of the dollar or less material from overseas. And then when Gulftane came in with subregular-I mean when Gulf Oil Co. came in with Gulftane as a subregular, it just became a real desperate, hard run for gallons everywhere.

Chairman DIXON. Thank you, sir.

Mr. MILLER. Thank you.

Chairman DIXON. We will hear next from Mr. Halfpenny.

TESTIMONY OF HAROLD T. HALFPENNY, COUNSEL, AUTOMOTIVE SERVICE INDUSTRY ASSOCIATION

Mr. HALFPENNY. My name is Harold T. Halfpenny, an attorney with offices at 111 West Washington Street, Chicago. I am here as counsel for the Automotive Service Industry Association, which has presented a petition in support of the proposed trade regulation rules presented by the National Congress of Petroleum Retailers, Inc.

I do want to express my appreciation to you for allowing me to share my time with Mr. Fife, who is here as a manufacturer, independent manufacturer in the automotive field of ignitions. He also is representing the Automotive Service Industry; but also the Ignition Institute.

I would like to incorporate my written statement in the record, if it please the Chairman, and we are concerned with the TBA phase of this industry, which is tires, batteries, and accessories-and due to the fact we are running behind schedule, I will only brief a few important highlights.

The records of the Commission, the courts, and Congress, are replete with unfair methods of competition of the major oil companies in regard to the TBA items. In recent years, with increased repair services going on in the oil service station field, it becomes more and more a concern of our industry. The Automotive Service Industry is a national trade association-speaking on behalf of the entire independent automotive service industry, from manufacturers through distributor, jobber, and garage repairman, with a membership of over 5,000 manufacturers, rebuilders, warehouse distributors of all kinds. We have affiliated with us the Automotive Booster Clubs International, whose members are manufacturers' sales representatives, Independent Garage Owners of America, whose members are engaged in the servicing and repair of automobiles. We are all interested in the operators of retail gasoline stations, who are important potential customers of the independent supplier.

As I stated, the record, I think, is replete with many instances of the things we have objected to, instances of unfair competition.

I think the Commission staff has done an outstanding job in this field, in some of the cases they have taken part in. There isn't any question that Congress has looked into this over many years. As I stated in my prepared statement, on the last page quote of the Congressional Record of January 25 by Subcommittee Chairman Roosevelt:

The record of the hearings is replete with instances in which, through the threat of lease cancellation or other economic pressures, the independent service station operator is coerced into exclusive dealing. *** The evidence indicated that there is a general pattern throughout the country that most of the major

oil companies bring pressure to bear on the service station operators to compel them to handle specific products which are sponsored by the major oil companies and on which the major oil companies receive some compensation, usually in the form of an override commission. This does not only have a tremendous adverse economic impact on the independent service station operator, but also deprives the independent automotive parts and TBA wholesalers of their fair proportion of a competitive market.

It is our opinion that this is a fair conclusion that could be drawn from many years of hearings and many of the cases that have been before this Commission. It is for that reason we appear in support of the petition filed on behalf of the National Congress of Petroleum Retailers, Inc. We feel that the activities of the Commission have been salutary and effective, if carried on to enforcement. But we feel that trade practice rules of some type spelling out what is legal and illegal would be beneficial to many of the small people that are engaged in the various levels of distribution in this field. (The full statement of Mr. Halfpenny follows:)

STATEMENT OF HAROLD T. HALFPENNY

My name is Harold T. Halfpenny, an attorney with offices at 111 West Washington Street, Chicago. I am here as counsel for the Automotive Service Industry Association, which has presented a petition in support of the proposed trade regulation rules presented by the National Congress of Petroleum Retailers, Inc. The Automotive Service Industry Association is a national trade association speaking on behalf of the entire independent automotive service industry—from manufacturer, through distributor, jobber, and garage repairman. It has a membership of over 5,000 manufacturers, rebuilders, warehouse distributors and wholesalers of automotive replacement parts, tools, equipment, chemicals, paint, refinishing materials, supplies, and accessories.

Affiliated with it are Automotive Booster Clubs International, whose members are manufacturers' sales representatives, and Independent Garage Owners of America, whose members are engaged in the servicing and repair of automobiles. ASIA thus represents a combined direct and affiliated membership of approximately 20,000 automotive firms, located in all 50 States, and employing over 400,000 people in the automotive service industry. The operators of the retail gasoline stations are important potential customers of the independent suppliers. For that reason, ASIA is here urging the adoption of proposed rule 25(g) which defines as an unfair method of competition contracts or practices on the part of major oil companies which directly or indirectly induce or compel their retail gasoline station operators to refrain from dealing in any of automotive parts other than the one recommended by the company. The underlying facts which demonstrate the need for such a rule are described in paragraph 19 (f) of the principal petition.

