from Cities Service branded trucks oil, gas, et cetera. They sell regular 28.9 cents and premium 29.8 cents. I pay 26.8 cents and 30.3 cents. I pay 1 cent a gallon more for premium than it is sold for at cutrate prices to the consumer. My service station cannot get "company accounts" because the distributors and jobbers sell to "company accounts" at the same price they sell their own dealer, and sometimes less. The parts houses do the same. They are our suppliers and our worst competitiors. The distributors, oil and part jobbers will sell wholesale to anyone. The consumer can bargain with them and often purchase cheaper than we can.

There exists a very dangerous condition in Jacksonville. There are now over 50 stations and 20 stores in a 5-mile radius and more being put up. Our city population is less than 14,000. In addition, four stations at Camp Lejeune, located at Jacksonville, are pumping 30,000 to 50,000 gallons a day.

Mr. SNOW. The next witness is one that some of you may know, Mr. Cash B. Hawley, of Detroit, Mich. He is immediate past president of the National Congress of Petroleum Retailers, and has spent 25 years of his life working on service station operators' problems. He is the general manager now and executive secretary of the association of Michigan, and also a director of the national congress.

And with him are two dealers from Detroit, and a former off-brand dealer who went out of business because he could not get-anticipated he would be unable to get supplies of gasoline.

Mr. Hawley will present his statement, and then introduce the other men from Michigan.

TESTIMONY OF CASH B. HAWLEY, GENERAL MANAGER AND EXECUTIVE SECRETARY, RETAIL GASOLINE DEALERS ASSOCIATION OF MICHIGAN, INC.

Mr. HAWLEY. Mr. Chairman and members of the Commission, my name is Cash B. Hawley. I have been a retail gasoline dealer since 1930, until my son took over the business in 1963, continuing to operate it at the same location in Detroit.

I served as president of the Retail Gasoline Dealers Association of Michigan in 1939-40 and again in 1950-51, and as general manager since 1951, subsequently adding the duties of executive secretary.

Further, I served as president of the National Congress of Petroleum Retailers from 1955 to 1961, and continue as a director.

I wish to thank the honorable members of the Commission for the opportunity to appear here today in behalf of the retailers of the petroleum industry.

Our headquarters are in Detroit, which has been publicly branded as "The Worst Market of All," by the respected National Petroleum News. Informed industry observers thus report that the worst examples of intolerable industry practices are to be found in the Detroit area. This is where your attention must be directed to see on a large scale the sorry end result of major company practices which are widespread in our industry.

It is a little ironical that I appear here today to complain about problems in gasoline marketing-because, with other members of the industry away, back on Friday, June 6, 1958, I met here in Washington with Judge John W. Gwynne, then Chairman of the Federal Trade Commission. We were here in regard to a complaint filed against the Texas Co. in January of that year.

We are back here because the practices complained of in 1958 are still being carried on-not only by the company then named, but by

just about every company doing business in the marketing of gasoline in our State.

Following our 1958 meeting with Judge Gwynne, the Commission conducted an investigation in my area, and later held an examination in Detroit. At that time many affidavits of discriminatory and other unfair practices were presented, supported by copies of the pertinent invoices. These came from several injured dealers, including Henry A. Van Neste, Willis Brelsford, Ramie H. Kellar, and Spencer L. Connell.

This complaint (FTC docket No. 6898) together with a number of others affecting different geographic areas and other suppliers, was dismissed by the Commission with a 3-to-1 vote, with the Chairman disqualifying himself. Our hope was sustained by the comprehensive and critical analysis contained in the dissenting opinion. Placing the present proceeding in historical perspective, it states in part-but should be reviewed in its entirety:

DISSENT WITH HOPE

The "aggrieved" are entitled to a resolution of the issues involved here. This is demanded not only by the equities involved here but also as a matter of moral right and by at least the spirit of the Administrative Procedure Act. ***

I am dissenting to action by the majority which avoids adjudication of the vital issues involved. *** It is advising no one concerning the existence or the significance of any of the practices involved * * *.

The opinion of the majority points to an intent to try the use of industrywide methods for dealing with the problems and practices said to exist in the petroleum industry and for advising businessmen about their responsibilities concerning such problems and practices *

However the two most obvious avenues to an understanding of gasoline marketing problems are either making findings in the present adjudicative cases or in the rulemaking, factfinding proceeding requested by important segments of the industry. The proposed "broad inquiry" does not expressly provide for the Commission to make findings of fact on the data submitted as it is obliged to do in adjudicative cases or in a trade regulation proceeding * * *.

