H.R. 1362-SMALL BUSINESS MOTOR FUEL WEDNESDAY, APRIL 1, 1981 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY, ENVIRONMENT, AND Washington, D.C. The subcommittee met pursuant to notice, at 2:05 p.m., in room 2359A Rayburn House Office Building, Hon. Berkley Bedell (chairman of the subcommittee) presiding. OPENING STATEMENT OF CHAIRMAN BEDELL Mr. BEDELL. The subcommittee will come to order. I would like to welcome everybody to our April Fools' Day hearings here at the subcommittee. We will try to move along so that we are not here until after 6 o'clock as we were yesterday. This is our second and final day of hearings on H.R. 1362, the Small Business Motor Fuel Marketer Preservation Act of 1981. Today's list of witnesses covers the gamut of those involved in motor fuel marketing. Major integrated oil companies, jobbers, dealers, chain marketers, and so forth. I am especially pleased that so many of our witnesses do actually have firsthand knowledge of the industry and are not merely professional spokesmen. The subcommittee's purpose in holding these hearings is to listen and learn from our witnesses and we look forward to hearing from them. We do have a full witness list again today and I ask that all the witnesses keep their remarks as brief as possible. Their written statements will be entered in full in the record. And now I will attempt to lead the way, by example, and conclude my opening remarks at this point. Mr. Hatcher, do you have any opening remarks? Mr. HATCHER. No thank you, Mr. Chairman. Mr. BEDELL. Mr. Hiler, do you have any opening remarks? Mr. BEDELL. There is one witness today who is a late addition to our roster. He also is distinguished by being perhaps the only person who will testify today who does not have a personal interest in the legislation before us and he does not represent those who do. He is not being paid by anyone to be here. In fact he has taken a day away from his business. He is here only because I asked him to come. I am referring to our first witness here, Dave Nadolski, who happens to be a constituent of mine. Perhaps of greater interest to the subcommittee is the fact that Dave used to work for a major oil company. One that we have mentioned before in these hearings. I talked to Dave on the telephone just this past Monday and I consulted with Congressman Conte, our ranking minority member and we agreed that the subcommittee's understanding of the issue before us might be enhanced by what Mr. Nadolski could tell us. Since he was invited less than 48 hours ago I do not expect that he had a chance to prepare a formal written statement. Because this is Dave's first appearance before a congressional committee and he is here on very short notice, we will therefore proceed somewhat informally. Dave, do you want to come up to the table and give us your testimony and then some of us may have some questions of you? Before you begin-Mr. Mavroules, do you have a statement that you want to make? Mr. MAVROULES. Not at this time. Thank you, Mr. Chairman. Mr. BEDELL. OK, Mr. Nadolski, you may proceed. TESTIMONY OF DAVID L. NADOLSKI, OWNER, REAL ESTATE/ INSURANCE AGENCY, CHEROKEE, IOWA Mr. NADOLSKI. Thank you Congressman. My name is David L. Nadolski. N as in nervous, a-d-o-l-s-k-i. I am from Cherokee, Iowa, and I own and operate a real estate/insurance agency there. I have since 1968. In the fall of 1966 I graduated from the University of Notre Dame and was employed by Standard Oil of Ohio. I was employed by Standard Oil in their marketing training program and after a month or two of doing various menial jobs to get a feel of the business, I was assigned to the real estate site development department. After a period of 4 to 6 months I was assigned to the marketing department and until my resignation in early 1968 I was a dealer-rep. My responsibilities both in the real estate and in the marketing department required me to have direct contact with the dealeroperators-the independent businessmen. In the real estate site division, part of my responsibility-upon the instructions of my supervisors-was to find and locate sites that would be potentially desirable for Sohio refiner-operated locations in the State of Ohio and I also had some responsibility outside the State of Ohio under the Boron Oil Co. name. We also had some participation in disposing of existing sites for Standard Oil that they no longer desired to maintain. My responsibilities in the marketing department were to oversee approximately 20 to 25 dealer-operated stations and be their contact with the company in both the suggested management of their stations and the sale of items to them. I also assisted dealers with any problems they had with the company and on some occasions helped negotiate with the lease that we had with them. My concern with this situation that you gentlemen are discussing today goes back to those early days and, in fact led to my resignation with Standard Oil, was based on my difference of philosophy on how a business should be run. I want to make it very clear at this time that at no time was I in a position of any type of management. I was a well-paid gopher, fresh out of college. I also would like to make the statement that this happened 14 years ago, and in trying to recall specifics, and names, and incidences in a 48-hour period of time is difficult for me, but I can comment to some general things and some specific remembrances that I do have. My involvement with the real estate department strikes me after the years that I have been away from Standard Oil, as we were instructed to purchase land, and instructed to find sites with little regard to existing dealers. It was never impressed on me that I was to protect the existing dealer. In fact, I can recall some situations where we would go in direct competition with an existing dealer. In one case-and I am sorry, I cannot give you specific location-we went directly across the street from an existing dealer. I can recall an informal conversation that I was a part of, where it was impressed on me that the attempt was, at that time, to put that gentleman in a position where he was not so easily able to negotiate his new lease coming up with Standard Oil. I questioned the move about putting a company-operated station across from a dealer station and it was explained to me that there was so much volume at that four-corner location that they could support two stations. But it was very obvious at that time that the guy that was going to get hurt was the independent dealer. My impressions in the marketing department are probably more instilled in my mind because of the personal relationship I had with some of my dealer-operators. It became very apparent to me toward the end of my employment with Standard Oil that there was a philosophy within management that if we were going to put the stations on a pecking order that dealer-operators were on the bottom of the list and the company-operated stations were on the top, and consignment stations were in the middle. And as I recall the management structure in my own office, the dealer reps, as they called us, were the green guys