kind of responsibility should the person that has that name over it have to the company and where should that responsibility stop? Mr. NADOLSKI. OK. I understand your question. I think I have a professional and a moral conflict in my mind right now, in that I think if someone takes on a franchise, takes on the name of a major company, and that company in fact invests a lot of money in advertising, a lot of money in research and a lot of money in historical success, they have a commitment to that company. But I think one of the advantages of being an independent businessman is having the opportunity and choice of operating your business as an independent businessman, as long as you meet certain minimum standards. My concern is, if I, as an independent franchise operator, have to start competing with the parent company on a 1to-1 basis, my franchise no longer is of any value to me, because on a profit margin, let us face it, they can operate a location at a loss for a long time if they want that location to make a long-range profit. And I, as an independent operator cannot compete.

Mr. HILER. Let me ask a question, and it is someone else's testimony but I have read through most of these so I'll bring it out. In the period from 1972 to 1978, the figures that I have here show that there was only an increase of 248 company-operated units among the 18 majors, 16 of which would be covered by this bill. If I can extrapolate from your testimony, back in the period of 1966 to 1968 when you were associated with the major oil company, you would say that your instructions, implicitly or explicitly, were to try to drive out many of the dealer operators. If so, why has there only been an increase of only 248 in the last 6 years, or the period from 1972 to 1978?

Mr. NADOLSKI. I cannot answer that question.

Mr. HILER. Sixteen companies divided by 50 States?

Mr. NADOLSKI. I cannot answer that question. First of all, I am not familiar with the statistics that you are talking about. I would not be in a position to give you an answer, and as far as an opinion is concerned I am sure the statistics are correct. I find them difficult to believe. At least at the rate we were going in the late sixties. Somebody must have put a slide on it awful fast. That is all I can think.

Mr. HILER. You mentioned a case where a company operated a station across from a dealer. Was there sufficient volume?

Mr. NADOLSKI. I am really not qualified to answer that. As I said, I was only in the business for 6 to 8 months. With the minimum training I had at the time I did not feel that there was sufficient volume. You know, you just do not go out one day and decide you are going to put a station at such and such a location. There are studies to be made and there are conversations about the location, and there are staff meetings. There are informal meetings. There are formal meetings. And I cannot help, after 14 years but still have the impression that the intent of that was to close that dealer down. They were having trouble with that dealer. They were having trouble negotiating with him on a lease. He had a high volume and until the day I am gone, that impression will stay with me that we did it to close him out.

Mr. HILER. Have you been back to the corner?
Mr. NADOLSKI. No; I have not.

Mr. BEDELL. Yes. Mr. Mavroules?

Mr. MAVROULES. Thank you very much, Mr. Chairman.

Mr. Nadolski, do you feel that that was the company policy for all the major oil companies throughout the country?

Mr. NADOLSKI. I do not know, sir.

Mr. MAVROULES. Let me take you back, and perhaps you can. correct my thinking. You stated that you talked to someone on a social level. Am I correct that you stated that in your testimony? Mr. NADOLSKI. Yes.

Mr. MAVROULES. And what happened during that social engagement? Would you repeat that for me?

Mr. NADOLSKI. The impression I am trying to give is that these were not formal staff meetings where a boss would tell us to go and do something. I think I made reference to a number of off-the-cuff conversations. Is that what you are making reference to?

Mr. MAVROULES. Well, my point is that, do you know for a fact that that was company policy to put these people out of business? Or, is that a social engagement, off-the-cuff remark, probably over a drink, which is quite natural?

Mr. NADOLSKI. I never saw a written document stating that, no. Mr. MAVROULES. I have no other questions.

Mr. BEDELL. Do you have any opinion, on your own, as to why that company was interested in putting up a station right across the street from this successful dealer? Do you have an opinion as to why they would like to drive out their successful dealer?

Mr. NADOLSKI. Well, in the context of-again, after being out of that business for 13 years, looking back to what we were doing, we were concerned primarily about the volume of gasoline. At that time it appeared to me we became concerned when we started to lose, if in fact we would have lost a good location. A good dealer might say: "I do not want to negotiate with you any more, I have got a 125,000-gallon station and I am going to go to Texaco, I am going to go to somebody else," and in essence he did not renew his relationship with us. Our primary concern at that time, our instructions were to increase gallonage through promotions. The point was to increase gallonage.

