"Greed is good."
--- Gordon Gekko
Peeved at Prices? Don't Blame the Dealer
Awash in Profit, Exxon Fights for Pennies While Raising the Rent
By Steven Mufson
Wa****ngton Post Staff Writer
Sunday, May 25, 2008; Page A01
Every time Sohaila Rezazadeh rings up a sale at her Exxon station on
Chain Bridge Road in Oakton, her cash register sends the information
to Exxon Mobil's central computers. If she raises the price of
gasoline a couple of pennies, chances are that Exxon will raise the
wholesale price she pays by the same amount.
Through a password-protected Web ****tal, Exxon notifies Rezazadeh of
wholesale price changes daily. That way the oil giant, which is
earning about $3.3 billion a month, fine-tunes the pump prices at the
franchise Rezazadeh has owned for 12 years.
Now, however, Rezazadeh says she cannot stay in business. Credit-card
fees are eating her profit margins. Exxon, which owns the station
land, last week handed Rezazadeh a new lease raising her rent about 30
percent over the next three years. She stuck a copy on the window of
her station to show customers who are angry about soaring pump prices.
Rezazadeh has told Exxon that she cannot make money with the rent that
high. Her territory manager's reply, she said, was simple: When you
go, leave us the keys.
Rezazadeh, who fled to the United States from Iran in 1979, is part of
the long chain that links motorists with the big oil companies. Major
integrated U.S. oil companies -- which produce crude oil, own
refineries and sell gasoline -- have been reaping billions of dollars
in profit from high oil prices over the past two years, but they are
still working to extract every penny they can from the marketing end
of the business. Exxon Mobil doesn't break out its earnings from
marketing alone, but its 2007 profits in worldwide refining and
marketing -- known as the downstream part of the oil business --
reached $9.6 billion, 43 percent of that coming from the United
States.
Although Exxon owns and operates few stations anymore -- less than 10
percent of the 12,000 Exxon outlets in the United States -- it uses
franchise agreements to maintain tight control over stations that bear
its brand. The company dictates everything from the number of pumps to
hygiene practices to the placement of food on convenience store
shelves. "They monitor everything," Rezazadeh said.
Exxon says it does all this to maintain uniform quality, while
recognizing dealer needs. "We recognize . . . that we are in a
difficult time with the run-up in crude oil prices," said Ben Soraci,
director of U.S. retail sales for Exxon. "Retailers are under a lot of
pressure, and they are on the front lines every day with the motorist,
who is also feeling a lot of pressure."
Ultimately, Soraci said, "it's in our interest to see them succeed.
It's not in our interest to see them hand us the keys."
But some Exxon dealers say the company is trying to squeeze too much
out of them.
Like Rezazadeh, Scott Burnham was struggling to cope with low margins
and rising rents. On May 9, he closed his station on scenic
Knickerbocker Road in Closter, N.J., and abandoned it to Exxon. In
March, Exxon had said it would raise his rent by a third over two
years. Burnham tried to line up buyers for the franchise, which he
purchased for $475,000 just two years ago. But one backed out, saying
that the station would lose money no matter how much gasoline it
sold.
"Why is the government giving Exxon subsidies and tax breaks when
they're making billions of dollars and when they squeeze every dime
they can out of every dealer who made that profit for them?" Burnham
said.
Soraci said rent increases reflect rising real estate values. "We have
excellent real estate out there that is superior to our competition,"
he said, which allows the dealers to "compete more effectively."
Even some of Exxon's successful and loyal dealers complain. Jerry
Daggle owns five Exxon stations in Northern Virginia, and even though
they have different competitive conditions and prices, "Exxon
magically lets me make about 8 cents a gallon" at each one, he said.
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