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The Real Cost of a Gallon of Gas

Friday, 21 April 2006 12:00 AM

Beleaguered automaker Ford Motor Co. posted a $1.2 billion loss for the first quarter. It was the company's biggest since losing $5 billion in 2001, according to the AP.

Wage and benefit costs - as well as a sinking credit rating - have made operations expenses skyrocket.

The firm is struggling to restructure its operations - laying off 30,000 employees and closing 14 plants in the process. Ford took a $1.7 billion hit as a result of these efforts.

Excluding that amount, the company says it earned $458 million, according to the AP. Ford's sales were up 3% worldwide from a year ago, though U.S. sales were down. And revenues fell 6% in the quarter, according to Reuters.

Heavy competition from foreign automakers has caused American carmaker Ford and its rival General Motors to lose market share.

GM reported a $323 million loss for the quarter - a marked improvement over a $1.3 billion loss a year ago. GM is also restructuring its operations and selling off pieces of its business.

Today's Washington Post breaks down the real cost of a gallon of gas.

Before politicians grumble about big oil profits - which continue to grow - they may also want to admit that government taxes make up almost 20% of the amount consumers pay for a gallon of gasoline.

Also, with federal government restrictions on oil refineries (there hasn't been a new one built in the U.S. in over 30 years), the cost of actually making gasoline has grown as well.

Plus, the government's 2005 Energy Policy Act calls for the use of more ethanol in gasoline - and that is costing oil companies billions as they revamp storage and handling facilities.

Thanks to refinery and distribution woes related to Hurricane Katrina, gasoline production in the U.S. has dipped from 8.5 million barrels in April 2005 to 8 million in April 2006.

Here is the Post's breakdown on the price of gasoline:

So, the next time you're complaining about Big Oil as you pay $3 at the pump, you may want to call your congressman.

The world's central banks may eventually forsake the dollar and bestow reserve currency status on the Chinese yuan (also know as the renminbi) - even though the Chinese government currently won't even allow its currency to be held outside its own borders.

Renowned commodities expert and fund manager Jim Rogers fully subscribes to this idea.

"If there's a currency that has the potential to replace the dollar, the only one I can see on the horizon is the renminbi," Rogers said in an interview in Singapore on April 17, according to Bloomberg News. "The renminbi's going to go much, much higher."

Rogers has been buying the yuan as China has enjoyed a financial upturn, with its economy doubling in size as a result of record exports and manufacturing investment. Last year, the country became the fourth-largest economy in the world.

But others believe the transition will take quite some time - if it happens at all.

The yuan - which rose 1.2% after July, when the Chinese government finally revalued the currency and de-pegged it from the dollar - had been accelerating steadily during the six weeks leading up to Chinese President Hu Jintao's visit to the United States.

But the yuan fell 0.06% to 8.017 per dollar after Hu made no significant indication during his visit that the Chinese would take substantive steps to allow the yuan to strengthen.

A burgeoning number of U.S. millionaires are stacking up greenbacks in record numbers.

According to Spectrem Group's "Affluent Market Insights 2006" report, released this week, the number of households in the United States with a net worth of $1 million or more - excluding primary residence - set a second consecutive record in 2005, increasing to 8.3 million.

Spectrem's survey shows an 11% increase from the 2004 total of 7.5 million millionaires.

And it seems that the more money you make, the higher you rise in Spectrem's survey. For those with a net worth of $5 million or more, the index rose 26%, marking a new high.

"It's been a great couple of years for America's millionaires," Catherine S. McBreen, managing director of Chicago-based Spectrem, said in a statement.

And obviously the direction of the economy has a lot to do with that.

"When interest rates began to stabilize, we saw optimism increase," said George Walper Jr., president of Spectrem.

"People look at [the stabilization] as a trigger as to the level of optimism."

Five years ago, when Google stumbled onto AdSearch, its new Web search engine for businesses, chances are company executives never realized what a goldmine they had discovered.

But they probably realize that today.

Wall Street analysts attribute Google's surge in revenues for the first quarter of 2006 to its superiority in Web advertising over chief rivals like Yahoo and Microsoft.

Google holds 49% of the U.S. paid search market, according to Nielsen/NetRatings. Yahoo was in second place with 22.5%, while MSN ranked third with 10.9%.

For the quarter, Google's revenue skyrocketed by 79%, beating analyst estimates and hiking Google's stock price by 6% in Thursday's trading, to $441.14.

The company also reported $592 million in net income for the first quarter, or $1.95 per diluted share - up 60% from $372 million for the same quarter a year earlier, or $1.29 per diluted share.

Google also saw revenues jump to $2.25 billion - far above the $2.05 billion to $2.24 billion, forecast by Reuters Estimates, which tracks collective analyst earnings forecasts.

Aside from one-time items and stock-based compensation, analysts called for a consensus profit of $1.98 per share. Including these items, net profit, on average, was expected to be $1.73 a share, according to Reuters Estimates.

"Net revenue is very solid," Martin Pyykkonen, an analyst at Hoefer & Arnett," told Reuters.

"It's also proof Google continues to gain market share on Yahoo on paid search. They're still spending pretty heftily on marketing expenses, but strategically it's the right thing to do and the underlying reason why revenue growth was so strong."

The surge in paid search revenues could signal that Google is able to surmount some recent internal problems. "The first-quarter net profit includes charges of $115 million for stock-based compensation, and to cover plaintiffs' attorneys' fees related to the proposed Lane's Gift class-action 'click-fraud' lawsuit settlement of $30 million," Reuters said this morning.

"It also had a first-quarter tax benefit tied to stock compensation of $27 million and $12 million on the click-fraud lawsuit's attorney's fees."

The rise in stock price could also signal an end to the company's recent stock slide. Google staggered after it failed to meet Wall Street's earnings expectations for the first time ever.

"In recent weeks, however, investor sentiment has recovered and the stock was trading at roughly break-even for the year to date but was off of its late-January all-time peak of nearly $472," says Reuters.

That could mean even more growth for Google and its shareholders. 

"It was a very strong performance," said Safa Rashtchy, an analyst at Piper Jaffray. "I would expect them to have a nice upside."

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Beleaguered automaker Ford Motor Co. posted a $1.2 billion loss for the first quarter. It was the company's biggest since losing $5 billion in 2001, according to the AP. Wage and benefit costs - as well as a sinking credit rating - have made operations expenses...
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Friday, 21 April 2006 12:00 AM
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