Mr. BEDELL. Are you telling me that they were concerned that their dealers became too big or too successful; is that what you are saying?

Mr. NADOLSKI. That was the impression I got, Congressman; yes, sir.

Mr. BEDELL. We appreciate very much your testimony here, Mr. Nadolski.

Mr. HILER. Mr. Chairman, I have one further question.

I am having a hard time extrapolating the proposition that because there was a policy of a major oil company to increase gallonage that anybody who was successful in moving the gallonage they would want to get rid of. I do not see that and I am having a hard time putting it together.

Mr. NADOLSKI. All right. First of all, if you have a companyoperated station you can control the hours. You can tell them when they will be open or when not to open. You have a better margin to work with in a price war. You can do what you want with that station. When you had an independent agent or an

independent dealer that is exactly what he was. As far as the outlet is concerned, there is a conflict there. Or, I felt at the time that there was a conflict there. That the company felt that they did not have as much control over the location. And I am not saying, quite honestly, that the company did not do a better job selling gas through a company operation. That is not my point.

Mr. HILER. Then you would not say that the consumer was hurt? Mr. NADOLSKI. In retrospect? Now?

Mr. HILER. Well I find it very hard to go back to 14 years ago. Mr. NADOLSKI. I know. It is very difficult.

Mr. HILER. And I appreciate what you have gone through in the last 48 hours trying to put it together. I am having a hard time putting some of it together.

Getting back to my original question. If someone is successfulthe example given was sales of 125,000 gallons a month-you said that would be an indication of why a company would want to come in and get rid of the station. You know, in most businesses when the company steps in to do something it is with an unprofitable location as opposed to profitable. The profitable locations are assumed to be doing the job. I am having a hard time determining the economic reasons why someone would try to put a successful guy out of business and not the unsuccessful? Do you see my plight?

Mr. NADOLSKI. Yes; I understand what you are saying and I appreciate the fact that you understand the difficulty for me to go back 14 years. But when I look back I have these impressions, first of all, if you were a dealer rep you were on the bottom of the totem pole. If you were representing company stations you got the better car. You got better deliveries. If there were a shortage in promotional material you seemed to get it first. I use that as an example. I was never encouraged and quite often I was discouraged in any extra special effort I made for my dealers. A recollection I have was one time we were having a dish promotion and these poor guys could not get them. I offered to go up to-I think it was Cleveland at the time-Cleveland or one of the northern towns. I wanted to take a U Haul trailer on my own time and go up and get them for these guys and I was told, no, do not worry about it.

They have openly discouraged their dealers participation in the Dealers Association. They openly discouraged our dealers to become a part of the Dealers Association.

I am not saying that this philosophy that I am portraying to you at the time was moral or even good economic judgment. I am saying to you that this was the impression I got and still have about a company I worked for 14 years ago. And I have had no contact with them, by the way, since other than that one contact I told you about. Well I have just killed that today. [Laughter.] Mr. BEDELL. Would the gentleman yield? I think it makes some sense in this case, if you were operating your own stations and if when dealers got too large they would appear to have more leverage in trying to bargain with you, that there would be some incentive for you to try-if it were a large gallonage-to try to sell it out of your own stations and to try to hold the dealers down so that they could not bargain as hard with you. I believe that would make

some reasonableness in this case which would be different from what you would normally see, as the gentleman pointed out.

Mr. HILER. Well I am just having a hard time putting it into

sense.

Mr. BEDELL. Well, I think it is a different circumstance and I think that is one of the concerns that this committee faced last year as we looked at it.

We appreciate very much your testimony. Thank you.

We have got quite a witness list here. I did not realize the length of the list. Our next witnesses are from the American Petroleum Institute. Donald Mulit, marketing vice president for Chevron, and C. E. Krider, professor of the University of Kansas.

You may proceed as you wish. We are short of time. If you feel comfortable summarizing your testimony it would be helpful, and we will enter your prepared statements into the record.

