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Mr. BINSTED. These are different types of operations particularly if you are talking about Hudson. It is a private brand as you well know. They are just now going into refining, I understand, but they had not been integrated. Before they were simply a chain operation of private-brand service stations that bought from either independent refiners or from major oil companies and so they were not refiner marketers. They were, albeit a large chain, independent dealers.

Mr. BROWN. Let me ask you this. In a franchise nonrenewal situation where the supplier wants to sell the station or use the property for other purposes, do you believe that the supplier should be able to dispose of the property without liability under this bill?

Mr. BINSTED. Not without liability. The bill provides that he has some liability even under the good business reasons. If he is going to dispose of that property and it is going to remain a service station, I think certainly that the dealer who is in there, if he has been in there for a number of years, should have at least first option to buy that service station.

Mr. BROWN. What if he wants to alter the kind of service given in that station, either to the self-service island or the gas-and-go type operation?

Mr. BINSTED. It would be my opinion, and I would ask legal counsel to comment on it also, that we probably could not stop him from changing the character of the service station but that should be no reason for disenfranchising the person in there if it is the end of a lease term.

Mr. BROWN. Even if it reduces the margin?

Mr. BINSTED. Well, it would not necessarily reduce the margin. The company does not dictate what the margin is. That is up to the independent dealer, or at least so the company tells us.

Mr. BROWN. What about the reduction of price of the gas-and-go service?

Mr. BINSTED. The gasoline, the reduction of price, the company does not reduce the price to the dealer when the dealer goes to selfservice. He has to assume the total responsibility for any reduction in price if he goes self-service. The company does not participate in that at all.

Mr. COHEN. This has been the real trouble, Mr. Congressman. If a company, for instance, wants a lower price to the consumer, all they have to do is drop their dealer tank price to the dealer, and ordinary competition in that area particularly now will keep him operating at a narrow profit. The problem has been when the company goes into their own stations they are selling to themselves at a much cheaper price than they are selling to their own dealers and this is what led to the problem, it is not that self-service gas is cheaper.

Mr. BROWN. Let me just ask the question in a hypothetical way. Suppose the company makes the determination that there is a shift in market preference to cheaper gasoline without service-in other words, a self-service gasoline station. Now the company then says to the dealer,

We don't want to have the base in there for the kind of service that you offer we don't want to have the mechanics, we want a gas-and-go operation in this location because we want to continue to have our share of the market

and we are afraid we will lose that to somebody else when they have cheaper gasoline.

How is that relationship going to be worked out in this bill?

Mr. BINSTED. I would say one thing. I am not sure that they ought to be able to dictate that themselves first of all. Now it may be that if they feel that they have to dictate that, maybe they should be separated from marketing so they would not have that option to dictate how the retail business is going to be run.

Mr. BROWN. The question I guess I am asking is if the company is franchised-a restaurant-and you want to change it from the Embers to Mrs. Smith's Tea Room and Palm Reading to a balanced hamburger stand, how does the company do that in order to meet competition? I guess they don't have that right.

Mr. BINSTED. As I say, we probably have no objection to the changing of the character of it but that does not necessarily mean that the dealer has to be disenfranchised. If it is a gasoline only operation, then the dealer would stay in there and run the operation as that kind of an operation unless he elected to leave and then he is protected under the bill anyway.

Mr. BROWN. I think the thing that we are all concerned about, and you know Members of Congress like to bring these things out to some kind of compromise that pleases everybody and that sometimes is not possible the question is we want to see that the dealer is not squeezed out by a company that says, "We are going to own all the stations and so the heck with the dealer relationship," and yet we don't want to see a system protected by law that would create an inefficient situation where the prices are high or higher for the consumer than they need to be or that he really wants and that he does not have the kind of choice between service and low prices and that you have a system that protects inefficiencies or creates unsatisfactory conditions from the standpoint of the individual consumer.

