at 8’ markup. You didn't buy the
new high priced gas yet, that is still at the tank farm. You may be missing
an opportunity to make a few extra bucks, but certainly there is no loss and
the chicken will still be cooked.
Why would you buy less? Don't you have good credit? How did you buy the
first tankful to open the station in the beginning? Properly financed and
well run businesses do this all the time.
Let's say you are building a house and all the material is delivered at an
agreed upon price. The price of lumber goes up.for the next house you will
build. Do you raise the price of the existing job?
AH! That's it, bet on the future, don't mind the present. Now why didn't I
think of borrowing money to take care of day to-day expenses? Come to
think of it, why don't I just borrow the money and not bother with the
Borrowing money for day to day household expenses is wrong, but most
products for sale by businesses are sold on credit with 30 day terms.
(sometimes less, sometimes a LOT more) Often, the product can be sold,
money received, before the supplier has to be paid and thus, no out of
pocket expense. I don't know the terms of the oil business but I've not
seen the attendant outside paying cash to the driver either.
Managing cash flow in an important part of running a business. When prices
are on the rise, it can be difficult. In my own industry, a TL of material
used to be $20,000 and in two years went to $42,000. Yes, it made cash flow
more difficult, yes, a few marginal businesses in the industry went away,
but the well run ones are still around and making a profit.
It is not uncommon to borrow money for inventory in some industries.
Clothing, toy, building industries comes to mind.
Sorry for the delay in the reply, Ed. I was out trying to find a lender to
advance me money at prime (6.25%) to purchase inventory on which I can
realize 4.3% profit.
Strangely, there do not appear to be many available.
There are plenty. Seriously. The 6.25% you talk about is an annual rate.
The 4.3% is based on the turnover. So you buy $20,000 in gas and sell it
for $20,860. You borrow the money for only 30 days at a cost of $104 so you
are ahead by over $700.
When you talk about other industries, you are also talking longer terms and
much, much larger markups. Without buying inventory on credit, the economy
as we know it would collapse. How do you think banks build those nice
Trivia Question: How/why is the John Hancock Tower in Chicago named what it
So what if the price goes up? You have the inventory at a committed price
and you know your markup covers costs. Next time around you buy at the
higher price and do the same thing. This has been going on for centuries.
Charlie will pay the going rate at the time.
No, Ed. In the first place, if I have to hire money, I lose double. I lose
the money I had to gain from the original, but didn't, and the money I had
to pay to hire it. If the price continues upward, I will either have to
hire more money or buy less fuel - simple. Has it escaped you that this
borrowing discussion is a prιcis of the trouble in many US industries? Or
any place inflation is rampant?
As a business, I'm trying to earn a living for myself and my employees.
We're not there to provide cheap gasoline to consumers.
You and my left-leaning friend Charlie might find this amusing
. Seems that trying to keep the consumer happy with cheap prices is another
set of problems altogether.
Of course, we knew that from the experience of other command economies which
have created universal poverty for their citizens in this last century.
Seems if you keep prices down, you have to keep wages down too, otherwise,
someone has to pay the difference. Then folks find they can't hope to get
ahead, no matter what, and ... well, you know the result.
Fortunately, few gas stations are in the position we've been beating around.
They never own the fuel they sell, just as they never own the potato chips.
They're paid so much a gallon or bag for what they sell, but the price is
set a stage or two up the line, where the market risks are taken.
Oh, really? Is that why my pal down at the corner market has to hand a
check to the guy who delivers his chips, another check to the guy
delivering cigarets, another check to the Coke delivery guy and on down
George, my right leaning correspondent, I strongly suggest you get out
and TALK to some of these retailers whose businesses you are trying to
As an incidental point, WTF does my politics have to do with this
discussion? I am a liberal in many ways, conservative in many--unlike
GWB and pals. If that bugs you, then it bugs you. To be honest, reading
your wrong-headed descriptions, I hope it does.
OK, you have the opportunity to buy 100 widgets at $1 each. You know
everyone reading this newsgroup would love to have one and is willing to pay
$2 each. Problem is, cash is tight and you don't have the hundred bucks to
lay out to double your money.
Your choices are:
1. You do nothing, you earn nothing
2. You borrow $100 and agree to pay back $110 in 30 days. You sell the
widgets, have the $200 in hand and pay back the load and have $90 left.
From what you posted above, the best choice is number 1 and you continue to
plod along as a working schelp instead of a wealthy entrenpneur. Your
Ha it escaped you that prudent borrowing is the way our economy to be run or
we would not have one? Greedy as they can be, banks do serve a useful
purpose and mot sucessfull businesses have a good working releationship and
credit line. That is how many businesses grow. Please do not confuse smart
business borrowing with dumb consumer borrowning. Paying 18% interest on a
credit car for a dinner at a restaurant is dumb. Buying a house with a
mortgage is smart and for most of us, the only way we can ever afford to buy
This is true. I'm not agains making a profit and a good one at that. But
rasining prices on existing inventory is not always the best idea. Yes, it
can be done and is done, but it is not a requirement of a good business.
