Mr. BINSTED. Yes. Mr. MOFFETT. We are wondering what kind of impact it has had in attempting to get an answer to this question. In talking to the service station people and the association there it appears that there is a deterrant to going into court. The law provides the revenue for going into court but it appears that many of our dealers are afraid to go into court, afraid of retribution from the majors if they do. Are there any other States that have laws similar to Connecticut's in terms of the franchise protection? No. 2, are you at all familiar with the fear of retribution? Mr. BINSTED. There are a great many of the States-I say a great many, I think at least 19 States that have some form of dealer protection legislation at the moment. Mr. Congressman, but some of it is much weaker than in other States. New Jersey has a rather strong franchise law that is applicable to all types of franchise. Maryland has a strong petroleum act. Virginia, I understand, just strengthened their act this year. Also Minnesota, and there are any number of other States. There has always been a reluctance on the part of dealers to tackle their major suppliers and over the past years trying to operate under some of the laws that we had on the books, either the common law or the contract law or the antitrust laws. We found that it was very expensive and unwieldy in that the laws didn't really direct themselves to our particular problems and it was costly for a dealer who may be making $12,000 or $15,000 a year to come up with $15,000 in legal fees on the front end to get a case started. We think that this kind of legislation will be very helpful in overcoming those fears and those inhibitions. Mr. MOFFETT. I think that is helpful. Now was it your testimony that the FEA has not used its authority under the EPAA to protect the independent marketers? Mr. BINSTED. We believe that to be the case; yes. Mr. MOFFETT. Well, to what extent would you say that their time has been spent instead on allowing the refiner marketers to almost double their direct retail market share? We are going to have testimony, as I understand it, that says that the FEA has no legislative responsibilities under EPAA because it is too busy allowing the refiner marketers to almost double their direct retail market share. Is that your opinion as well, and in what ways have they done that? Mr. BINSTED. I think they have done it by inaction rather than action. As you are well aware, since this committee did deal with it, EPAA calls for equitable distribution at equitable prices at all levels. The FEA is charged with the responsibility to see that this is effected but all of the input and information that we have given them to date we have seen no actions to correct this. We have seen many surveys and long looks at what is happening in the marketplace and there is no question about the fact that the branded dealer is losing market share and that the branded dealer is in a disadvantaged pricing position, and yet nothing has been done under the act by FEA as far as corrective measures are concerned. Mr. MOFFETT. I was reading some of the material that the commit tee was good enough to provide us with last night. I don't believe that your testimony was available at that point. I was looking at Mr. Oden's testimony, he indicated that, An effective appeals procedure must be established with clear authority to issue timely supply orders requiring refiner/suppliers to provide adequate supply at competitive prices on a functional basis to independent marketers. Do you agree with that? Mr. BINSTED. I have not had an opportunity to look at that. I understand it is in T. J. Oden's testimony and I would like to have an opportunity to look at it a little further. I don't quite understand it myself at the moment. I am sure T. J. will elaborate more as he testifies. Mr. MOFFETT. Now what about the self-service operations? I am a little confused on that because at times we hear that the number of independents who moved to self-service was fairly substantial initially, but some of our folks in Connecticut are now saying that the trend to self-service is strictly supplier oriented and operated. How should the committee look at the self-service operations in the context of this legislation and what we are doing here? Mr. BINSTED. Well, I think that we are really not dealing with selfservices as such to the degree that we are dealing with the situation. where the major marketers are moving into both primary and secondary brands and they say that self-service or gasoline only type operations are the easiest ones to control. The conventional operation is very difficult to control from afar, but the initiative for self-service I think begun with the independents some years ago. The companies are simply catching up. Many of the branded dealers now are being urged by their suppliers to go to the split island concept of selfservice. Some of our people find that this is somewhat counterproductive now in that they are not saving a great deal of help on it. It is just because you can't cut the help that much and you have got a selfservice island and a full service island and you have to have somebody servicing the self-service island anyway. Mr. MOFFETT. What advantages do the majors advance to you when you raise some of the points with them that you raise in your testimony here? Mr. BINSTED. Well, over the years they have taken more or less a paternalistic attitude is about the only way I can describe it. We will take care of you; do it this way; this is the best way to do it and don't worry about it, you see. Some years ago we had what we referred to as the TBA problem. We were told we bought their TBA or else but we have sort of moved out of that after some of the TBA cases and some of the exposure and some of the sunshine that FTC put on that kind of activity. If