Mr. BINSTED. There is a lot of concern now that we are hearing from people, actually from some ladies that I talk to, the Better Business Bureau, that we are going too much to gas-and-go, we have not got enough service establishments left and they are concerned about it. The AAA has some concern. Are we going to allow the industry to dictate what the public wants and needs or the Congress? Mr. BROWN. I would like the consumer to dictate it and I don't want to write into the law some inflexibility that keeps the consumer from being able to express himself by what he does. I don't want to protect an unscrupulous operator or the company at the top either. Mr. BINSTED. We understand that and we don't want to lock it in but we don't want them to necessarily make all the unilateral decisions as to exactly how everything is going to be run down stream. That is what we are saying.

Mr. BROWN. Can we meet my concerns in this legislation?

Mr. SHIPLEY. Mr. Congressman, I would like to reply somewhat in an area. I could not agree with you more. Ultimately the consumer should make the decision but it is at meetings such as this for the last 20 years that we pointed out that the industry developed a highly inefficient marketing structure that we had. It was not the retail segment that we represent that built 220,000 stations throughout this

country all highly inefficient, four on a corner where one was needed. So long as there was profit in the production end of the business, they found some way to dump it.

Now there is an inefficiency out there and it is going to be changed. We are not going to stop it, Congress is not going to stop it, industry is not going to stop it. The consumer is demanding lower prices. We want a market structure that will allow us to compete fairly for that. The consumer will make up his mind. Does he want to pay the extra money for full service? Does he want some savings for a little service or maybe a little savings for a full self-service station? We think the consumer is going to be ultimately the man that makes that decision. We think that we should have the opportunity to determine also whether or not we can participate in it. We have been precluded from having the competitive prices to allow us to compete in these areas. Mr. BROWN. That is what the Congress has done in setting the prices. Do you think a moratorium accomplishes this?

Mr. SHIPLEY. Absolutely, yes. Insulating us in in the way of a day in court and now allowing some fair trade practices to be developed during the interim will allow us to be economically terminated during this interim and that is in fact what is taking place in the marketplace today with our suppliers selling on the street at or below our wholesale price. Give us an opportunity to service the public at a lower price instead of assuring to the major suppliers that they can take their marketing money, their production profit and take all the business from us. That is in fact what is happening in the marketplace today and that is why we need that moratorium until you can develop this study.

Mr. DINGELL. The time of the gentleman has expired.

The Chair notes that we have received certain materials from our witnesses-Mr. Shipley, Mr. Binsted and Mr. Haskell. Without objection, those documents will be inserted into the record at the appropriate point. [See p. 83.]

The record will remain open for further public suggestions and for such responses as the Chair may request.

The Chair is constrained to observe that the bill does not prevent the majors or the suppliers from terminating inefficient or incompetent or corrupt operators, nor does it prevent them from exercising prudent business judgment. The Chair wants it very clear that such is not the intention of the bill.

The Chair observes that that is the second set of bells. We will be in recess for a few moments while we go over and vote. We will return as punctually as possible.

When we return we will hear the National Oil Jobbers Council, Mr. Robert Amori, accompanied by Mr. Robert S. Bassman.

Gentlemen, the Chair expresses thanks to you all. We were delighted to have you appear before the subcommittee.

We will stand in recess.

[Brief recess.]

Mr. DINGELL. The subcommittee will come to order.

The subcommittee continues its hearings on H.R. 13000, S. 323, H.R. 612, and a number of other similar pieces of legislation.

We are very pleased now to welcome an old friend back to the subcommittee, Mr. Robert Amori, representing the National Oil Jobbers Council, accompanied by Mr. Robert S. Bassman.

Gentlemen, we are delighted you are here to give us your testimony. If you will identify yourselves fully for purposes of the record, we will be pleased to hear your statement.

STATEMENT OF ROBERT AMORI ON BEHALF OF THE NATIONAL OIL JOBBERS COUNCIL, ACCOMPANIED BY ROBERT S. BASSMAN, COUNSEL

Mr. AMORI. Thank you, Mr. Chairman.

