A market in the midcontinent area may be very different from that of the northeast coast.

Without intending any criticisms of a conscientious public official who was attempting to grapple with a most difficult problem, I would like to point out the astronomical confusion that would arise if the Commission attempted to do on a national scale what the hearing examiner tried in the Pure Oil case in a single metropolitan marketBirmingham, Ala. He came to the conclusion that there were three types of private branders in Birmingham, which he described as "price leading," "medium prices," and "lowest price," and he said: "During the earlier stages of the two price wars, as the prices dropped, the private brands were able to maintain the necessary competitive differentials; that is, the price-leading brands 1 cent below the major brands, the medium-priced brands 1 cent below the price-leading brands, and the lowest priced brands private 1 cent or more below the mediumpriced private brands." To protect this type of market structure, his proposed order would have prohibited Pure from discriminating in price when it "reduces or narrows *** the customary retail price differentials, if any, between 'Pure' branded gasoline and private brand gasolines of comparable grade and quality."

To make any such classification on a national scale and to determine an appropriate differential among the various types of sellers in each of the thousands of markets, each differing in one way or another from the others, would be well-nigh impossible as an initial task, to say nothing of the colossal administrative burden of keeping the findings and orders up to date to reflect the ever-changing conditions in each market.

The industry, too, would suffer. One reason for the growth of the independents has been the openness and flexibility which our particular economy affords to the newcomer. Within the confines of the law, an emerging or successful company is free to experiment with prices and to charge a price for its goods which is consistent with its survival and growth.

If this right becomes circumscribed by a series of inflexible rules governing what one company can charge for its goods in relation to the price charged by another competitor, then the flexibility of our particular system will be seriously undermined.

It might be observed in passing that the charge made at this hearing-that major oil companies have ganged up to drive the independent refiner or private brand marketer out of business-goes against the obvious fact that over the vears private brand marketers have increased their share of gasoline sales.

In a free market someone is always trying to attract customers with a better product, better service, a giveaway, a lower price, or combinations of these factors. In gasoline marketing, most companies and dealers accept these economic facts of life, and compete vigorously. It has been our experience that, in order to defend our own market share and remain competitive, we must be prepared to respond promptly to these activities. Where price cutting is involved, whether by independents or by other majors, our practice is to continuously react to the conditions in the marketplace. It is not a simple matter of arbitrary price differential. Rather, it is a question of the prices

which will allow us to defend against a continuing loss of volume to ourselves and our dealers.

Some refiners with surplus gasoline must take a large part of the blame for severely depressed retail prices in some areas; in many instances that surplus is disposed of in the unbranded market at discounted prices simply to get rid of it.

Although this obvious finger pointing is easy, the problem has defied solution. Refineries can be built and operated only with assured sources of crude supplies. If a refiner reduces his crude purchases during periods of surplus, the producer will more than likely sell his crude elsewhere. When a normal balance of supply and demand returns, the refiner who has reduced his crude purchases may be out of luck. It is hard to criticize him for doing everything in his power to protect a dependable crude supply even if it means dumping cut-rate gasoline.

But oversupply is not the only factor. Price wars start in many ways. They may be started as an entry of new stations into an already crowded market. A new supplier trying to break into a market or an established supplier trying to increase his sales might offer his dealers a lower tank wagon price, thus drawing a competitive response. Or a dealer may seek to attract more customers by lowering his gasoline prices. He hopes, of course, that a larger volume will give him greater profit even though the margin per gallon is reduced. If this dealer wins customers from surrounding stations, it usually is not long before other dealers lower their prices. Now each dealer is back where he started, except that each is getting less money for every gallon sold. Another round of price cuts may follow. When the initiator of a price cut loses his advantage, a return to normal prices becomes more likely.

Many factors prompt a dealer's decision to change his gasoline prices. He may think it is the easiest way to increase business. Or he may be trying to attract transient business, offset a poor location. or overcome the disadvantage of an older station. He may be in direct competition with a local brand discounter or a grocery store that uses gasoline as a "come on" to sell other merchandise.

These processes represent a true picture of competition at workhard competition. There are times when it hurts-supplier, jobber, and dealer alike. But this is a necessary byproduct of free and open competition.