you look at the marketplace, they are still telling dealers in some areas that you are going to grind out this gasoline volume or you are not going to be there and that is it. Mr. MOFFETT. To what extent did they put forward arguments either to you or in other places that this small independent operation is really a thing of the past and we need to get on with being more efficient and so forth? Mr. BINSTED. In all honesty, Mr. Congressman, they don't say this. With the exception of some companies, BP has almost said that. They have said that there is going to be a marketing change and it is going to be gasoline only and that they are going to operate them. Others have not said that. They say they are going to be dealer oriented and the dealer is the backbone. In the new concepts the major companies are moving forward in the totally self-service or the car care centers, the large operations, the key locations, and the dealer is being relegated to the conventional operations. They are going to need dealers in those because they cannot handle them. It is pretty obvious when you look at the gasoline throughput. The FEA figures show throughput for dealer stations of something like 24,000 gallons a month and the company operation has a throughput of about 60,000 gallons a month which would indicate that they are picking off the cream. Mr. MOFFETT. Thank you for your testimony. I yield back the balance of my time. Mr. SHARP [presiding]. Thank you, Mr. Binsted. I will wait until the chairman returns here; he may have a question. Mr. DINGELL. Mr. Binsted, you have made an excellent statement. Would you submit to us, if you please, documentation with regard to the comments in your second paragraph at page 8 wherein you referred as follows to the existing situation: Branded service station dealers have been locked into their branded supplier and cannot shop for a less expensive product. The result is that the dealer tankwagon price has remained high. Indeed, branded dealers have found that price to be high or higher than that at which their own suppliers and other competitors are selling the same gasoline at retail. Mr. BINSTED. I would be happy to submit something for the record at this point, Mr. Chairman. Mr. DINGELL. That would help. Mr. BINSTED. I think that I have already submitted some other material to the committee but we will develop some more if you like and get that to you also. Mr. DINGELL. It would be most helpful to us. [Testimony resumes on p. 131.] [The following material was received for the record:] GEORGIA ASSOCIATION OF PETROLEUM RETAILERS, INC., To: MEMBERS OF THE GEORGIA GENERAL ASSEMBLY. The gasoline retailers of this state respectfully ask for your vote for passage of H. B. 78. The General Assembly has found and has declared that distribution and sales through marketing agreements of gasoline in the state of Georgia vitally affects the general economy of the state, the public interest and public welfare. The anti-competitive nature of the petroleum industry in Georgia is hurtful to the public interest and welfare. This General Assembly can properly exercise its general police powers to limit the activities of some individual or group to protect the welfare of Georgians. A Lease and Dealer Agreement between a Distributor and a Dealer are integral parts of a single business relationship, basically that of a franchise. Distributors through experience, economic strength and superiority in bargaining position have acquired practical control in the business transaction between the parties so as to give the Distributors an undue advantage over the Dealers. Grossly unfair contractual obligations, contractual terms, and actual marketing practices are such today as to require legislative action in the public interest. Georgia's more than three million motor vehicles are served by a network of 4,500 retail gasoline outlets employing more than 15,000 workers. They are in danger of total destruction. The relief intended under H. B. 78 will effectively correct abuses in marketing practices and business relation ships to assure the highest degree of free competition in retail marketing and guarantee the consumer the lowest price with maximum service. The Supreme Court of New Jersey (A-144 September term, 1972), Shell Oil Company v. Frank Marinello, best describes conditions existing in the Georgia market which deserves corrective action by the 1976 Legislature. Excerpts are printed on page 6. Since Dealers are "locked-in" to buy product from their landlord-suppliers (Distributors) at whatever price They wish to charge, it is patently unfair to allow Distributors to use their profits at wholesale (advantage in buying price) to destroy the Dealers they supply and other Dealers who by contract are unable to buy at competitive wholesale prices. Under the present marketing system, the Dealers are financing their own destruction by paying artificially high wholesale prices for motor fuels from Distributors who are selling at retail at near or below the wholesale price charged to Dealers. Georgia consumers trading with Dealers are thus paying unnecessarily higher prices to enable Distributors to see to other Georgia consumers at artificially lower prices. The lower prices charged by Distributors at retail in their company operated stations are obviously intended to destroy their competition. When the competition has been successfully destroyed consumers can and will have higher prices with less service. Passage of H. B. 78 will not save a dealer's business life-but, it will help pay for his funeral. Above all other considerations this legislation will assure the consumer the lowest price with the best service by maintaining the elements of real competition in the marketplace. The following facts and evidences deserve your closest examination if you have any doubt about the ultimate destruction of gasoline Dealers in this State. Again, the gasoline retailers of this State do respectfully ask for, urge, and plead for passage of H. B. 78. Respectfully Submitted JACK W. HOUSTON, SUMMARY-WHAT H. B. 78 DOES 1. Extends Act 213 to cover all Distributors! (Distributor includes major oil ompanies and jobbers or others who sell at wholesale to dealers for resale.) 