off the field with little or no knowledge in the marketing department. If we proved ourselves successful we would get the company-operated stations. A sign of success was how quickly you moved from a dealer rep to a company man. On a number of occasions my performance was compared to the dealer-operated stations and I felt, even as a company employee, that that was unfair because of the disadvantages that the dealeroperated stations had. In a number of instances when I did go to bat for my dealers, it was never specifically said to me that my job was in jeopardy nor was it ever inferred that my relationship with my dealers was not liked by the company. In fact, I will later on make a comment as to my relationship when I did leave the company. But I was told, socially, that my loyalties were on the wrong side. An example was given to me socially that one of the philosophies we had to have to be successful as Standard Oil men, was to keep our dealers hungry. A fat, happy dealer was not easy to negotiate with. I want to make it very clear that I am talking primarily about independent operators-dealers. I became disenchanted with the company toward the end of 1967 when I was instructed to terminate a lease with an operator that was in fact, if not my highest, one of the highest TBA purchasers from Standard Oil. TBA being, tires, batteries, and accessories. And the instructions to me to terminate were because his gallonage sales did not satisfy the company. I believe he was a dealer for Standard Oil for 32 years. I recall I was 23 years old at the time, and I can remember thinking that this man had been a dealer for a lot longer than I had been alive and I was going to go in and terminate his livelihood. I did it. I was instructed to and as I understand we did terminate his relationship with Standard Oil. I questioned this-not out loud, but to myself at the time. This station was on one of the bypasses going through Columbus, Ohio, a very good location. I have never been back. I do not know what exists there now. Another one that comes to mind is an excellent station that was located by the university campus. It was a three-bay station. This gentleman had been a Standard Oil dealer for a long, long time-I want to say in excess of 20 years—and the company started to cut his margin. If I can digress just a second. We had a rule of thumb that the dealer should be able to make enough margin on a driveway to pay his overhead and then anything he made in the bays was profit. And it was beginning, at that time-in my opinion and from my recollection-that we were starting to cut dealer margins so they just could not make it. And I think it was obvious that the company wanted that station. He was a very independent individual. He was a good operator. Quite candidly he was very difficult to deal with because he was an independent operator. You see, one of the requirements we had as dealer reps was make dealers buy all their TBA from us. Now, the only people that could report back to the company was us. If the dealer had something other than Atlas or TBA supplied Standard Oil product we would know it and we could report back. Many of us looked the other way because we realized our dealers could not necessarily operate by buying straight TBA from Standard Oil. And there were many times where I was instructed to give a dealer an order that he had to take so many tires and he had to take so many batteries, when I knew the dealer could not do it. At this point I started to recommend to my dealers that they get involved in the Independent Dealers' Association, and that is when I realized that my termination or, my time with Standard Oil would be limited. Now that I have been an independent businessman for 13 years and see the ramifications of what a big company can do to a small person. I can recognize now the importance of what I was doing, back in the late sixties. Because of personal reasons, in the early seventies I recontacted Standard Oil-you know, you tend to forget the bad and remember the good. The real estate business was bad in the early seventies and a Standard Oil check sounded awful good. I recontacted Standard Oil and asked them for my old job back and I was offered it. I say that because I want you to understand that I did not leave Standard Oil under bad circumstances. After giving it a couple of days thought as to then what I was going to get back into, I rejected the offer and I have been in Cherokee since then. I think that pretty much covers, generally, what I have to say. Mr. BEDELL. Thank you. You keep talking about Standard Oil. There are several Standard Oils and I think that we ought to clear for the record as to which one it was. Mr. NADOLSKI. Standard Oil of Ohio. Mr. BEDELL. You said your performance in your job was compared with dealer-operated stations, I think, and then that you graduated from your job to dealer-operated stations. Is that what you said? Mr. NADOLSKI. OK. The amount of sales that my dealers did was compared to the amount of sales the salaried and consignment stations did. The salaried and consignment stations were controlled and managed by one segment of our marketing department. The dealers were controlled by another segment of our marketing department and they were two separate teams. And, you know, if we were successful, we, those individuals who dealt with dealer-operators, would get moved up to the salaried operators. That was a promotion. Mr. BEDELL. But it was to be a salaried-operated station, not a dealer-operated station. I think you misspoke and if so we ought to correct the record. Mr. NADOLSKI. Thank you. Mr. BEDELL. Yes. Mr. Hatcher? Mr. BEDELL. Mr. Hiler? Mr. HILER. Thank you, Mr. Chairman. You mentioned one part just toward the end of your testimony that the dealers were required to buy TBA from the parent company. Mr. NADOLSKI. That is right. Mr. HILER. Do you know whether McDonald's does that, or Pizza Hut, or anybody like that? Mr. NADOLSKI. As a matter of fact Mr. HILER. I do not know, that is why I am asking the question. Mr. NADOLSKI. Yes; as a matter of fact, in my job I became involved in commercial and retail development in northern Iowa and southern Minnesota. I can speak, specifically for McDonald's because I do work for them. I can speak specifically for Hardy's and some of the other chains, and my answer to you about out there is, no. They are not required to buy supplies from the parent company. Their pricing structure in the Midwest is such that it is almost impossible not to buy from the direct individual. But in northern Iowa and southern Minnesota they can go out and get their own material printed up. But as I said, from an economic point of view, it is prohibitive. Mr. HILER. How about the meat, and fish, and Mr. NADOLSKI. Now, I can speak of northern Iowa and southern Minnesota and they buy that locally, if they want to. Mr. HILER. Having been in the field for several years, what do you think if a Standard or anybody else-Standard you were talking about so we would not bring in any other names. But if a Standard of Ohio is going to have their name over a station, what |