We did this on the basis of our dealer affairs council meeting last September at which time we, in the course of communication, asked the dealers what we could do for them. One thing they said is that you can give us more information on what is going on in this business. What is happening from a political standpoint? We said that we would be happy to do this because there are some things that affect all of us and we are quite concerned about them. At that point in time, as the discussion evolved, the dealers said, look, you may find that when push comes to shove on some of these issues that you have got support that you did not realize because many of us are not necessarily in favor of the activities of the association.

Mr. BEDELL. I do not want to cut you short, but I think that is irrelevant. The question is, did the things in this letter occur? Mr. MULIT. We did not pressure any dealer to come to the meeting and we did not tell him that it had any involvement with our on-going business relationship. He was perfectly free to come there and beyond that he was perfectly free to draw his own. conclusion on what he wanted to do.

Mr. BEDELL. The real question is, did you furnish them pencil and paper at the meeting, and was there only one way out, and was there somebody there to see whether or not they left the letter there to be signed or not? That was the question. Is that incorrect? If it is we should correct it.

Mr. MULIT. I cannot testify, sir. I was not there. I cannot tell you that the meeting was held in a room with only one exit.

Mr. BEDELL. Would it be proper for you to check with your people and specifically-I think it is only fair that the committee have the answers-to that question as to whether once the people got in, whether those people who are renting from you, as I understand, your lessee dealers, were given paper and pencil to write in opposition to legislation and told how to write the letters, and then there was only one way out which was past the doorway where somebody was checking to see whether they gave them letters or not. I think that is a fair request. There may not be anything wrong with it, but I think the committee should at least know whether that happened.

Mr. MULIT. I would be perfectly happy to do so, sir, so that the record may reflect the circumstances correctly.

May I make just one closing remark? One of the reasons that cur dealers are interested in this kind of issue is the fact that the association does not represent all of their points of view. One of the association representatives made the remark that only 25 percent of the dealers belong and of the 25 percent that do belong to that association only 4 percent are active in political determinations. And that is the thing that our dealers wanted to avoid.

Mr. BEDELL. But that is not really the question I am asking. The question I am asking, really, is whether this letter is right, that those people were strong-armed that they had better write a certain type of a letter whether they believed it or not.

The question we want answers to is whether or not this description of what happened after the meeting is accurate? And that is all we are asking you. Send us a letter because if it is not accurate then it is improper to enter a letter such as this in the record, and

I think that it is only right that you have the opportunity to correct it.

[See appendix I, exhibit 4.]

Mr. BEDELL. We appreciate very much your testimony, both of you. We are going to have a 2-minute recess for the stenographer. I must say that I have talked to some members of the committeewe are running way behind as we did before. The chairman was a little bit too lenient in that I thought that there were good questions being asked and we wanted to dig into this issue, but unless there is objection, from here on he will strictly limit all members including the chairman, to no more than 5 minutes of questioning. Is there any objection to that among the members?

[No objection.]

[Recess.]

Mr. BEDELL. Our next set of witnesses is a panel consisting of Jack Houston of Atlanta, Ga., chairman, Government Affairs Committee of the Service Station Dealers of America. Al Dalziel, of the Iowa-Nebraska Gasoline Dealers Association, and Bill Douwsma, of the Indiana Service Station Dealers Association, and I see there are two or three more here. Do you want to introduce them, Mr. Houston?

Mr. HOUSTON. Mr. Chairman, we have Jim Ayotte from Massachusetts whose name was left off the list. Our general counsel Gerry Cohen is here with us, on my immediate left. Carl Olson is here also at the table. There are two tables here altogether as one panel. It was my understanding that you wanted both panels-Bay State Gasoline.

Mr. BEDELL. Good.

Mr. HOUSTON. In an attempt to speed it up.

Mr. BEDELL. The members of the committee, including the chairman, have been a little bit windier than we should have been and we have taken 2 hours for our first two sets of witnesses so we would urge you, if you could, to abbreviate your statements as much as you possibly could.

Mr. Conte, do you have any comments before they start?
Mr. CONTE. Not at the moment.

Mr. BEDELL. OK. You may proceed in whatever order you wish to.

TESTIMONY OF JACK W. HOUSTON, CHAIRMAN, GOVERNMENT AFFAIRS COMMITTEE, SERVICE STATION DEALERS OF AMERICA, ACCOMPANIED BY JERRY COHEN, GENERAL COUNSEL Mr. HOUSTON. Thank you, Mr. Chairman. I will consume about 5 minutes and then the others will have their say.

