Charles Binsted was, "I think it is a question whether we are giving the consumer what they want or what they want them to have.” Do you have any comment on that response?

Mr. GRIFFIN. Rather than get into a debate with someone else's opinion, I think what I was trying to say in a philosophical vein earlier in the oral testimony, the methods of marketing gasoline are changing at a more rapid pace than we have historically been used to. All these forms of innovation are really the result of customers showing preference.

I think that that kind of comment may be indicative of the problem, that the groups are trying to get a status quo on in order not ot have to react to the competitive forces of the marketplace.

I don't believe that legislation or regulation in a complex area such as this can ultimately stop the economic forces and the preference of customers for different types of serving them or being served gasoline.

Mr. DEWELL. Could I amplify on that a bit?

It runs back to Mr. Griffin's testimony earlier about the growth rate of the do-it-yourself market, and all, and I think what that is saying, and our evidence seems to substantiate in our operation there are many consumers now when it comes time to buy gasoline, since they are, in fact, tuning up their own car, changing their own motor oil, when it comes time for gasoline purchase they want to do it as quickly and as inexpensively as they can do it.

Mr. VLCEK. You would agree with that statement.

Mr. LUELLEN. Yes, sir; entirely.

Mr. GRIFFIN. I would like to add one thing, Mr. Vlcek, if you don't mind.

I suppose it is possible that someone could conclude that some of the testimony given here today, and perhaps by other refiners, might be construed as indicating some feeling that the independent lesseedealer and dealer-owner service station is going to disappear from the marketing system. I don't believe that is the case.

I just think we are going to have fewer service stations of all types, in total higher volume in order to get the unit cost of marketing down and, as a result, there are going to be fewer stations operated by dealers. But that is not to say that there is not for a very long time going to be a place in the market for lessee-dealer operated, full service conventional service stations where that dealer is proficient in supplying service that is required in the form of minor tuneup, tires, batteries, accessories, and sales and other services. along with his willingness to be competitive in the gasoline marketplace.

Those dealers who have always been highly successful in performing that service I have no doubt will continue to have a viable place in the market. But the total mix is changing and the idea that a status quo in some way has an effect on that I just don't believe. Mr. VLCEK. Is it fair to say that a moratorium would prevent this market development?

Mr. GRIFFIN. I think the moratorium merely discriminates against refiners in a way that is unnecessary and perhaps even illegal. There

is no reason why a refiner should not have the same right to compete in the marketplace as any other retail marketer.

Mr. VLCEK. It also discriminates against the consumer in that there is less cheaper gas available.

Mr. GRIFFIN. I think any marketer, whoever he is, who doesn't respond to changes in automotive needs and changes in customer needs and demands, is going to fail, whether he is selling gasoline

or soap.

I don't think there is that much difference in the basic marketing service of being able to adapt to a change, and in any private market system there will be winners and losers. As long as the competition is on a fair basis, and I think generally it is, I see no reason for moratoriums and discriminatory kinds of actions.

Mr. VLCEK. Mr. Luellen, if we were to remove present allocation controls from the gasoline market, would the differential that now exists between self-service outlets as opposed to lessee-dealer traditional type of outlets still rmain? Would there still be that difference? Mr. LUELLEN. Yes; I think there would be.

I think that difference is based upon the market's evaluation of the difference in value of the two kinds of services. So, I think it would remain.

Mr. VLCEK. So, if price controls were to come off, self-service outlets would still have a viable place in the market and would still be able to provide gasoline at cheaper prices?

Mr. LUELLEN. Yes, sir.

Mr. SHARP. Thank you very much gentlemen. We appreciate your assistance to the subcommittee and your willingness to appear as a panel.

We have our final day of hearings on Monday, May 10, at 2 p.m. Thank you very much.

The subcommittee stands adjourned.

[Whereupon, at 3:50 p.m., the subcommittee adjourned, to reconvene at 2 p.m., Monday, May 10, 1976.]

PETROLEUM MARKETING PRACTICES

MONDAY, MAY 10, 1976

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ENERGY AND POWER,

COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,

Washington, D.C. The subcommittee met at 2 p.m., pursuant to notice, in room 2322, Rayburn House Office Building, Hon. John D. Dingell, chairman, presiding.

