The automobile has long since become far more than a luxury item for the average American. He needs it to go to work, his doctor needs it to pay a home visit, and truckers need it to deliver the food he eats. I could name any number of other areas in which gasoline is a required commodity. Thus it is evident that the public interest in the subject of this hearing is substantial. We are here today in the spirit of cooperation. The information received during the hearing will undoubtedly increase our understanding in this field, and the mutual exchange of information in turn should benefit all segments of the industry and the consuming public. We are not here today in the role of prosecutors. We are not interested in the course of this hearing in discussing private or Government litigated cases either past or present. By the same token we are not here to discuss pending litigation either before the Commission or the courts. You can appreciate of course that in a hearing of this type certain ground rules must be established to assure an orderly proceeding. We have tried to make these rules as informal and flexible as possible. Persons desiring to express their views will not be placed under oath. You are requested when making oral presentations to confine your remarks to the time absolutely necessary to convey your point of view. When you rise to speak and are recognized by the Chair please give your name and identify the organization or group you represent. This will be of assistance not only to the Commission but to the reporter. A stenographic record of this hearing will be made and arrangements for the purchase of copies of the transcript may be made with the contract reporter, which is Ward & Paul, 917 G Street NW., Washington, D.C., or if you wish you may place your order with the reporter's representative who sits in front of me. The public record attending the hearing which includes all written data, views, and arguments submitted pursuant to notice in the Federal Register, is available for review by interested parties in our Office of Legal and Public Records on the first floor of this building. The full schedule of appearances for these hearings-we will begin, I understand, with Mr. Otis H. Ellis, National Oil Jobbers Council, Inc., also representing California Oil Jobbers Association. Mr. Ellis? Mr. Ellis, we have allotted an hour to you. I understand you think you need some more time. The next witness behind you is Mr. Hadley, who has been given a half an hour. If he wishes to yield part of that to you, this may be done. Otherwise we are going to hold you to the hour. Mr. HADLEY. Mr. Chairman, I am Mr. Hadley, and I will yield 20 minutes of my half hour. Chairman DIXON. All right. Mr. Ellis, you have an hour and 20 minutes. TESTIMONY OF OTIS H. ELLIS, GENERAL COUNSEL FOR THE NATIONAL OIL JOBBERS COUNCIL, INC. Mr. ELLIS. My name is Otis H. Ellis and I am engaged in the general practice of law, maintaining offices at suite 1128, 1001 Connecticut Avenue, Washington, D.Č. I am appearing here in my capacity as general counsel for the National Oil Jobbers Council, Inc., for and on behalf of that organization, hereinafter referred to as NOJC. The statements and information provided herein, as well as the conclusions and recommendations, are in accord with a resolution passed by a majority vote of the membership of NOJC at its regular meeting in May 1964, as further amplified and modified by the executive committee in a duly called meeting on April 17, 1965. Some individual jobbers or representatives of member associations have either filed statements with the Commission or will appear at these hearings. Their views and recommendations may or may not be consistent with the views and recommendations as expressed herein. NOJC is in effect a federation of State and regional associations whose membership consists, primarily, of independent bulk distributors of petroleum products, more commonly referred to in the trade as "independent oil jobbers." The council also has a separate division for commission distributor sections or divisions of such member associations as may desire to become members of this division. Appearing with me to answer my questions and assist in any way is Mr. W. Tom Jones, on my extreme left, at this table, of the Bama Oil Co., Montgomery, Ala., who is president of the National Oil Jobbers Council. Seated next to him is Mr. Martin Citrin, of the Citrin Oil Co., Detroit, Mich., who is vice president of the National Oil Jobbers Council. Mr. Chairman, I would like to state at this time I have two exhibits three exhibits to my testimony, one of which has not come from the printers as yet, and I would like to submit it before the hearing is over, probably some time this week. That is exhibit No. 2. Chairman DIXON. Those exhibits will be received, and made a part of the record. (The papers referred to were marked "Ellis Exhibits No. 1 and No. 2" for identification, and appear in the appendix at p. 731.) Mr. ELLIS. NOJC represents 34 State and regional associations (representing individual jobber members in 40 States), which includes all known State or regional associations of jobbers with the exception of Ohio and Kansas. The following is a list of the member associations, as well as a list of the commission distributor membership from the respective States: MEMBER ASSOCIATIONS Alabama Petroleum Jobbers Association, Inc. Arkansas Oil Marketers Association, Inc. California Oil Jobbers Association. Colorado Petroleum Association. Connecticut Petroleum Association. Empire State Petroleum & Fuel Merchants Association, Inc. Florida Petroleum Marketers Association, Inc. Fuel Merchants Association of New Jersey (Jobbers Division). Georgia Oil Jobbers Association. Illinois Petroleum Marketers Association. Independent Oil Marketers Association of Indiana, Inc. Intermountain Oil Marketers Association (Idaho, Nevada, and Utah). Iowa Independent Oil Jobbers Association, Inc. Kentucky Petroleum Marketers Association (Jobber Division). Michigan Petroleum Association. Mississippi Oil Jobbers Association. Missouri Oil Jobbers Association. Nebraska Petroleum Marketers Association, Inc. Independent Oil Men's Association of New England (Maine, Massachusetts, New Hampshire, Rhode Island, Vermont). 