THIS IS COMPETITION?

Each of these oil companies has formed partnerships on oil projects with every one of the others...

TESTIMONY OF CARL S. OLSON, VICE PRESIDENT, BAY STATE GASOLINE RETAILERS ASSOCIATION

Mr. OLSON. Mr. Chairman and members of the committee, my name is Carl S. Olson and I own and operate two service stations in Cambridge, Mass. I am also chairman of the legislative committee for Bay State Gasoline Dealers, and I might add that I am pretty well aware of what is going on in the marketplace in the State of Massachusetts.

I want to emphasize one fact and that is what is happening to the consumer as service stations dwindle from the marketplace. The consumer is forced to go back to the new car dealer if he cannot find service at a service station. And I might add that the labor rate in a new car dealer is much more expensive than it is at a service station dealer.

The New York Times recently had an article-and I can get you that article-that there was in excess of 12 million cars towed in last year, and I do not know what percentage was through engine failure, but the fact remains that as we dwindle from the marketplace people are not going to get the service, because there is no service provided at the refiner-run self-serve stations.

Mr. BEDELL. If you want to furnish that we will be glad to put it in the record.

Mr. OLSON. OK

Mr. BEDELL. Without objection, we will include it in the record. [See appendix J.]

Mr. OLSON. The next thing I want to go on to-we are talking— not only yesterday, but today-about predatory pricing. Prior to hopping on a plane to come here to testify, I took pictures at a station next door to my station-and try to follow me what I am trying to say-at 1:30 in the morning at a mutual station. This is a station that receives its product right from my own supplier, the same terminal-the reason I know that is that I followed the truck there to determine where the product came from. Their pricing to the consumer, $1.26. I came back 2 hours later to take a better picture because I had a Polaroid and the pictures did not come out properly. They increased it to $1.27, but my tank wagon for the same exact gasoline is $1.281. They are posting to the consumer considerably cheaper than what I am buying gasoline for.

If this continues in the marketplace, we will no longer be here, gentlemen. We cannot possibly compete in that type of market. I urge you, sincerely, to help pass this bill.

Time is running short and most of the things I am going to say, Mr. Chairman, have been said before. You have no time so I will go back to Mr. Houston at this time.

Mr. BEDELL. All of your statements will be entered in the record in full.

Without objection, your statement will be entered into the record at this point.

[Mr. Olson's prepared statement follows:]

PREPARED STATEMENT OF CARL S. OLSON, VICE PRESIDENT, BAY STATE GASOLINE RETAILERS ASSOCIATION

Gentlemen, I come here to address you today on behalf of a dying breed, the independent service station operator. The few of us who survived the 1970's are clinging to life in what could, at best, be described as a hostile environment. We

have absolutely no control over our costs. We have a similar lack of control over our supply of products. The public is in no way sympathetic to our plight and often it appears that government is equally unconcerned about our existence.

We are not asking for subsidies or restrictions on trade, just the opportunity to compete with others engaging in the same class of trade. I currently purchase my product from Sun Oil Company at what is called the Dealer Tank Wagon Price, which is, as of March 25th, $1.143 per gallon (tax not included). Sun Oil Company purchases this gas from Belcher Oil from $1.068, in Chelsea, MA., paying what is referred to as the unbranded rack price. The only difference between that truckload of gas at the terminal purchased by Sun and that truckload of gas delivered to me is seven and one half cents per gallon.

There are a number of high volume stations in Massachusetts benefiting from low wholesale price that are selling gasoline for well below my cost. When dealers, the traditional outlet for gasoline at retail, are unable to sell sufficient quantities of gasoline, the gasoline apportioned to the company's local distribution network must be distributed elsewhere. One alternative is to send it back to the refinery . . . of course this never happens. That surplus gas is sold to wholesale jobbers and brokers who can sell it through their networks at well below DTW and still make a sizable profit. Supply and Demand works on the wholesale level but the DTW price does not reflect the soft wholesale market. The dealer has got to face the consumer and his mounting resistance to price increases, and yet it is up to the dealer to provide whatever flexibility there is in the price of gas. Currently, the average dealer's gross profit on a gallon of gasoline represents about five percent of the total cost of a gallon of gasoline ($1.40 selling price, 10¢ margin, $1.30 DTW). Yet suppliers expect Dealers to lower their margins, to subtract from their 5 percent in order to increase sales.

The point is that the dealer can no longer afford to be flexible in his price. He can no longer compete with his supplier/landlord who continually increases his costs with no concern for his existence. My supplier can urge me to lower my prices to increase my volume and thereby remain afloat, but how is this possible during this period of conservation. On one hand the Oil Companies urge me to lower my price to spur demand and on the other they support decontrol of petroleum products with an eye toward price induced conservation.

If my inability to remain price competitive were not sufficiently alarming, I am also faced with massive increases in the cost of doing business. All of us are plagued by inflation but the dealer has been stymied in his every attempt to minimize costs or pass them through.

My fixed costs for 1980 were 25.4 percent higher than my fixed costs for 1979. Rent alone rose by 47 percent. Lessee Dealers are allowed virtually no input into their rental/supply agreements. I am faced with substantial material alterations in my relationship with my supplier/landlord every time I am presented with a new lease. Notice that I say presented. We do not negotiate leases. The Petroleum Marketing Practices Act provides for negotiation between franchisee and franchisor. The extent of the negotiations normally consist of an offer to "take it or leave it". Recently the Bay State Gasoline Retailers Association has attempted through a highly respected law firm to negotiate with Mobil Oil Corporation over their new lease policy. The lease is presented by Mobil for the benefit of Mobil. Dealers are asked to sign a lease which ignores many of the rights service station dealers have been granted under State and Federal law. To date they have refused any attempt to negotiate.

If the current climate is allowed to persist through the decade of the 1980's retail dealers will be but a hazy memory at it's end. It is up to the Congress of the United States to voice an opinion on the fate of the Independent Gasoline Retailer. Are we worth saving or aren't we?