Mr. DINGELL. The subcommittee will come to order.

This is a continuation of the Subcommittee on Energy and Power's hearings into petroleum marketing/franchise protection of retail dealers,

Before we hear from our first witness this afternoon, we will without objection, insert in the record at this point, as though read, a statement by Congressman Harris of Virginia.

STATEMENT OF HON. HERBERT E. HARRIS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA

Mr. HARRIS: As the sponsor of similar legislation, H.R. 6266, Fair Marketing of Petroleum Products Act, I am delighted that the Subcommittee on Energy and Power is now considering H.R. 13000, the Petroleum Marketing Practices Act. It is time that legislation be enacted to prevent victimization of the small businessman by the larger, more economically powerful franchisor.

An economic imbalance exists between the corporate giant and the franchised, independent service station dealer. We have all heard. of abuses-instances when the franchised dealer is threatened with lease termination unless he ignores his own business judgment and follows the dictates of the franchisor. It is one thing to require service station operators to keep the bathrooms clean or to wash the windshields, but it is another matter to fix prices or to instruct the dealer to cut his profit margin on the business. It is wrong.

These practices are bad enough, but the problem is worse. The vertically integrated international corporations are attempting to extend their market share of the retail market by taking control of some of the most profitable service stations. The operator, a truly small businessman, invests his capital and his hard work and earns customer loyalty through competitive prices and good service. But then after the work and investment have begun to payoff the station earns a good profit, the international corporation terminates the lease or refuses to extend it. Not only does the little guy lose his

business but we all lose. Sure we have heard the claims by the big vertically integrated oil companies: "We are more efficient. We have more expertise." That is their rationale for extending their control of the market-but we all know what happens when an industry becomes monopolized-or monopolized to an even greater extent. What happens to this efficiency of monopoly? There is no competition to force prices down. There is no competition to require quality service. There is less incentive for innovation.

On April 22, 1975, I introduced a similar bill to the one before this committee. My bill, H.R. 6266, the Fair Marketing of Petroleum Products Act, would prohibit the major oil companies from canceling or failing to renew franchises unless the retailer has failed to comply substantially with requirements of the lease, and prevent cancellations of leases without specific findings in court that dealers failed to meet contractual arrangements.

I strongly endorse the concept of dealer protection to give the independent dealer a fair footing with the franchisor. Legal standards for termination and nonrenewal are needed. No branded independent wants a fellow independent of the same brand to damage the brand reputation with poor service. There are poor operators, so there must be a procedure to preserve the brand reputation by eliminating the inefficient businessmen. However, the franchisor should not be allowed to extend market power, assume the more profitable stations, or use the threats of termination or nonrenewal for coercion. Unbridled corporate power protects the mighty; fair standards protect the brand, the independent dealers, and the con

sumer.

Service station operators need to have the opportunity to go to court to seek relief to enforce the fair standards. The operator deserves a "dealers day in court." It is important that the ground rules be established so as to guarantee dealers a fair and equitable treatment by their suppliers. That is not so much to ask.

Mr. Chairman, I became intimately aware of the need for this type of legislation last spring when Crown Central Petroleum terminated the franchises of several station operators in northern Virginia. No reason was given for the franchise termination, but the reason is obvious. The dealers had earlier received requests to set a certain price, coupled with a reminder that leases would be coming due in a short period. For refusing to sacrifice their business independence, they were told that their leases would be terminated.

I asked Frank Zarb, Administrator of FEA, to seek an immediate injunction against Crown's arbitrary decision-representing an unfair and retaliatory action against independent retails-which-will work to the detriment of consumers." I also wrote to Crown vice president for marketing, J. I. Loving and urged Crown to "cease any actions which tend to fix prices," stating that "to pressure small businessmen into ever increasing gas sales for maximum profits runs directly contrary to our national goal of energy conservation."

FEA refused to seek an injunction, although administrative action was taken that helped document the pressures Crown had used against its dealers to increase sales and fix prices. This documentation was helpful to the dealers, who obtained an injunction against termina