While the competitive situation among refiners and marketers has been such that their profits in these areas have been less than satisfactory due to recurring price wars, the impact of these conditions has fed back to the crude producer as well. Witness the deterioration in crude prices which has taken place since 1957. It is also appropriate to recognize that while the deterioration of crude oil prices may not have been as severe as has been the case with product prices, the greater cost of finding and producing oil has contributed to reduction in the profits of crude producers, which has caused concern on their part similar to that now being expressed by refiners and marketers.

Now, a few words on the problem of what it costs to make a gallon of gasoline.

As a background for this problem, please keep in mind that the same barrel of crude oil that yields gasoline, also yields propane, propylene, isobutane, normal butane, aviation gasolines, military combat motor gasolines, naptha for chemical plant charge, marine gasoline, tractor gasoline, aromatics concentrate for chemical plant charge, gasoline jet fuel, kerosene jet fuels, kerosene, diesel fuels, No. 2, No. 4, No. 5, No. 6 fuel oils, special viscosity residual fuel oil, lubricating oils, petroleum waxes, organic acids, weed killer oils, carbon black oil, hydrogen sulfide, petroleum coke, and other products.

Against this background, how much did it cost to make any one of these products? The simple answer is that-except on some highly arbitrary basis-no one knows, and there are no records, no computers and no human beings who can tell us accurately.

The consensus among petroleum accountants is that it is impossible with any reasonable degree of accuracy to compute the cost of manufacturing any particular product such as gasoline from a single raw material, crude oil, in a multiple-product refinery as part of continuous interrelated processes.

In our judgment, the establishment of any uniform industry guides for determining gasoline costs would be nothing more than an exercise in price fixing, and would result in higher prices to consumers.

We at Mobil are grateful for this opportunity to appear before this hearing. Gasoline marketing is a subject both exceedingly complex and exceedingly important. We hope thoughtful business and thoughtful Government can work together to serve the public interest in this area. We earnestly hope and believe that we can continue to serve the public in an atmosphere of free and fair competition, in which the ability to meet efficiently the needs of the public is rewarded by a profit.

If low prices and high quality are measures of public service, those of us engaged in the refining and marketing of gasoline can be justifiably proud. Competition in the oil business has brought down the retail price of a gallon of gasoline, excluding taxes, by about 10 cents in the last 45 years. On a comparative basis, the record looks even better. In the decade preceding 1963, the general price index went up more than 13 percent; the price of gasoline went down more than 4 percent.

As prices have gone down, quality has gone up. A 1930 gallon of gasoline moved 1 ton of automobile 29 miles at 40 miles an hour. A 1960 gallon could move a ton of automobile at the same speed 48 miles: 62 percent farther.

Today's gasoline is less subject to stalling, knocks, icing, gum, and corrosion than ever before. At the same time, it allows faster starts, smoother riding, and more dependable transportation.

The motorists of today are getting a better product for less money than ever before.

One final comment. The antitrust laws are deeply rooted in the tradition of common law, and have been enforced through use of the case-by-case method. We firmly believe this method is preferable in weeding out practices detrimental to the promotion of competition in open markets to any set of arbitrary rules.

Rigid rules and inflexible enforcement could give businessmen predictability in pricing, but at what cost? Predictability would be

gained at the expense of the flexibility and adaptability which are at the core of the growth of the oil business and the country as a whole. And the motoring public would be the ultimate loser.

Mr. Chairman, that completes my prepared text.

Chairman DIXON. Thank you, sir.

Mr. PECKHEISER. I have just one further comment, if I may.
Chairman DIXON. Yes, sir.

Mr. PECKHEISER. After spending some 31 years in this industry, it was difficult to sit by and listen to people say that we cared little about our dealers. I almost jumped on, on several occasions, this morning. Maybe you would like to hear a major company's side of it.

Chairman DIXON. Go ahead, sir. That is what we are here for. Mr. PECKHEISER. I started in the service station 31 years ago. Since then, I have never seen a program that any major company put on that wasn't intended to help their dealers.