First of all, Mr. Chairman I would like to thank you and the subcommittee and the members of the full Small Business Committee for your consideration last year and for the intelligent way in which you dealt with the issue in an attempt to provide fair and reasonable legislation to correct a very bad situation in our industry, and we believe and have faith that you will be able to find some way to adjust, if there needs to be adjustment to the language coming up on H.R. 1362, to provide reasonable legislation to deal with the issue before you.

I would like to talk to you just a few moments about the issues of the bill but first I call your attention to the charts which we have set up over to the side. The chart No. 1 where it shows 94 percent at the top as full-service dealers. This is a survey in the State of Georgia, which I think is relative nationwide, which depicts that 6 percent of the full-service station operations are by refiner operations in metropolitan areas, and that when you look at the selfservice stations that 75.4 percent is reserved for the employee operations. And this is where a great part of our problem has come in. And as the self-serves came onstream they were reserved for the companies to be operated by employees, primarily, and very few leased out to retail dealers.

The gas-and-go in a very similar manner. In the metropolitan market almost 60 percent reserved for employee operations.

In chart No. 2, depicting the urban and rural markets which is primarily jobber-operated markets. Showing that 23.3 percent of the full service dealer operations now in that urban/rural market are operated with employees of jobbers; 45 percent of the selfservice outlets and 46 percent of the gas-and-go outlets. Again showing you the seriousness of what has happened in the market. And even this week there has been a report that jobbers have more than 51 percent of the sales of gasoline purchases from the companies and that they may never fall below that. And I suspect that they will not if they continue their advantage in the marketplace in which they are using their buying functional discount allowance to unfairly compete against retail dealers who must pay the artificially high prices.

I would like to call to your attention the elements of the bill which we think deserve passage and that is the entire bill, but specifically calling attention to those individual segments.

The Small Business Administration loan provision is an incidental part to clean up some language so that if and when any funds are available in the future that it would at least be possible to make the loans to a gasoline dealer for properties which refiners or jobbers may wish to sell to retail dealers. No funding involved. Strictly a matter of cleanup language to make it possible when and if funds are available.

The divorcement aspect of the bill is an extra step that we think the Congress needs to take for a long-range protection of the industry against the encroachment of and the eventual take over of the retail marketing of gasoline to a degree that the rest of the oil industry is controlled by those top 16 companies. And we say to you that this is an urgent need to block the way for this important step that could be taken to complete the package of control of crude oil until it is refined and to the consumer in his vehicle. We think that is against the public interest to allow that to happen and we believe that this bill deals fairly with that issue. On the sales ratio there certainly is a need and originally, as the chairman is aware, we proposed even at the beginning that as an industry recommendation divorcement of all the refiners.

But recognizing the competitive outcome in that segment of the industry as smaller refiners to the huge companies we certainly would support the sales ratio as a reasonable approach to handling the control so as to make sure that they do not, as small refiners,

encroach and destroy the market themselves through an unfair advantage in their ability to transfer the product into their own outlets and then to compete unfairly at low prices against their own dealers that they sell to.

The anticompetitive pricing of the bill is the crux of what we are talking about. Unless there is a correction of the very structure in the behavior of the industry and the way it markets gasoline to independent dealers, that is in the way it delivers gasoline in the same quantities, from the same point of distribution, on the same date, at the same price, we will not be able to survive. And we are looking only for the fair opportunity of starting the race and to run that race from the same starting point that any other retailer, any retailer including the jobber/employee retail operation, or a refiner which may be permitted to continue operating at retail, could operate so that we all start that running race at the same gate, so that we may have an opportunity to prove our efficiency in the market structure, and if we cannot prove that efficiency then we do not deserve to survive.

This bill will not guarantee our survival. It only provides an opportunity for that survival if we prove ourselves in the marketplace.

And the open-supply section again is an issue in which the ability of the dealer who is caught in a bind because he has a contract to buy product from a given supplier under a specified arrangement to use the property, that he be freed at least to go elsewhere if his own supplier will not meet a reasonable price offering from another supplier.

Now all the refiners will control the opportunity to keep their product 100 percent on the property. All they have to do in the future if this becomes law is to meet with reasonable degree the price offering from someone else on that property and they will choose whether or not to allow another brand to come on that property.

I would hasten to-in order to conserve time for the benefit of the chairman-wrap up my comments at this point and ask the others to say a few things here and then let us come back to this. But I want to emphasize to you the importance-that a comment made before this group yesterday in testimony by Mr. Goldstein of Maryland, was one of the most outstanding and I think appropriate ways of measuring who has been destroyed in the marketplace because of the unfair practices that are in the system of the supplier competing against us in the retail business at prices we cannot afford to meet. And he put the handle on it by saying that there was 5 percent attrition or elimination of dealers in the Maryland area during the same 2-year period that Lundberg says has just recently reported more than 20 percent.

