the unfair competition between the entities. If we did not have this basically unfair competition existing, perhaps the lease problem would not be as severe. Perhaps it would not be necessary to enact additional legislation. There are provisions, of course, under other legislation that are currently on the books. The Petroleum Marketing Practices Act legislation speaks to this issue. The difficulty, I think, that the subcommittee of last year encountered as we looked at the effectiveness of that legislation is that many of the people who operate independent stations do not have the resources to compete effectively in court with their suppliers-those who would be extending the terms of the lease to them. And so that legislation is important. It is helpful. It speaks to this issue and, perhaps combined with this legislation, would provide a fair level of competition for dealers. But it certainly is an issue which should be studied more carefully. Mr. ECKART. The legislation also proposes to extend to the SBA provisions for making available loans, would-if you don't have the answer, maybe this goes to the staff-under the President's proposed budget cuts, this increasing availability in the statute be realizable if there is, in fact, no additional funds made available for these loans. Has our staff, or have you looked at this aspect of it? Mr. ROSENBERG. Mr. Chairman, if I might address that? The language of the legislation is required because the current prohibitions in the SBA statutes state that a loan may not be made if the principle purpose of the loan is for the acquisition of land. The largest single value in most gas station acquisitions is the property on which the station is located and for that reason there have been dealers the committee was told last year by a representative of the Small Business Administration-that there were dealers who had sought assistance from SBA in trying to acquire a property and were denied access to the loan guarantees. There is nothing in the statute that makes any additional moneys available other than what is already in the SBA program, and there are no funding provisions in the legislation whatsoever. It merely provides access to existing programs. Mr. BEDELL. Thank you, Mr. Eckart. Mr. Hiler? Mr. HILER. Thank you, Mr. Chairman. Congressman, how does the unfair competition of which you have spoken manifest itself? Mr. TAUKE. I believe that it manifests itself in a variety of ways. For some dealers it means that they go out of business. For some dealers it means that they do not prosper as well in their business as they could. In my own district, for example, there are some dealers who find themselves competing with their branded dealers. Others find themselves competing with unbranded stations that are owned by their own suppliers, by the first dealer's suppliers. The price differential between the product at the two stations is substantial. It means that the independent dealer has a tough time making the kind of living that that dealer would if it were not for unfair competition from his or her supplier. For some dealers it has meant that their leases have doubled or tripled or more, in a very short period of time. There are many ways in which this can manifest itself but I think that it can be generally stated that the independent dealers do not receive the economic rewards for their efforts and their investments, that they would if they were not experiencing unfair competition. I might say also that in the long term I think this has a very detrimental impact upon consumers. Mr. HILER. That was going to be one of my next questions. Do you think we are paying higher prices for petroleum today in the station down the block because of this? Mr. TAUKE. I don't think that we can say we are paying higher prices at stations down the block because of it. In fact I think that it is fair to conclude and you will undoubtedly receive evidence which will show that stations that are operated directly by the refiners are charging less for the product that they sell than the station that is operated by the independent dealer. There are a variety of reasons for that-volume, the method of operation, whether or not it is branded, and a whole variety of other things. My assumption is, as I think it is fair to say in almost any economic circumstance that if you have a situation occur where an entity gains control over an aspect of the marketplace that that entity can be expected to use that control to eventually achieve unfair profits and charge extraordinarily high prices. We want to prevent a monopoly, I think, or monopolistic tendencies. We want to insure competition and that's the purpose of the legislation. And it is my belief that the consumer will be better protected by competition. Mr. HILER. How many closings in the last 10 years-I think the chairman's testimony was that there were about 80,000 closingshow many-— Mr. TAUKE. I included that in my comments, Mr. Hiler, yes. Mr. HILER. How many of those would you attribute to the unfair competition or the predatory practice? Mr. TAUKE. I would hesitate to pick a number out of the air. I don't think that it is possible to determine that number at all. In my judgment at least, and I think this is a judgment call, a majority of those stations closed not because of unfair competition but because of