A recent line of Commission decisions evince a regrettable trend toward disposing of adjudicatory matters on procedural grounds, thus avoiding legal and policy problems. Undoubtedly this is a convenient formula, at least in the short run, for those of us responsible for administering these statutes. On final analysis, however, it plainly constitutes an abdication of the Commission's functions, which is charged with advising businessmen of their obligations under the law *

We are here confessing bankruptcy in our efforts to find the facts and make judgments on these problems ***. I do find some consolidation in the promise of the Commission that after "a broad inquiry" in the future the Commission will undertake to make some determination whether competitive conditions really exist in the petroleum industry in the marketing of gasolines.

WHY TRY AGAIN?

An inevitable result of dismissal in the carefully prepared Texaco case and the rest is that the dealers who had risked economic death at the hands of their suppliers to present such evidence, as well as the others who saw their risk and its slight apparent results, became disheartened. In fact, a number of those who testified then are no longer in the business today.

But there is good reason to reopen the evidence today. Under new procedures adopted in 1963, there is a new method of relief which you can grant-through establishing a code of fair practice rules.

Certainly, ultimate justice may be secured through the courts. But the history of your Commission and our industry amply demonstrates that this may require many bitter years of strife for solution. We ask for the better way of regulation under the law, with your Commission to establish the guidelines.

Some 3 years ago the annual mortality rate among gas stations in the Detroit area was around 30 percent, based on local government figures. Now it has soared to 40 percent. Only a small part is caused by normal retirement and turnover. The vast majority stem from the impossible conditions forced upon retailers by their suppliers.

Now let me tell you some specific problems our individual retailers in Michigan have had to face. I have here the documentary exhibits with names, dates, places, and supporting papers. These are typical of the testimony that would be given by many dealers in Detroit. The major companies named are not the only nor the worst offendersmerely typical in these practices of nearly all. We see not merely parallel pricing but parallel policies generally when we look at the big suppliers.

AREA PRICING

First, differential pricing according to arbitrary areas is actively hurting many dealers, not to mention the injustice it does to the public. Just last week two retailers in Ann Arbor complained that Standard Oil, division of American Oil, is selling to a competitor only 3 miles away at 3 cents a gallon less than it charges them. The company's defense was that the favored dealer was considered to be in the Detroit area. Actually, he is 8 miles inside the line of Washtenaw County, of which Ann Arbor is the county seat. Ann Arbor is some 40 miles from Detroit.

Burleson M. Fitzharris, Gulf dealer at Ypsilanti, testified that stations in Washtenaw County are sometimes charged up to 6 cents a gallon more than their competitors across the county line pay for the same brand.

The Ypsilanti Chamber of Commerce, representing every type of business, recognized the broad evil effects upon the public interest in a resolution protesting:

1. The unjustified overcharge to retailers has necessitated a comparable overcharge to consumers.

2. Such higher prices have resulted in diversion of business from Washtenaw County.

Leo D'Amico of Warren-Wyoming Service tells of the damage done by area pricing right inside the city of Detroit and its suburbs. Southfield Road, for example, is made an imaginary area dividing linestations a couple of blocks apart on opposite sides of the road find their wholesale prices up to a cent apart, from the same supplier.

METER READING

Second, meter reading is an ingenious method to make the wholesale price of gas contingent upon what retail price it is sold for. The owners of Beaupre Service. Cal Lang's Service, and D'Hondt Service are among those ready to testify to the losses they have suffered by this type of gimmick.

55-013-66—vol. 1 -19

PRICE DISCRIMINATION

Third, discrimination in the price charged competing retailers for the same kind of gas is a vicious means of controlling retail price. It works this way:

A major will offer a favored dealer a better price. He in turn sets his margin and resale price to please the major. Of course, there are a variety of technical and bookkeeping variations-all with the same result. When the favored retailer sets a price sought by the supplierthen competing stations are forced to meet his price. So the marketer uses the favored dealers like puppets to control the retail market from behind the scenes.