Well, as a farmer I don't think they're "fine" in the sense you imply
and I really doubt the ones you speak of do, either. The problem is
multif-faceted and largely created by government intervention starting
60-70 years ago and continuing to this day. In the overall scheme of ag
subsidies, those in the US are significantly less than most of our
trading partners--just look at the the strikes in France, for example,
when trade discussions regarding reducing <their> subsidies to meet US
levels is the topic of negotiations...
However, given that much of our small grain export markets were forcibly
taken from us by unilateral trade embargoes (rembember the boycott over
Russian intervention in Afghanistan as one?) which were subsequently
repeated after being promised that exports would be a major plank of the
future USDA policy. This caused a near complete collapse of US small
grain markets from which we have yet to recover meanwhile allowing the
clever Argentinian, Brazilians, Australians, et al. to build their
export markets (all heavily subsidized, btw) to replace the former US
Is a "free'er" world market by a desirable goal? --Sure. The recent
CafTA agreement is a little step--we'll see if the tariffs against US ag
products are actually removed in the other participants--I'm not holding
my breath waiting, nor expecting any action from US gov't to enforce
them if they're not.
Are you pleased that at least one area of the US economy has some
positive foreign trade balance or would you just as soon that we be
totally dependent on foreign producers for all food supplies, not only
oil (to at least get back on the OT thread topic :) )?
Well, there's not a whole lot of grain grown around here, besides feed
corn for cattle. Mostly, the farms are cows (meat or milk), truck, or
tobacco. We're not hitting on much internationally with out beef these
days, but I don't know what the milk market from overseas is like.
Truck farms tend to stay fairly local, at least those around here.
Tobacco? I'm not sure much is left of their subsidies, but I did read
that the feds are forcing the cigaret makers to pay subsidies to
farmers, in lieu of tobacco payments. Of course, there are other types
of farms around here. My cousin and her husband raise Appaloosas, for
instance. There are two miniature horse ranches (?) within a 15 mile
radius. Someone is raising alpacas, and there is the inevitable goat
farm. No one bothers with sheep any more. My BIL got out of that part
of farming some years ago, because he was tired of feeding coyotes.
There seem to be price supports and tax breaks on much of the above, if
not all. Should there be? I have no idea. I wouldn't farm unless it
were a matter of starving to death otherwise. I come from a long line
of small farmers on both sides, and almost 60 years ago decided I was
too damned lazy to work that hard. But I wouldn't mine coal either. Yet
my father in law mined coal to get the money to buy his first small
farm. Different strokes.
My point was not that the farmers don't deserve the price supports...I
don't know, and, in truth, I don't think anyone else REALLY knows. But
they insist that such supports have nothing in common with welfare and
similar programs to help the poor. I contend they are wrong. It is
similar in effect if not exact performance to corporate welfare--and
anyone who thinks corporations don't get breaks has not examined what
states are offering these days in the way of tax breaks and general
butt kissing of CEOs to get 30 more jobs in an area.
Well, we're so far removed from a fully open economy as to make any
discussion that doesn't recognize that meaningless...is it good is a
whole discussion of what is meant by "good" simply to start.
Only thing I will say regarding farm subsidies wrt to pure welfare
payments is that there's a difference in my mind anyway between someone
who takes a check to sit around the house and do nothing as opposed to
one who is producing a marketable and needed product for which markets
have artificially been removed or made inaccessible by actions of the
George, I think you are going a little off the deep end here. Immediate
to above: 6.25% interest is *annual* interest rate, surely you are not
telling me that you think it is going to take our fictitious gas retailer a
full year to retail his trailer-load of gasoline for that 4.3% profit? I
would suspect that load should be gone within a month, thus making the
annualized return something on the order of 48%, and the ability to pay off
the short term loan a fairly easy business case to demonstrate.
Given your premise here, when the cost of gasoline is dropping, does the
retailer drop the cost of his inventory by 5 cents per gallon on the last
3000 gallons in the tank when he knows his future wholesale load will be 5
Properly managing cash flow is obviously important to any business; but a
smart business will have put a certain amount of reserve aside (in an
interest bearing account of some sort) in order to cushion the various
fluctuations in wholesale prices. In a number of commodity sales, it would
be nearly impossible for a retailer to raise his price based upon
anticipated future costs simply due to the fact that if he were to do so,
his competitors would eat his lunch -- i.e, he wouldn't have to worry about
paying those higher costs as his current inventory wouldn't sell until his
competition was also selling that future high-cost stock. The gasoline
industry doesn't seem to suffer from that restraint.