the change in the marketplace. We are consuming less gasoline. The price is higher. The methods of marketing are different and all of those things have resulted in changes in the marketplace which means that we don't need and cannot afford as many stations as we had in 1972. So I don't think that 80,000 statistic should be used to suggest that 80,000 people have gone out of business because of unfair competition. It's just one trend which caused us to look at the whole issue and I think that some of those people went out of business because of unfair competition but clearly not a majority of them went out of business for that reason. Mr. HILER. A second reason that you gave had to do with profit margins. How much of the average service station profit-say, Marathon, or Shell, or Amoco, or Sohio-comes from the sale of gasoline and how much from ancillary things that come along? Mr. TAUKE. I believe that when we had those companies before our subcommittee last year that we attempted to secure that kind of information. I don't believe we were successful in doing so but that is something that probably should be checked with the staff. I don't think we ever secured that information. From what I think I know about the industry, I would assume that these companies would be like other companies and that the retail marketing aspect of their operations would not account for a significant percentagemaybe I should say a substantial percentage of their overall profits. I would assume that it would be a relatively small portion of their overall profits that would be attributable to retail marketing, even for a Sohio. Mr. HILER. I think maybe you misunderstood my question. Mr. HILER. I am talking about a Sohio dealer selling 40,000 gallons a month-how much of this profit is coming from the gasoline sales of 40,000 gallons a month and how much is coming from the service that he provides like the maintenance on autos, the sale of mufflers, the sale of lights, the sale of windshield wipers and so on? Mr. TAUKE. I don't think that we have that kind of information available. It depends on a great number of things and that would vary, obviously, from station to station. It would depend on the volume and it would depend on the margin of profit per gallon in the individual area and at the time studied. I mean, the margins of profit for independent dealers vary greatly from time to time and from area to area, depending on the market conditions. We have seen that in just the past few months. It would depend on how substantial the muffler business or the repair business happen to be, and that varies greatly from station to station so I really can't give an answer to that question. Mr. HILER. The price differential that is charged, that shows up, how much a gallon normally is that price differential? What goes to the dealer and what goes to a refiner owned station? Mr. TAUKE. Again, it varies very substantially from one situation to another. I am sorry, let me make sure I understand the question. If I am a supplier and I am selling you, an independent dealer, gasoline and then supplying it to my own station, what is the differential between the two? Mr. HILER. Yes. Mr. TAUKE. That's a subject of great argument, I guess, is the best answer that I can give. And that's one of the judgment calls that you will be asked to make. Mr. HILER. The reason I pose these questions is that in your statement the reason that we would pass the bill would be because of the fact that there is unfair competition existing, and the reasons you cited were profits, closings, price differentials-were three of the majors, yet we couldn't attribute necessarily, a significant number of the closings. Profits, we were not sure. Price differentials we do not know. In addition we have the FTC, the Department of Energy and the Department of Justice all opposed to the bill. What kind of data can you give me that illustrates that what we are taking is preventative action? Mr. TAUKE. Mr. Hiler, I think that we both could conclude that five individuals can look at a body of information and all reach different conclusions about what that information tells them. And so I would ask you to look at the information and maybe you will reach different conclusions than I have. I think that we can look at concepts and ideas and generally reach the same conclusion. I have looked at the situation that exists in the retail gasoline market in our country and I don't see how it could be fair. And that situation is basically this: On the one hand you have a supplier who is providing gasoline to an independent dealer, that independent dealer is dependent on the supplier for supply, is dependent upon the supplier for credit, is dependent on the supplier for terms of lease and for a variety of other things. That same supplier then operates a station down the block from the independent dealer, and I don't see how you could conclude that the two could operate on equal footing and that there could be fair competition between the two. The competition between the independent dealer and his or her own supplier, in my judgment, cannot possibly be fair, and I guess it is that concept that I think is most convincing. The data that is before us can probably be interpreted a variety of ways, and I can assure you that there are others who will offer differing