The request of the principal petition that these practices be defined as unfair methods of comeptition and so in violation of section 5 of the Federal Trade Commission Act is in accord with the repeated findings of this Commission, which has been concerned with this problem since 1956. In that year, it issued complaints which charged that the payment of a commission by a rubber company to a major oil company on sales of the rubber company's automotive products by the oil company's service stations, was an unfair trade practice.

These complaints were issued against three major oil companies, and included in each case the rubber companies with whom they had commission contracts: B. F. Goodrich Co. and the Texas Co. (docket 6485); Goodyear Tire & Rubber Co. and the Atlantic Refining Co. (docket 6486); and Firestone Tire & Rubber Co. and Shell Oil Co. (docket 6487). The Atlantic Refining order was affirmed by the seventh circuit, and that decision is now before the Supreme Court; the Texas order was reversed by the Court of Appeals for the District of Columbia, and a petition for certiorari is pending in the Supreme Court; the Shell case is pending before the fifth circuit.

The transcripts of testimony in the files of this Commission in these cases demonstrates the coercive tactics of the oil companies, and includes the testimony of many independent TBA wholesalers and manufacturers that they could not sell certain retail gasoline stations, as a direct result of the coercion.

The Commission concluded in the Atlantic opinion: "We find that Atlantic has in fact coerced a substantial number of its dealers to purchase substantial amounts of sponsored TBA through threats of lease cancellations or other retaliatory action."

In the Atlantic appeal, the seventh circuit indicated that even in the absence of overt coercive tactics on the part of the oil company, Atlantic's economic power over the lessee stations was sufficient to compel the purchase of sponsored TBA. Whether or not the Supreme Court interprets the opinion as so holding, and whether or not the opinion is affirmed, there has been an abundance of testimony not only before this Commission, before also the courts in other cases, and before Congress to demonstrate the necessity for the adoption of a trade practice rule as requested in the principal petition.

The testimony which has emerged in court cases is much alike in all of them, and is summarized in Richfield Oil Co. v. Karseal Corp. (271 F. 2d 709 (9th Cir., 1959)), which was a private action for damages:

"Without enumerating the testimony in detail, the record shows that distributors of Wax Seal were generally unsuccessful in their efforts to sell their product to Richfield TBA men and Richfield service stations; that a Richfield representative told the Richfield service station operator to get Wax Seal out of his window or they would both lose their jobs; the salesmen for Wax Seal were told not to come in when Richfield men were around; that Wax Seal was occasionally sold in Richfield service stations but kept under the counter and not displayed. A former merchandiser for Richfield testified that he would warn and threaten Richfield dealers who carried nonauthorized TBA products. A Richfield merchandiser told a Richfield operator he did not want to see Wax Seal in the station."

Decisions referring to similar facts are: Osborn v. Sinclair Refining Co. (286 F. 832 (4th Cir., 1960)); United States v. Richfield Oil Corp. (99 F. Supp. 280, 297 (S.D. Cal, 1951) (aff'd 343 U.S. 922 (1952)); Lessig v. Tidewater Oil (827 F.2d 459 (9th Cir., 1964); cert. den. 377 U.S. 993). Please note that the Lessig case is a 1964 decision. That times have not changed are indicated by the Court's conclusion that: "From the evidence the jury could conclude that Tidewater sold petroleum products and sponsored TBA to its dealers upon conditions and understandings express and tacit, oral and written-that they not deal in commodities sold by competitors of Tidewater."

Congressional committees have reached this same conclusion after years of investigation. Hearings extending over a 5-year period (1955-60) were conducted by Subcommittee No. 5 of the Select Committee on Small Business of the House of Representatives. In an interim report in July 1955, stating that the evidence presented showed that many dealers could not exercise freedom of choice without subjecting themselves to the possibility of retaliatory action by the oil company.

This conclusion was reinforced by the testimony at the hearings in 1956 and 1957. In 1957, the committee agreed not to hold further hearings for a full year in order to give the industry time to correct the objectionable practices. However, the committee continued to receive a steady flow of complaints from retail dealers and wholesalers of TBA in all parts of the country. Accordingly, in December 1959 and April 1960, further hearings were held.

At the 3-day December hearings, testimony was heard from independent wholesalers of TBA products, gasoline station dealers, and association representatives from those industries. There were 28 witnesses from 19 States, representing various parts of the country from Connecticut to Florida and from Virginia to California. These hearings have been summarized (Congressional Record, Jan. 25, 1960) by subcommittee Chairman James Roosevelt as follows:

"The record of the hearings is replete with instances in which, through the threat of lease cancellation or other economic pressures, the independent service station operator is coerced into exclusive dealing. * * The evidence indicates that there is a general pattern throughout the country that most of the major oil companies bring pressure to bear on the service station operators to compel them to handle specific products which are sponsored by the major oil companies and on which the major oil companies receive some compensation, usually in the form of an override commission. This does not only have a tremendous adverse economic impact on the independent service station operator, but also deprives the independent automative parts and TBA wholesalers of their fair proportion of a competitive market."