If you're gonna be dumb, you better be tough
First, as I posted to Ed, there's a double loss - profit not made and extra
expense incurred. Even a few cents rise in wholesale could get him borrowing
next week. Remember, the price can go up when he's sold 5% if his inventory
as well. Why should he pay for someone else's cheap gas?
As to being off the deep end, you wouldn't happen to know the actual
interest rate for a loan against future profits? I grab two figures off
the top for illustration and you nitpick them. My turn. What's the average
return to dealer per gallon, and what's the interest rate for a short-term
loan? I think your search will show the profit margin lower and the
interest rate higher. Which has nothing to do with the basic principle,
that final user pays the price that keeps the pumps working. As it should
???? what profit not made? One would assume that the selling price of
the gas being sold was set with a profit margin for the dealer. Your
argument heretofore has been that the price being raised was not additional
profit, but was to cover the future cost. He is still making profit
(retail price - wholesale cost) on the current inventory.
Again, given his current inventory, where is the extra expense?
Why, how, and where is *he* paying for someone else's cheap gas? He is
retailing current inventory for greater than the wholesale price previously
set. Your argument here holds water *only* if, when he knows that his next
tanker load of gas is going to be less, that he then lowers the current
price in anticipation of that. I notice you did not address that scenario.
After all, since he raised prices in anticipation of higher wholesale
prices, then he obviously already has that cash in hand, so can lower the
price on the current inventory (even if it results in short term loss)
because he already made his profit on previous cheaper gas.
Properly leveraged and managed businesses know that their wholesale
prices will vary (both up and down), they thus set aside a portion of
income to pay for that variation. When prices are favorable to them, that
cash flow box is replenished, when it is not favorable is when they draw on
that cash flow box. In all cases, they are making a profit, it's just the
cash flow that is in flux.
I simply showed how in your illustration that were mixing up annual
interest rate with short-term profit margin -- those numbers cannot simply
be added and subtracted. The exact numbers are irrelevant.
Irrelevant to the argument you were trying to portray.
Nowhere in my argument have I ever indicated that free-market economics
is not valid, nor have I indicated that what retailers are doing is somehow
illegal (unless, of course they are agreeing with one another to what the
prices should be -- that *is* illegal). They are setting the price to what
the market will bear. What I am arguing with is the ridiculous attempt to
justify those price hikes through the argument that because their future
costs will be higher, somehow the current inventory cost should be
increased, and the rationale being advanced for why that is a valid
argument. There are probably several approaches for rationalizing those
hikes on current inventory, for example, the retailer is acting as an
investor and selling based upon appreciated value -- there are probably
others premises that could be used as well. However even in that case,
then the retailer as investor must be prepared to accept a loss when future
values drop even though existing supplies have not been replenished --
those actions don't seem to take place.
Frankly, if we are tired of being held hostage to unstable gas prices, we
(the people, not the government) need to be looking at alternatives.
Increased domestic exploration, identification of alternate fuel sources,
etc. The oil industry has been so consolidated for numerous reasons, some
due to greed on the part of business, some due to power-lust on the part of
governments, some even due to unintended consequences on the part of
tree-huggers that competition, for the most part does not exist. What is
needed is competition at a higher level.
If you're gonna be dumb, you better be tough
And just as frankly, a solid amount of conservation on the part of the
consumer would help a lot. Refusal to buy barge sized vehicles for
single person use, better planning of trips and similar tactics would
have the oil companies paying attention to their market again, though
given the proliferation of 11-12 MPG vehicles over the past decade or
so, it might well take many years.
Charlie Self (in email@example.com)
| Mark & Juanita wrote:
|| Frankly, if we are tired of being held hostage to unstable gas
|| prices, we (the people, not the government) need to be looking at
|| alternatives. Increased domestic exploration, identification of
|| alternate fuel sources, etc. The oil industry has been so
|| consolidated for numerous reasons, some due to greed on the part
|| of business, some due to power-lust on the part of governments,
|| some even due to unintended consequences on the part of
|| tree-huggers that competition, for the most part does not exist.
|| What is needed is competition at a higher level.
| And just as frankly, a solid amount of conservation on the part of
| the consumer would help a lot. Refusal to buy barge sized vehicles
| for single person use, better planning of trips and similar tactics
| would have the oil companies paying attention to their market
| again, though given the proliferation of 11-12 MPG vehicles over
| the past decade or so, it might well take many years.
Everyone wants someone /else/ to solve the problem. Preferably at no
The "no cost" part is more important than you might guess. In my day
job I sell furnaces that come with a lifetime supply of free fuel.
You'd think they'd sell like hotcakes.
DeSoto, Iowa USA
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