interpretations to you. Mr. HILER. Thank you, Mr. Chairman. Mr. BEDELL. Thank you, Mr. Hiler. We are short on time. The chairman is going to hold his time pretty much to schedule, but I think the last point made by the witness is very important and I hope that we would realize that at least in the last Congress the concern was the situation that will exist with decontrol, which then gives the two people competing, one of them has control over so many of the aspects of the cost to the competitor. And we can show you letters where majors have taken unfair advantage of their dealers and so on, in the past, and I think that is important. But I hope we will not lose sight of the fact that the concern, at least in the last Congress-as the witness has so clearly indicatedwas the situation which we now face with decontrol, wherein we had at least had one major oil company come before us and tell us that they considered themselves to be competing with their own. dealer network, and that they could make greater profits in their own company operated stations than they could selling to their dealers. And if that were to be the case then under decontrol, where they control so many of the costs of their own dealers and it makes sense for them, from an economic standpoint, to push them out and control it themselves. That is our purpose, I think, more than anything-it is not to argue about what has happened in the past, so much, as to look at the problems that at least some of us think we face at this time. In all fairness, I think we did not think decontrol would come quite as quickly as it has, but it is here with us now and I think that the committee should at least know that that was, I believe, the major consideration. Mr. TAUKE. I believe the chairman fairly states that. I think it also should be pointed out that we were particularly concerned-at least this member was-about what would happen during a time of shortage of supply. If you have that kind of circumstance and you have 100,000 gallons-if you can put it this way-available for Blue Ridge Mountain, wherever, then it is a question of who is going to get that 100,000 gallons? The independent dealer or the company operated the station, if the two operate in the same community. I believe that the company operated station, under those circumstances, is not inclined to give the 100,000 gallons to the independent dealer. I suspect they would not even be inclined to give at 50/ 50, but if it is true that they operate by the conditions of the marketplace, they will be inclined to take the lion share of that product themselves. Mr. BEDELL. I thank the gentleman. Finally, with regard to Mr. Eckart's question with regard to lease terms, at least it would be the chairman's opinion that if the petroleum companies did not have the alternative of selling their oil through their own station as compared to those they lease, there would be some pressure upon them to be more reasonable about the leases they make if they have to be dependent upon those leaseholders in order to get their gasoline sold and don't have the other alternative. We thank you very much for all of the time you spent and you are welcome to join us here if you wish to, Mr. Tauke. I see Mr. Metzenbaum has just come in. We appreciate your being here Senator and we will try not to keep you as long as we kept our last witness. I might tell you that by and large this is a new committee here and they are very anxious to learn as much as they can about this problem and that is why some of the questions go so much longer than they might otherwise go. TESTIMONY OF HON. HOWARD METZENBAUM, U.S. SENATOR FROM OHIO, ACCOMPANIED BY H. SCHWARTZ Mr. METZENBAUM. I would like to take this means of commending you for your leadership with respect to this matter. I think it is important leadership, and I am looking forward to working with you in developing this program. I see my own Congressperson, Denny Eckart, so I know that this is a great committee. With your chairmanship and Denny on it, it has got to be good. Mr. BEDELL. At least your Congressman might listen to what you have to say, Senator. Mr. METZENBAUM. This is not a new subject. As a matter of fact, it is an old subject. Only each day and each week the problem becomes greater and it becomes rougher on the independent gasoline station operator. Today the gasoline station operator is fighting an operation, literally, bigger than the Government of the United States and, in many respects certainly more powerful. The oil industry today is a few large companies that control 93 percent of the domestically proven crude in this country, 90 percent of the crude pipelines, 80 percent of the refining capacity, and 75 percent of finished product pipeline capacity. I remember when Attorney General of the United States Griffin Bell came before our committee, the Antitrust Subcommittee of the Senate, and talked about legislation requiring the spin off of marketing operations of the oil companies. With the integrated holds that they now have, the oil companies could literally afford to subsidize, and take such other practices as they deem necessary in order to squeeze the independent. They certainly have the profits. Unbelievable profits. $10 billion in profits that came about solely by reason of decontrol, just like that [snap of the finger]. And at |