MBA Final Exam

I have a scenario for all of you MBA types. Let’s see if that $50,000 in tuition was well spent or not.

Imagine you are a C-level executive at a petroleum company. Your company is and has been doing very well over the last few decades with the huge dependency that the US has on gasoline for our everyday lives. But a few years ago the price per barrel of oil started to go up and gasoline began to hit record high prices. Now most of the overindulgent American citizens didn’t pay much attention, but you did.

Then Al Gore got on his Global Warming soapbox and started to point out the negative effect we are having on the planet. Couple the rise in popularity of the global warming bandwagon with the ever increasing oil prices and all of a sudden the public decides that 20 MPG is not good enough.

Next thing you know the auto industry is developing more fuel efficient vehicles and the suddenly popular hybrid. There is even talk that the government will mandate that all vehicles get 40 MPG by the year 2012. So here is your final exam question. Which of the following do you think those C-level petroleum executives would do next?

1. Would they look at the revenue they currently generate, which is in the billions, and decide that, if ALL cars got 40 MPG instead of 20 MPG, it would be OK to generate half the revenue they generate today because it will be better for the country, the environment and the planet? Or…
2. Would they think they need to generate the same revenue once ALL cars get 40 MPG instead of 20 MPG and the only way to do that would be to DOUBLE the price of gas? Would they double the price of gas over night? Or would they gradually increase the price of gas over a span of years to make it more acceptable to the public?

Which one did you choose?

Mark my words…when all cars get better gas mileage, a gallon of gas will cost $6.00 to $8.00 a gallon. We live in a greedy, capitalistic society and there is no way that a large company looks into the future and thinks it will be OK to make half the money they do today. It is not as if this is unprecedented. If you have ever visited a country in Europe, you will notice that gas prices in Europe are much higher and, guess what, cars get 50 MPG. You probably just didn’t notice the price of gas because they charge by the liter – sneaky bastards!

As a recent hybrid owner, I wanted to acknowledge my part in causing the increasing gas prices in the US. It is people like me that have caused the petroleum companies to consider new revenue strategies. So for my part in the ridiculous gas prices, I apologize to you all.

I wonder if we all went out and bought monster trucks instead, would gas prices drop back to under a buck? Owning a monster truck would be fun and it sure would make traffic jams more interesting.