2. Prohibits demand for unreasonable and unnecessary hours of operation! 3. Extends "good cause" requirement for all Distributors to terminate and/or to refuse to renew a lease (Franchise)! 4. Extends 60-day notice and requirement to spell out reasons of a Distributor's intent to break a relationship (lease) with a Dealer! 5. Sets defenses for a Distributor to take a station away from a Dealer: A. Failure to comply with reasonable and essential conditions, or fails to act in good faith or fails to pay rent, or B. That refusal to renew is the result of good faith judgment and the Dealer has been paid just and adequate compensation for the take-a-way without good cause! 6. Gives Distributors the right to operate a retail station up to 180 days to avoid closedown when making Dealer changes! 7. Extends law to cover verbal as well as written contracts ( Act 213 now covers only written contracts)! 8. Requires that a Dealer who challenges a termination or a refusal to renew an agreement to have "clean hands" by showing that he has operated in good faith and that he has complied with the essential and reasonable terms of his agreement. LEGISLATIVE ACTION IN OTHER STATES States which already provide for Basic rules of fairness in relationships between Distributors and their Dealers are: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Pennsylvania. Other States are in process of placing laws on their books. . . The Congress is dealing with the issue (S. 323, H.R. 8117, S. 739, etc.) 1 Only Maryland at this time prohibits a distributor from operating a retail station. All require "good cause" for cancellation, termination and/or refusal to renew or to enter a new contract-plus other "fairness rules" in dealings between Distributors and Dealers. The Supreme Court of New Jersey (1972 September Term A-144), Shell Oil Company v. Frank Marinello, said: ". . . Shell had no legal right to terminate its relationship with Marinello except for good cause, i.e., the failure of Marinello to substantially comply with his obligations under the lease and Dealer agreement. . ." “. . . Shell argues that its lease of the service station premises to Marinello is independent of its Dealer agreement with him, and that its legal rights as a landlord under the lease are absolute and cannot be restricted. This is pure sophistry. The two contractual documents are but part of an integrated business relationship . . .” ". . . The record shows that while the product itself and the location are prime factors in the profitability of a service station, the personality and efforts of the Operator and the good will and clientele generated thereby are of major importance . . .” . . . Viewing the combined lease and franchise against the foregoing background, it becomes apparent that Shell is the dominant party and that the relationship lacks equality in the respective bargaining positions of the parties. Where there is grossly disproportionate bargaining power, the principle of freedom to contract is non-existent and unilateral terms result . . ". . . We hold (1) that the lease and Dealer agreement herein are integral parts of a single business relationship, basically that of a franchise, (2) that the provision giving Shell the absolute right to terminate on 10 days notice is void as against the public policy of this State, (3) that said public policy requires that there be read into the existing lease and Dealer agreement, and all future lease and Dealer agreements which may be negotiated in good faith between the parties, the restriction that Shell not have the unilateral right to terminate, cancel or fail to renew the franchise, including the lease, in absence of a showing that Marinello has failed to susbtantially perform his obligations under the lease and Dealer agreement, i.e., for good cause, and (4) that good cause for termination has not been shown in this case." Excerpts From: Federal Register, Vol. 40, No. 228 Tuesday, Nov. 25, 1975 "Title 10-Energy, Chapter 11-Federal Energy Administration Part 212Mandatory Petroleum Price Regulations. "Markup on Retail Sales of Gasoline to Reflect Increased non-Product Costs." “*** The FEA believes that there is ample cost data to justify the 3 cents maximum markup *** to reflect non-product cost increases which have been incurred since May, 1973 ***” "*** A survey of 200 dealers in Georgia based on data ***, also indicates a high rate of non-product cost increases. The average increase in monthly operating costs between the year 1973 and 1974 was calculated to be 3.6 cents per gallon... the survey did not take into account further increases in operating costs between 1974 and 1975 ***" (Note This data submitted by GAPR) Cents per Normal dealer profit-at May, 1973 (I). (The dealer followed company suggested prices) –– Increase in dealer profits authorized by Federal Energy Administration. (To cover increased nonproduct cost of operation) __ gallon 8.1 3.0 11. 1 Allowable (normal) dealer profit per gallon under Federal price controls. Some dealers had 1 to 2 cents higher profit depending on their needs___ When you add 11.1¢ to any wholesale price shown on invoices where Dealers paid Distributors for gasoline you get a higher retail price than the Dealer is actually charging. Therefore, Dealers are trying to meet competition-but are unable to drop to low prices charged at Distributor operated stations. (A) SAMPLING * * * Of Documents appearing on foldout pages identified "A" thru "I" establishes the following: |