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By Sean Pendergast
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By Richard Connelly
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Dealers, the bulk of whom traditionally leased their stations from the oil companies in franchise arrangements, have been complaining of predatory practices for years. The media have occasionally reported the charges -- as well as the stock company denials. "All I ever hear [from the companies] is support for the dealer class of trade and how important the dealers are,"says American Petroleum Institute spokeswoman Denise McCourt. "The reality is that overall there is a strong commitment to the dealer network."
But a five-month investigation by the Houston Press has uncovered evidence to the contrary. A review of thousands of pages of internal company documents, court records and legislative testimony as well as interviews with more than a dozen current and former company employees lead to an inescapable conclusion: Major oil companies have in fact been deliberately and systematically driving dealers out of business. In several cases, the Press has obtained documents that expressly target dealers for removal, with specific reduction goals. Although dealers have protection under the law, the companies have found ways to circumvent it, including:
"Raising station rents 300 percent and more, instantly forcing dozens of dealers to close and shoving hundreds more to the brink
"Withholding credit card reimbursements, as much as $100,000, resulting in serious cash flow problems
"Offering dealers take-it-or-leave-it lease renewals that include restrictions on reselling their businesses (thereby devaluing them) and blanket waivers of their legal rights
"Charging dealers different amounts for gas in the same metro area -- as much as 12 cents a gallon -- by putting them in different "zones,"making it difficult or impossible for those in high-cost zones to compete
"Building spacious new company-run stations with convenience store, car wash and other amenities close to existing dealer-run stations -- then undercutting the dealers' prices.
TNone of the major oil companies contacted by the Press would agree to an interview, though they all asked for a written list of questions. Only one responded to the list -- Equiva Services, the administrative arm of a joint marketing alliance between Texaco and Shell -- and that response was selective and vague. Nevertheless, the views of the companies generally can be gleaned through press releases, news accounts and documents filed in courts throughout the United States.
In lockstep, the companies say they're simply responding to changing market conditions, that new policies affecting dealers are designed to keep pace with the aggressive competition from the Wal-Marts and convenience store chains. Despite record profits the last two quarters, the majors say they make relatively little money selling gas. Yet documents show that while the companies regularly demand new concessions from their dealers, they don't make the same demands of their own company-run stations. Steve Shelton, a Los Angeles gas retailing expert, says there's no question the companies are propping up losing stores on the backs of the dealers. "They use subsidization selectively to go after competitors,"Shelton says.
The complexity of the gas business makes the purpose of eradicating dealers hard to pin down, and the companies won't discuss their marketing strategies. But evidence shows that management would like to capture the profits once enjoyed by the dealer network to bolster the bottom line. "They always left a little on the table for us, but now they're taking everything,"says Jerry Gorczyca, a successful Shell dealer in Cleveland for 40 years. "And they want the table, too."
TFormer St. Louis Shell dealer Warren Schuermann remembers how it used to be. He bought his station on Natural Bridge in 1952, when customers could buy gas on just about every corner in town. Until he gave up fighting Shell and closed down last October, Schuermann employed a simple philosophy that over the years earned him a loyal customer base and a host of performance awards. "There's nothing like courteous, honest service,"he says.
As the number of vehicles in America exploded in the early and mid-1900s, so did the number of stations needed to serve them. Oil companies, wanting to establish market share for their product, would buy property wherever they could find it, build stations and lease them to dealers. By 1970, 400,000 stations pumped gas and repaired cars across the nation. Texaco alone had more than 40,000 stations; Exxon (then Esso) had almost 30,000.
The proliferation of stations meant each one sold relatively few gallons, averaging only about 30,000 a month. What distinguished them was Schuermann's stock-in-trade. "I tried to impress upon the customers that we were a step above everyone else,"he recalls proudly. "That was my theme: You can't get 'em all, but you sure as hell can get a lot of 'em."Even in the 1950s Schuermann pumped 100,000 gallons a month.
But the station network was inefficient and costly to maintain, and the 1973 Arab oil embargo hastened a major shakeout in the industry. The oil companies began to shed their lower-volume outlets en masse -- by 1982 the total number of stations in the country had been cut in half. Most of the abandoned stations were torn down and the property sold. In addition to improving efficiency, the majors were looking for other ways to increase profits at the retail level, including the conversion of select high-profile locations from dealer-run to company operations. The advent of self-serve gas and the rise of the convenience store in the 1970s and '80s prompted oil companies to replace bay stations with large food marts and multiple gas pumps.
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