Now my quick calculation says 75 percent, therefore, of all dealers who were destroyed in the last 2 years nationwide, could have been and were destroyed by that analysis by the fact that they were competing with their own suppliers in the marketplace.

Mr. Chairman I would now like to yield to Mr. Al Dalziel. Mr. BEDELL. Just one moment. Without objection, your statement, Mr. Houston, will be entered into the record at this point. [Mr. Houston's prepared statement with attachment follows:]

PREPARED STATEMENT OF JACK W. HOUSTON, CHAIRMAN, GOVERNMENT AFFAIRS COMMITTEE, SERVICE STATION DEALERS OF AMERICA

Mr. Chairman, my name is Jack W. Houston. I am the Chairman of the Government Affairs Committee and formerly Acting Executive Director of the Service Station Dealers of America (SSDA), formerly the National Congress of Petroleum Retailers. We represent nearly 60,000 gasoline retail dealers who are members of our affiliated dealer associations located in 42 states, the District of Columbia, and Puerto Rico. We are most appreciative of the opportunity to appear here this morning to testify relative to H.R. 1362, the Small Business Motor Fuel Marketer Preservation Act of 1981.

We hope that at this forum you and the members of your Subcommittee, as well as your colleagues in the full House, will see the wisdom and merit of enacting into law this crucial piece of legislation.

This legislation is crucial for two reasons: (1) It means that upon its enactment the independent franchise gasoline dealer will have an opportunity to function in the marketplace as an independent small businessman. (2) The enactment of this legislation will allow for free competition in the marketplace and thus will be of the greatest benefit to the ultimate consumer of retail gasoline.

The substance of the legislative proposal that is now before you is a proposal to provide some basic fairness to assure that free market conditions will prevail in the future in the public interest.

We ask for your support and for your vote to correct certain marketing practices of refiners and local jobber-distributors which are causing the untimely and unjustified destruction of competition and the removal of small businesses from the retail marketing of motor fuels. To prevent this it is essential that Congress enact at an early date some basic safeguards and restructuring to require equitable distribution of products at equitable prices. Decontrol only serves to emphasize this urgency in that those who have engaged in the marketing practices which make this legislation necessary may now accelerate their activities at will, thereby speeding up the demise of competition and small business in gasoline marketing.

The more crucial provisions of the legislation are both reasonable and of material significance to future gasoline marketing. They contain the essential ingredients for real competition among large numbers of small business persons for maximum benefit to consumers.

The practices at which the bill is aimed have been detailed in years and years of hearings before Congressional Committees, and I do not intend to reiterate them in the time allowed here. Suffice it to say that the record is complete and overflowing in Support for Congressional action. In particular, we refer to the testimony submitted to this Committee in the 96th Congress on H.R. 6722 and the three-volume record your Committee developed in conducting hearings in major cities across the nation during 1979. In addition, "The Case for Legislative Relief From The Impending Destruction of Small Business And Competition In The Gasoline Industry", a copyrighted work, Allvine/Houston/Phillips, January 22, 1980, provides a comprehensive in-depth composite of documented data from authoritative sources. A copy is attached, and we respectfully ask that it be inserted in total into the record of this hearing.

Further, a recent statement by Prof. John J. Flynn to the Utah Legislature contains background information making clear the necessity of the divorcement section of the proposed legislation. The complete text of his statement relative to Utah H.B. 32, the Petroleum Products Competition bill, provides valid arguments for enacting divorcement legislation and is attached hereto so that members of this Committee and the full Congress may have access to the knowledge, understanding and expertise of Professor Flynn on issues relative to the pending legislation before this Congress.

What is important to reiterate is that anticompetitive practices which exist, whether with good or bad intentions, have the same adverse impact on competition. Any market will generally sink to the lowest common denominator.

As a result, the market must be structured and pricing equalized in such a way as to eliminate the practices which have proven to be anticompetitive in the past and which continue today. That is what this bill intends to do.

It is important also that this Committee understand the motive behind the Service Station Dealers of America's urging of divorcement of certain refiners from the operation of, but not the ownership of, retail outlets. This point and 19 others are briefly explained in the 1981 Copyrighted "Twenty Questions and Answers," which I prepared and published as Government Affairs Committee Chairman of the Service Station Dealers of America.

This bill approaches the basic problems facing the dealers in two significant ways. The first is structural and the second behavioral.