Henry A. Van Neste of Detroit testified that he noticed competing Texas dealers selling at 2 cents under his retail price. Then his Texas salesman offered him the 80-20 plan-which has now generally become 70-30, by the way-if he would agree to post his selling price as ordered by the company, they would underwrite 80 percent of his retail price cut. The reason given is that Texaco wanted to keep specific stations at only 2 cents above off brand prices.

Van Neste signed up for a while and found that, though he got this assistance of 1.6 cents a gallon, he wound up with a cut of 0.4 cent in his operating margin.

Ramie H. Kellar, who has a station in northwest Detroit, swore: 1. Tom Moore, Texaco salesman

told me that the off brand stations were getting too much business in the Detroit market, and there was going to be a plan offered by the Texas Co. to deal with this problem.

2. Asked why they did not simply cut the tank wagon price, Moore replied

the retail price is too high anyway, and we will have a plan where you can all get on the bandwagon and make a lot of money.

3. Before going on the 80-20 plan, Kellar asked what would happen if he didn't change his price as instructed, and Moore bluntly said, "We will come out and get the price sign and you won't get any more assistance."

Willis Brelsford of Dearborn Township, noting that other Texaco dealers were getting assistance, "requested that the company extend to me a dealer tank wagon price which would enable me to retain my normal operating margin in meeting the price at competing stations selling the same brand of gas."

But James Tillotson, Texas sales representative

said that this would be impossible because I would have to be 2 cents per gallon above the retail price of the nearest off brand station * * *. I objected to the company fixing my retail price and also to their wanting me to agree to a reduction in my operating margin. He replied that this was the only plan offered and that if I did not accept this plan I could go on paying what I had been paying and get no reduction at all.

Milton Handler, counsel for Texas Co., argued that the arrangement offered would have increased Brelsford's profit per gallon nearly onetenth of a cent. But the press report states:

Rufus E. Wilson, senior FTC counsel, was confused by Handler's mathematical calculations. He insisted that Brelsford couldn't absorb 20 percent of a price cut and make more money by doing it.

Spencer L. Connell, owner of a station in Centerline, made affidavit that Roy Keim, the Texaco district manager, came to talk to him privately about the 80-20 plan, remarking "he would like to have me keep the discussion to myself."

Connell answered that

I would never post a price sign out in front of my station and that as far as cutting the price of my gasoline was concerned, I would cut it as much as the company would cut it and there it would stop-that I could not take any loss out of my small profits.

But they kept trying, so Connell and Texaco Salesman Johnny Wright

sat down with paper and pencil and we figured out that if I increased my gallonage by 8,000 gallons per month with all of the added expenses I would have hiring another man, paying for uniforms, increasing insurance, the increase in social security tax and everything that goes along with another man, plus the increase in rent-and with a 20 percent reduction in my margin I would still be losing money.

"C" STATIONS CONSIGNMENT OR COMMISSION

Fourth, there are "C" stations. Dealers operating some type of lease from a supplier are persuaded, or even compelled, to switch to a commission, consignment or some other basis that gives the supplier the right to set the retail selling price of gas. They generally pick the stations with big gallonage for this kind of deal, and go on to dictate operating policies.

Over in the important Grand Rapids area the Shell Oil Co. is not collecting the Michigan 4 percent sales tax from the public at their "C" stations. The independent dealer selling Shell gas finds it necessary to collect the sales tax, like the overwhelming majority of retailers in every line of business. So the "C" stations advertise gas about a cent lower than other Shell stations, because of this hidden subsidy. The names of the owners cannot be disclosed at this time because of their fears of reprisal.

A number of these "C" station operators in Grand Rapids have sought to change over to a lease basis. Management made it painfully clear that they would have no chance unless they consented not to collect the sales tax.

Here is another "C" variety. On April 15 the company-owned Mobile Service Center in Lansing ran this 56-inch ad in the State Journal. Several hundreds of dollars were obviously spent to dress up the station for the promotion, offering a certain tire to the public at $6.99. Two independently-owned stations there, Bud's Mobil Service and Campus Mobil Service, write that their lowest possible buying price for a similar tire is $7.87 plus tax, and complain that "running an ad to the customer at a price below our cost and not offering us, as dealers, a similar promotion, is unfair."

(Information submitted by Mr. Hawley appears in the Appendix, at p. 885.)

ECONOMIC VASSALAGE

All this testimony adds up to a state of economic vassalage imposed upon the independent retailer by his would-be master, the major supplier.