Station Breaks

What oil companies are doing to their dealers

Oil company officials are fond of saying that their lessee dealers continue to have a role in the market. And they're equally emphatic in denying any deliberate effort to get rid of them. But evidence obtained by the Houston Press in a federal lawsuit shows that talk is cheap.

The antitrust and fraud case involves Exxon dealers from Texas and other states who claim the company has been squeezing them out by charging inflated wholesale prices and by other means. As with most cases involving dealers, Exxon asked the court to seal the evidence, claiming that the release of proprietary information could damage its business. Typically, in the event of a settlement, the seal becomes permanent.

But because of a clerical error, key records in the case were left temporarily unprotected. Those documents include depositions by Exxon executives, marketing studies and memos. Together, they paint a picture of a company hell-bent on removing dealers and replacing them with company operators and wholesale distributors. A document titled "Marketing Retail Store Automation" notes that for South Texas, "Marketing Strategy for 1992-1997 is to reduce Dealer stores (est. 30 percent) while increasing Distributors for 1997."

Similarly, a profile of its company-ops and lessee dealers targets a reduction in dealer stations from 95 to 45 by 2003. In that same period, the profile indicates, the number of company-ops would increase from 83 to 150.

Just how Exxon planned to accomplish its goal was not spelled out in the documents, and ExxonMobil declined to comment, citing pending litigation. But a memo referencing a study in Corpus Christi noted that in 1997, 62 percent of the lessee dealers' competitors in that city were pricing gas below their cost. As a result, the memo stated, "Exxon dealers have experienced substantial volume declines of nearly 12 percent vs. prior year." Today, all the lessee dealers in Corpus are gone.

A "Houston Market Pricing Review" states that 75 percent of the lessee dealers' competition in town receives gas at a price well below what the dealers pay. Given the results in Corpus, it's not hard to project the consequence.

Among the competition referred to in the review are such cost-conscious chains as RaceTrac and Coastal, which buy bulk gas at substantial discounts. Also included are Shell, Texaco and Phillips company operations, which get their gas from their own refineries. And those competitors are even ExxonMobil's own company-ops, which don't "pay" anything for gas but simply transfer it internally from the refinery, according to testimony by marketing executive Jim Carter.

ExxonMobil can't do much about RaceTrac, but it certainly can control the street prices at its own stores. In July an Exxon in Conroe was selling regular for $1.53 -- a half-mile away from Exxon lessee dealer David Vawter, whose buying price was two cents higher. "How am I supposed to pay my bills when Exxon is pricing below my cost, on a grade of fuel which constitutes about 60 percent-70 percent of my fuel sales?" Vawter wrote in a letter to ExxonMobil area manager Bob Steele. "There is no excuse or justification for this predatory pricing."

Vawter isn't the only Exxon dealer getting undercut by his own company. When Mazen Allahan discovered earlier this year that a nearby company-op was selling gas seven cents under his cost, he called up his rep and asked if he could buy a load from that station -- at retail -- and transfer it to his own.

ExxonMobil declined.

 
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