In my opinion, this is a fair conclusion to be drawn not only from the December testimony but from the 5-year study by the subcommittee; and in fact no other conclusion is possible.

It is submitted that all of the evidence-before this Commission, before the courts, and before Congress-demonstrates that the problem described in paragraph 19 (f) of the principal petition is a serious one, and that a trade practice rule as requested in that petition (rule 25(g)) should be adopted.

Mr. HALFPENNY. I would like to introduce at this time Mr. Fife, who is here, who will make a statement on behalf of the independent manufacturers. If you have any questions, we will be glad to answer

them.

Chairman DIXON. Mr. Fife.

TESTIMONY OF BERNARD FIFE, PRESIDENT, STANDARD MOTORS PRODUCTS, INC., LONG ISLAND CITY, N.Y.

Mr. FIFE. Mr. Chairman, Commissioners, my name is Bernard Fife. I am president of the Standard Motor Products, Inc., of Long Island Ctiy, N.Y., an independent manufacturer of automotive ignition and carburetor replacement parts. By the word "independent" I mean that we are not affiliated either operationally or through ownership with any of the car manufacturers. By the words "replacement parts" I mean parts which are used for repair or maintenance of vehicles after they are in operational use, as opposed to those parts used in the manufacture of the cars themselves.

We have been in business since 1919, about 46 years. Our annual volume in this phase of our business is approximately $17 million and we employ just under 1,000 people in our manufacturing organization. We are publicly held firm with our stock listed on the American Stock Exchange.

I appear also as a member and representative of the Ignition Manufacturers Institute, an association comprising about 10 firms generally similar in the nature of their business to ourselves and each of us in facing the same problems being considered today.

Over the years, we have distributed our parts through independent automotive parts wholesalers throughout the country who have in turn sold them to independent repair shops and gasoline service stations, these two classes of trade representing our major dealer outlets. The car dealer who is, of course, also a major repairer of the country's cars, has never been much of a market for the independent part manufacturer as these car dealers have generally used the parts manufactured by the car manufacturer whose cars they sell.

In past years, the gasoline service stations represented only a small portion of the market for parts such as ours. However, recognizing the vast potential of this segment of the industry, there being well over 200,000 of such outlets, the independent manufacturer and independent wholesaler, working together, encouraged these gasoline service stations to do an increasing amount of general repair work to their mutual benefit through helping them both with technical training and information and through giving various types of merchandising help in the form of clinics, bulletins, and marketing suggestions.

It should be understood that through all these years, the car manufacturers, through their parts division, were also competing with the independent manufacturers both for the business of the independent

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wholesaler and for that of his customers, the repair shops and gasoline service stations.

The gasoline service stations were generally completely free to choose both the brand of ignition and carburetor parts that they preferred to use and their source of supply for such parts. However, for a number of years I have heard and read of the complaints of other automotive parts manufacturers with reference to problems which the ignition industry only recently began to experience.

While most oil companies generally stayed out of the repair parts business, they did, in many cases, franchise certain specialized independent wholesalers to distribute such TBA parts as were sold under the oil company name or label. "TBA" literally means tires, batteries, and accessories, and is a term used in the industry to denote popular shelf parts stocked by most service stations. These wholesalers devoted most of their efforts to selling and servicing stations selling this particular brand of gasoline, and added to their merchandising package the products of various independent manufacturers such as ourselves to round out their activities and widen the range of their business.

This was generally the picture until recent years, with the gasoline service stations doing an ever-increasing amount of general repair work but with apparently complete freedom to select both brands used and sources of supply on ignition and carburetor parts, those lines with which we are, of course, most familiar.

What I will say now reflects, of course, my personal observations, based upon my close contact with the marketplace rather than under a specific knowledge of any relationships which may have come to exist between the oil companies and the parts divisions of the car manufacturers, largely General Motors Corp. and its United Motor Service Division.

As the gasoline service station market for parts became larger and more desirable, the car manufacturers, General Motors, among others, decided to try for a larger share of this market not only by working harder through existing independent distribtuion outlets but through bringing such oil companies who were interested into the marketing picture, to replace or augment the distribution of their parts through the independent wholesaler. Official sanction has now been given to Delco parts by many major oil companies and the result is the threat of a gradual closing of the gasoline service station parts market to both the independent manufacturer and wholesaler.

As a case in point, or firm, Standard Motor Products, Inc., did a very substantial business with the franchised TBA wholesalers of one of the major oil companies. Within a few months after this oil company made certain arrangements with United Motor Service and officially recommended the use of Delco parts, our company lost the business of each of these "independent" distributors. Is it not reasonable to presume that this practically simultaneous action on the part of all of these geographically scattered independent businessmen indicated that many of these were subject to influences which served to reduce their freedom of choice as to what lines they might or might not handle. To this firm, and to others similarly situated as independent manufacturers, it meant not only the loss of substantial existing business, but the closing, to all intents and purpose, of a substantial section of the potential market to us.