Speaking for Mobil, everything we do is dedicated to make our dealers better, because we are inseparable from them, we depend upon them to represent us to the public, and if they are not successful, we cannot possibly be successful.

Commissioner JONES. How do you explain the fact that they don't seem to appreciate the benefits that you feel you have conferred on

them?

Mr. PECKHEISER. Well, I can't explain that fully. But may I come back to that, and just trace through a typical example of how one service station evolves.

We spend a great deal of money surveying markets and trying to put a single station in to serve a given small consumer market. We don't believe in having more than one outlet in a given market.

In so doing, we create a franchise for our dealers that allows him to take full advantage of that particular market without undue competition from other Mobil dealers.

Now, this is a hard line to define between any given two stationsyou have a problem of where the planned retail distribution area begins for one and where it ends for the other.

But we do go through a very elaborate process in trying to establish a trading area for each station that we build or each station that we contract with.

Often we will spend $130,000 or $140,000 in building a service station. We then spend somewhere between $1,000 and $2,000 to try to locate a good businessman, somebody with entreprenurial skills who will run that service station, run it efficiently, run it in accordance with the terms of the contract which we make with him.

Beyond the initial training--and we train our dealers for 4 weeksbeyond the initial training, we have sales representatives that try to guide their dealer day in and day out with the many problems that he faces. Really the term "salesman" is a misnomer, because he is our representative, our business counselor, to try to help that dealer be successful, because the sales representative cannot be successful unless he has successful dealers.

We then go beyond that, and we bring those dealers in for refresher training, into our training stations, and we have one in each district. We have now found that even with 4 weeks of training, even with this refresher training, even with this constant guidance which a re

tail representative tries to give the dealer day to day, week to week, on every call, that dealers still have problems that they cannot solve. In half of our districts we now have what we call a money management specialist, a man to come in and help this dealer with his cash flows because all the other things that we have done has enabled us to come to the conclusion that we can find people who can promote sales, we can find people who know how to do the mechanical phasesI am talking about putting in light bulbs, and not what was brought up this morning-we can find dealers with mechanical ability. But we have a great difficulty in finding people that can understand how to make money, because often when they see it in the bank account, they don't realize that it is out of the inventory, and they spend what is in the bank account, and then they go broke.

So that we are trying our level best to help dealers understand what it costs to open the door of his service station each morning, and what cash flow really is in a business, so that he will be able to develop a successful business for the long pull.

This all costs money. But we do it, not only for the dealer-we do it for ourselves, because we are so inseparably linked with our dealer organization.

Now, after living this for some 30-odd years, it is pretty unpallatable to hear this system maligned, because, as I said, I know of no instance where at least Mobil ever did anything that was not hopefully in the interests of our dealers. When I say hopefully, I am not sure that every sales representative, I am not sure that every employee of our company, always acts in the interests of all dealers.

But I know it is our design, I know this is what we want to do. And I do know that as a company, we have always taken the attitude that the company can take the rise and fall of misfortune more gracefully than can the individual, so that when problems arise, we do our level best to help our dealers, and when price wars start we try to defend them against bankruptcy that is brought about by others, we go to their aid. And that is why we have dealer aid. And that is why many of these conversations are going on here.

I possibly have taken too much time, Mr. Chairman. Excuse me if I have. I will answer whatever questions you may have. Chairman DIXON. Commissioner Elman?

Commissioner ELMAN. The impression I have from the testimony of-not necessarily your dealers, but dealers' representatives here is that they are not dissatisfied with any of the things you have described in the form of education and training. They are dissatisfied about price. They think they are paying too much for gasoline, and they think their suppliers are putting too much pressure on them to get the prices that they charge down. They are dissatisfied with their margin of profit. That is what is worrying them, Mr. Peckheiser. They are worried about money.

Mr. PECKHEISER. Yes; and we are, too. I would love to see dealers making

Commissioner ELMAN. They have the impression that you suppliers are trying to sell too much gasoline at their expense-your interest is in selling gasoline, and your interest may be to keep the retail price of gasoline down, whereas many dealers, I get the impression, would rather sell less gasoline at a higher price, at a higher margin of profit.