FTC INDUSTRY CONFERENCE ON MARKETING OF

AUTOMOTIVE GASOLINE

MONDAY, MAY 10, 1965

FEDERAL TRADE COMMISSION,
Washington, D.C.

The Commission met in public hearing, pursuant to recess, at 10 a.m., in room 532, Federal Trade Commission Building, Hon. Paul Rand Dixon (Chairman) presiding.

Present: Paul Rand Dixon, Chairman; Philip Elman, Commissioner; A. Everette MacIntyre, Commissioner; John R. Reilly, Commissioner; and Mary Gardiner Jones, Commissioner.

The CLERK. The Honorable, the Commissioners of the Federal Trade Commission. The Commission is now in session.

Chairman DIXON. Today we will resume our hearings on marketing of gasoline.

The first witness we will hear from is Mr. John S. Costello, executive secretary of the Mid-America Gasoline Dealers.

TESTIMONY OF JOHN S. COSTELLO, EXECUTIVE SECRETARY OF THE MID-AMERICA GASOLINE DEALERS ASSOCIATION

Mr. COSTELLO. Mr. Chairman, honorable members of the Federal Trade Commission, my name is John S. Costello. I reside at 8237 Linden Drive, Prairie Village, Kans. I am and have been the executive secretary of the Mid-America Gasoline Dealers Association since April 3, 1961, which is a gasoline trade association that operates in the States of Missouri and Kansas.

I think perhaps the best way I can bring to you what we consider to be the problems of the oil industry is to give you firsthand some of our experiences with various companies who operate in Missouri and Kansas.

With your permission, I will proceed on that basis.

First of all, I would like to say to you that the Phillips Petroleum Co. has been the leader in the Kansas City market, in the so-called 1 cent differential fight. Over a period of time they have made an effort to get their dealers to go to a 1-cent differential.

In January 1964 they started a program with their jobbers and their dealers the jobber cooperating with them-whereby they would go to a dealer, they did go to their dealers and said to them that at 3 p.m., on January 30 you are going to cooperate with us, we are going to whip the independents in the Kansas City area, and we expect your cooperation, and we demand your cooperation.

Now, I happened to be in a service station on the 29th day of January, and I noticed the man had a sign-it was a Phillips dealer-and

I asked him was he getting ready to post a sign, and he said, "Yes, all Phillips dealers are going to post signs, we all have signs, and tomorrow at 3 o'clock we will all go down 1 cent on the independents."

I checked with other Phillips dealers who belonged to my association, and I got the same story.

Now, believe me, at 3 o'clock they all went down within 1 cent of the independents who are in the area. And immediately the price started going right on down, because the independents would drop, and so forth.

In my opinion, this is out and out price fixing. These dealers were coerced, they were threatened, and I believe that many of them who staff members of the FTC in Kansas City contacted, will verify the fact, and I think some of them have signed written statements, that they were told this is going to be this or else. And this is one of the contributing factors as far as we are concerned to our price war in the Kansas City area.

Phillips some time ago purchased a jobber in the Kansas City area that had some 30 stations. Eleven of these service stations were being independently operated by a jobber, and he was a Phillips jobber. And Phillips has continued to operate these service stations through an arrangement with a man by the name of Jim Summers.

If you are following my testimony, that is the 11 service stations that are listed in my testimony. And Mr. Summers operates those stations. I do not know what his arrangement is with Phillips. I don't know whether he is a jobber or a dealer. And sometimes I think he wonders whether he is or not, too.

However, these stations are usually located nearby or across the street, and sometimes right beside a branded Phillips dealer.

Now, we have reason to believe that they are selling this man Summers the same gasoline that they are selling in the Phillips stations. As a matter of fact, there was one of these Phillips dealers who is near one of these stations who told me in a conversation that one day the truck dropped into his station and dropped gasoline, and then continued on to the Jim Summers station and dropped what gasoline was left, out of the same truck.

So this kind of makes us feel that it is undoubtedly the same gasoline.

Now, Phillips is using, in my opinion, the Jim Summers arrangement in the Kansas City area as a means or a tool of dropping the price.

What I mean is this: The price war has been on there for 5 years. And finally the price war will go up or go down. And every once in a while we have noticed Mr. Summer's station, when we have this change, would come up with a 2-cent differential between him and these branded dealers of Phillips. All other independents would be at 1 cent. So in a very short time, next thing you know, Phillips had dropped the price and the price war is on again.

We think that the arrangements with Mr. Summers is very convenjent, and at times Mr. Summers has been allowed to use Phillips credit. card, even though he is unbranded-he has had the Phillips credit card machines in the station. I personally have purchased gas on my own Phillips card there. And many of the members of my association have also done the same. However, I don't know whether it is by coincidence or not.

Shortly after I buy gas there, for a while Mr. Summers would not be accepting the Phillips credit card. I don't know whether he is watching me that close or not.