TESTIMONY OF DONALD MULIT, VICE PRESIDENT, MARKETING, CHEVRON USA, INC., REPRESENTING THE AMERICAN PETROLEUM INSTITUTE

Mr. MULIT. My name is Don Mulit, vice president of marketing for Chevron USĂ. I am testifying today on behalf of the American Petroleum Institute and appear in opposition to H.R. 1362. Within the next few days, I will also submit a statement of Chevron's views.

Mr. BEDELL. Without objection, that will be included in the record.

[See appendix R, exhibit 3.]

Mr. MULIT. Frankly, gentlemen, I am greatly troubled by this bill. At a time when everyone realizes we must be more productive and more efficient, this bill will lead us in the opposite direction. What I see is that the competitive process will be discarded in favor of protecting a select group of businessmen. This is wrong in concept because the goal of our economy should be to encourage competition for the benefit of the consumer, not provide for the welfare of particular companies or particular individuals.

What is divorcement all about? When you strip away the rhetoric, what this bill would do is preclude major refiners from operating retail stations. There is no way of sugar coating the fact that such a law would be anticompetitive and harmful to consumers. In January 1981, the Office of Competition of the Department of Energy published its final report on "The State of Competition in Gasoline Marketing." Congress itself commissioned this report because of the many questions raised during the course of the debate on the Petroleum Marketing Practices Act. The report reaches the conclusion that divorcement of company-operated stations is not in the public interest.

The principal justification for H.R. 1362 is the argument that refiners have been charging predatory prices at company-operated stations to keep dealers from competing, and thus forcing them out of business. This argument although repeated many times, is unsound. And if I may, I will outline the reasons why this is so. First: Most of the refiners affected by this bill rely primarily on dealers for sales at the retail level. It would make no sense for these refiners to attempt to drive their dealers out of business.

Second: Dealers often quote statistics that anywhere from 50,000 tc 100,000 dealers have gone out of business during the period from 1972 through 1978. A comparison is then made to company-operated stations which have shown an increase of about 2,800 outlets during the same period. It simply defies commonsense to suggest that 2,800 stations could take over the work of 100,000 stations. It makes even less sense when one considers that the 18 largest refiners, including the 16 refiners targeted for divorcement under this bill, showed an increase of only 248 company-operated dealers during the period of 1972 through 1978.

Third: Most of the dealer closures that have occurred were caused by DOE regulations and changed marketing conditions. In particular the sale of gasoline through high-volume, low-cost outlets.

Fourth: In recent years, the initiative in the marketplace has been with private-brand marketers and cooperatives who have made tremendous gains in market share at the expense of conventional dealers and the refiners who supply those dealers.

Despite the many problems with the predatory pricing argument, it has become in essence, an article of faith with dealer organizations.

Parenthetically, I might add that dealer organizations don't represent the entire universe. Chevron, as do others, for example, has many dealers who don't agree with association activities. The activist dealer strategy in the State legislatures has been to convince a few Senators and Representatives on the predatory pricing issue. The dealer organizations have not been too successful at the State house. But, nonetheless, this same strategy is being pursued here. H.R. 1362 is really a whole group of different bills all rolled into one and each part of the bill is special interest legislation.

The so-called rack-pricing provisions are different from the 1980 version of the bill. They would require every supplier-whether jobber or refiner-to sell gasoline at the same price, at every point of transfer, to independent wholesale purchasers. The term "independent wholesale purchaser" is defined to include both jobbers and retail dealers. This is important because what the bill means is that both jobbers and dealers are to buy at the very same basic price.

The rack-pricing provisions are in direct conflict with the common practice in almost every industry in the country. Wholesalers typically pay less than retailers. There is usually a good reason for this. In the gasoline industry, a jobber who performs a true wholesale function provides many valuable services. In areas distant from major supply points-many of the rural communities of this country-jobbers are often the only wholesalers who serve dealers, farmers, and other small businessmen. What this bill apparently says is that a jobber who provides a true wholesale function is not needed in the marketplace.

The dual distribution provisions of the bill would restrict competition even further. These provisions say that any supplier, jobber, or refiner must make the same profits, or at least as much profit in selling gasoline from a company-operated station, that he makes selling to dealers.