My name is Robert Amori and I am the executive vice president of Barnosky Oils, Incorporated, of Wyandotte, Mich. I am appearing today on behalf of the National Oil Jobbers Council. I have been active in NOJC for many years and this year I am privileged to serve as chairman of NOJC's brand chairmen committee. NOJC is a federation of 42 State and regional trade associations representing thousands of independent small businessmen who market petroleum products. Members include gasoline and diesel fuel wholesalers, commissioned distributors of gasoline, gasoline reseller-retailer and a large number of retail fuel oil dealers. Members also wholesale or retail many other petroleum products, including kerosene, LP gas, aviation fuels and motor oils as well as residual fuel oil. Together our members market approximately 75 percent of the home heating oils and 25 percent of the gasoline sold in America under either their own private brand or the trademark of their supplier.

On behalf of all the members of NOJC I should like to thank this committee for the opportunity to appear before it this afternoon. NOJC members are doubly interested in this franchise legislation. Every NOJC member acquires gasoline and diesel fuel from a refiner and in a majority of cases our members choose to market under the brand of that supplier. As such, our members are a major beneficiary of S. 323 and of the legislation just introduced by Chairman Dingell. At the same time, however, a large majority of our gasoline marketers are wholesalers, not retailers. These members own an average of six service stations which they lease to dealers, almost all of whom use the brand of the distributor's supplier. As lessors and franchisors, these members would incur obligations as well as rights.

Because of their dual role, NOJC members have mixed reactions. to the proposed legislation. Some are uncertain about their supplier's actions. They hear reports of plans to withdraw from some market areas. They are confronted by refiner owned direct retail outlets, some with secondary brands, posting prices which their buying price makes impossible to match even if they "go direct." Many jobbers have been told that they must consolidate to form super jobberships which, some fear, may not include any place for them. Naturally, many of these distributors support the provisions of this legislation because they may need them.

Other refiner actions pose similar threats to distributors. As a Union oil jobber I can relate a rather unique but nonetheless serious threat to the survival of one group of independent branded mark

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eters. Union has for the past 2 years considered itself a marketer of only two products, unleaded and premium. This leaves Union marketers a situation where they have nothing to sell to the still predominant segment of the consuming public which requires a leaded regular gasoline. This situation jeopardizes the viability of my distributorship and has already caused a number of my dealers to terminate their relationships with me.

But for every distributor facing one or more of the uncertainties I just described, there is another distributor with at least one dealer who is runing both himself and his outlet. At times some dealers are just not good businessmen; they won't meet the competitive demands of their business in the areas of price and services. Sometimes tension between distributors and dealers develop because of the way gasoline has been priced; "gallonage rents" decline when a dealer refuses to join in price competition because his interest is better served by focusing all his efforts on garage work so that the garage operates almost rent free. Occasionally, the dealer is simply dishonest or he abandons a station.

More and more distributors and dealers are finding themselves faced with an impossible situation. A refiner or private brander opens a nearby outlet that does nothing but sell gasoline at a very low price. In some cases, particularly where "small" or "independent" refiners are involved, this price reflects an entitlements subsidy with which the Congress intended to encourage smaller refiners-but not giant direct marketers. Where this form of price competition develops, there will either be insufficient volume or insufficient margin to support both the dealer and the distributor who owns the outlet. Either way, the dealer is eventually bankrupted and the distributor is forced to operate the outlet directly. It would be foolish and unfair to use another dealer when the jobber knows there is insufficient profit to support two marketers. Moreover, a series of bankrupt dealers would eventually ruin the distributor as well.

With the exception of forward integration by refiners, distributors don't complain about these problems to the Congress. They accept most of the difficulties associated with leasing to dealers as part of the cost of doing business. I mention these problems today only because it is critical that the members of this subcommittee understand that distributor-dealer relations are a two-way street. We are small businessmen like dealers. We have larger investments than dealers, but not one of our members has the financial resources of a refiner. If the subcommittee is going to balance the distributordealer relationship, it must know what is already on both sides of the scales. And the subcommittee must recognize that the balance between refiners and dealers is not always an appropriate balance between distributors and dealers.

Let me say here that I market predominantly through lessee dealers and will prefer to continue to market through lessee dealers. I believe that my sentiment is echoed by virtually all of NOJC's membership. There are, of course, in any such large body, exceptions but I believe that the overwhelming preponderance of NOJC members would, like myself, continue to market through dealers until forced by competition from refiner direct operations and large chain nonbranders to go direct themselves.

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