55-013-66-vol. 1-3 New Mexico Petroleum Marketers Association (Jobber Division). Northwest Petroleum Association (Minnesota and North Dakota). Oregon Oil Jobbers Association. Pennsylvania Petroleum Association, Inc. South Carolina Oil Jobbers Association. South Dakota Independent Oil Men's Association. Tennessee Oil Men's Association. Texas Oil Jobbers Association. Virginia Petroleum Jobbers Association. Washington Oil Marketers Association. Wyoming Oil Jobbers Association. Florida STATE MEMBERS OF COMMISSION DISTRIBUTORS DIVISION Louisiana North Carolina Texas WHAT IS AN INDEPENDENT OIL JOBBER? In the trade, jobbers are generally referred to as either "branded" jobbers or "private brand" jobbers (sometimes referred to as rebrand jobbers or unbranded jobbers). The member associations of NOJC number among their respective memberships some private brand jobbers. However, the greater majority of this membership is composed of branded jobbers. The following statement pertains primarily, but not exclusively, to the problems of the branded jobber. By definition, a petroleum "jobber" (sometimes referred to by their suppliers as "distributors") means anyone who purchases gasoline from a supplier and sells the gasoline in bulk quantities to dealers, tank wagon consumers, and industrial and commercial users under the brand or trade name of the refiner-supplier. The jobber owns or leases his own facilities, carries his own accounts receivable, and in all respects is an independent merchant except as limited by contractual obligations to his supplier and the competitive structure in which he operates. In contrast, the commission distributor usually does not own all of his facilities, does not carry accounts receivable (these are carried by his supplier except as to those accounts not approved by the supplier which are carried by the commisson distributor). The commission distributor operates on a cents-per-gallon commission for products sold, as distinguished from the jobber whose profit margin is determined by the difference between this purchase price and his sale price of a particular product. The word jobber, as used in this statement, will refer to the "branded" jobber and not to the "private brand" jobber, unless so designated. There are approximately 10,000 to 12,000 jobbers in the United States, the majority of which sell both gasoline and fuel oils, some sell tires, batteries, and accessories, and substantially all sell lubricating oils, greases, et cetera. To give you some idea of the position of the jobber in oil marketing, the following is submitted: According to a survey covering the year 1963 (based on a 35-percent return of questionnaires sent out to 10,000 jobbers), we find that jobbers own 51,000 service stations, 53,300 trucks, 6,800 bulk plants, sell products to 141,000 outlets, which includes service stations, at well as small garages, country crossroad stores, and other type outlet which would not qualify as a typical service station. Jobbers have a total capital investment of approximately $1,950 million in petroleum marketing assets. The following comparative table gives some idea as to how these total assets compare with the total assets for some of the principal integrated oil companies: It is noted, for comparative purposes, that the total assets of the integrated companies includes assets in production, transportation (including pipeline, tankers, etc.), refining and marketing, whereas the total jobber assets are limited to petroleum marketing. A further breakdown of jobber assets is as follows: Total value of jobber assets as of December 31, 1963 The following table reflects the number of years the jobber has been supplied by his present supplier: It is further enlightening to note the number of stations supplied by jobbers which is reflected in the following table: This survey further reflected that the average profits for all jobbers before taxes were about $14,000 a year (1963). When we translated this information into return on investment, we found that the average return on investments before taxes for all jobbers was 6.2 percent for the same year. We estimate that the net return after taxes would be approximately 3 percent. I would like to point out that gives recognition to sole proprietorships and partnerships where no amount has been taken out of the profit for payment to them for their wages. This is particularly noteworthy when we find that the 20 largest supplying companies had an average return on investment of 10.2 percent after taxes during 1963 (Oil and Gas Journal analysis). A more recent Chase Manhattan Bank analysis of 30 large suppliers indicates a return of 11.2 percent after taxes. Based on the best figures we were able to obtain, it appears that jobbers sell approximately 21 percent of the gasoline used in the Nation, approximately 65 percent of the commercial heating oil, and over 50 percent of all petroleum products sold to the farmers of the Nation. Many jobbers own service stations, most of which they lease to independent dealers, although some few jobbers may operate one or more of their stations with salaried personnel. This latter type operation is the exception rather than the rule. The following is a table which reflects the number of stations owned by percentage of jobbers in the country: Now, what are the principal problems or complaints relating to gasoline marketing by jobbers? The following are the principal problems or complaints relating to gasoline marketing by jobbers (not listed, necessarily, in order of importance) 1. Price wars. 2. Inadequate profit margins. 3. Loss of commercial consumer business to integrated marketers, including their subsidiaries, selling direct or through commission or consignment distributors, at prices lower than the jobber's purchase price. 4. Subregular gasolines sold by major integrated companies. 5. Competition of subsidiaries of major companies, which subsidiaries seek to sell at prices slightly above, equal to, or lower than private brand jobbers, and considerably lower than branded retailers. 6. Competition from suppliers operating on a direct (including commission and consignee distributors) basis. 7. Competition with their own suppliers in the same marketing area (dual distribution). 8. Inability to obtain expansion and modernization capital except under conditions which, in many instances, leave the jobber as a captive of his supplier. 9. Provisions imposed by supply contracts and financing agreements which impose restraints on getting new suppliers or selling out. 10. Sales of gasoline by the jobber's own supplier to unbranded outlets or to brokers or others who, in turn, sell to unbranded outlets at prices less than that charged the branded jobber of such supplier. This poses considerable difficulty where the unbranded purchaser |