Now, attached to my testimony, in pink-and I put it in pink because it is almost the pink slip for these dealers as far as they are concerned is an actual account of the dropping and the raising of prices in the Kansas City area from September 22, 1964, I believe, through March 18, 1965. You will notice that these price changes show the time that the price drops by the individual companies, it shows the day, and in many instances it shows that somebody must be confused, because one company is going up and the other is coming down, and I always say if they forgot to call each other that day, and somebody got fouled up-I personally think they do talk to each other. I know they do. I cannot prove it. But we have too many things that happen in our Kansas City area that it just cannot be a coincidence that they are not talking to each other.

What disturbs us about this thing is this. With the exception, I believe, of the first price change on the 22d, Phillips has led every one of these price changes. If you look at that very carefully, you will find out they have.

Now, there is another thing that disturbs us, which I cover a little later in my statement. And that is the fact that some of these companies, and particularly Mobil in the Kansas City area, when they moved the price, did not give all dealers the same price throughout the Kansas City area.

I have some notes on those. You can see where they are.

At one time we had about three different prices for their Mobil dealers in the Kansas City area.

If I read the Federal Trade Act correctly-I am not an attorney, as most of you know-but I can read, and I believe the Federal Trade Act says that the gasoline that is like quality, like grade, must be sold at the same price. But there are periods of time when Mobil does not do that in the Kansas City area.

Well, that pretty well covers Phillips.

Several years ago, in Wichita, Kans., and Mr. Strange is here and will follow me shortly, Texaco was the company that was selected. That is my selection of words-to lead the 1-cent differential in the Wichita area. And believe you me, they sure fouled up that market down there. But in addition to fouling up the market, they also lost a lot of good dealers, a lot of people were hurt. The other companies followed right along with them. And even at one time I recall I was in Wichita one morning and I talked to a Texaco dealer and he said, "Well, we are having a meeting this morning, and we are going down to the divisional manager and get him straightened out," because for a short period of time these Texaco dealers were up, and I suppose the other companies got fed up with them, and they would not come up, and here these guys were sitting high and dry.

They went down to see the district manager. He told them he couldn't do anything. By the time they got back to the station, he got the price straightened out for them.

In Kansas City, they are not the leaders in the 1-cent differentialTexaco are the followers. They have been very good followers. Most of the time they had their dealers on metered reading. I do not believe

they have any of their jobbers on metered reading. And the reason I say that is this:

There are jobbers in the Kansas City area who have a free hand in selling Texaco gasoline wherever they want to sell it.

On one occasion I was in Fasterly's office-I believe he is the divisional manager-on another matter. When I got ready to leave, he said, "John, when is this price war going to be over?"

I said, "Mr. Easterly, the price war will end perhaps in the Kansas City area when you stop your jobber from selling unbranded gasoline to anybody he wants to sell it to."

Mr. Easterly like to have jumped out of the chair. He got up and picked up the phone and called Mr. Filger, and Mr. Filger denied that he was selling gasoline in that manner. And this was rather a strange thing to me, because Mr. Filger is also the operator of an independent service station in Liberty, Mo., which is a suburb, of Kansas City, Mo. However, as I say, in the Kansas City area, Texaco had really been a follower.

Now, the Champlin Oil Co., I guess they are a little major. Although I think they are a major, as I say, in my testimony a few weeks ago I was contacted by a jobber, a very small jobber, as a matter of fact, about 70,000 gallons a month, and he wanted to meet me. I told him where I was. He said "No, I want you to meet me somewhere else, I don't want to be seen with you."

I met the gentleman, and he told me one of the most fantastic stories I ever heard. He told me that Champlin was giving him price protection to the extent of about 20,000 gallons of gas a month on gasoline that he was buying from another supplier. Now, that other supplier, as I understand there was two of them, one was Mid-America, at Chanute, Kans., and other other was Bell Oil & Gas, who do business in the Kansas City area, and I asked him how it came about, and he told me that he had this particular service station that he owned, he was operating, and Champlin had him on metered reading. Like all small business people, he had credit problems. If you are in the gasoline business, you have cash problems. And this gentleman wasn't any different. And Champlin put him on a cash and carry basis, or certified check basis. But still that did not solve his problem, because some of his farm accounts were slow in paying their bills. And so one day the salesman came out, a man by the name of Lath Baxtram, and another man by the name of Lewis Hodson, who was assistant divisional manager-I understand he is not with Champlin any more, and this may be the reason he is not there. They suggested to him that he go buy gas somewhere else. They said they will take your check, and my company won't take your check.

Now, Mr. Hendrix tells me this has gone on for 22 years, and it amounts to some $7,000 to $10,000.

To me, I think it is pathetic. It just shows what kind of condition the industry is in.

I suggested to Mr. Hendrix that we go into the FTC offices, which he did, and sit down with one of the staff men there, Mr. K. K. Thurmond. I do not know what steps have been taken by Mr. Thurmond, because that is none of my business. On the other hand, I know he related to Mr. Thurmond that what he told me is true, that he could back it up with his records.