Mr. LEARNED. It may. I don't know. I don't think so. I think this would eliminate most of the chaos.

You see, there is no assurance that all the people in the lower level are going to decide they want to sell at the same price. Therefore, the thing that you say is bound to have a possibility of occurring.

Chairman DIXON. Wouldn't your rule have any effect on the second practice? It appears to me that it wouldn't unless the independent. cutrate marketers were classified in the upper level.

Mr. LEARNED. Well, I think most of them will be-not most of them, but the ones that are effective in having this result will be in the upper level-the Hudsons, the people of that type. They would, in my opinion, be in the upper level.

Chairman DIXON. Well, you looked at your third practice there. If you do that, if you classify independent refiner-marketers in the lower level, wouldn't they still be free to attempt to sell 2 cents below the so-called majors?

Mr. LEARNED. The third one is the practice of the so-called independent refiner who says he is going to sell 2 cents below the majors. He would be unable to do that unless the majors decide to sell, I'll say, at 3 cents above the lower level. Because if he is classified, this socalled independent refiner is classified in the upper level, he would have to sell at least a penny above the lowest marketer in the lower level. Therefore, the major would have to sell 3 cents above that for this fellow to have a 2-cent differential. He's not going to have that protection.

Chairman DIXON. If you were to classify this independent refiner market in the upper level, aren't you saying that they must price with the so-called majors?

Mr. LEARNED. No; I'm saying they must price at least a penny above the lower level.

I think it is quite possible in many markets that there will be many stations selling considerably above that penny. Some of them will be what are so-called present majors, some of them will be independent refiners, and some of them will be so-called cut-rate marketers, even selling above the level in which you allow them.

Chairman DIXON. Well, I watched those pictures. It seems to me that what the gist of your statement was was to the effect that the stations which were equal in appearance and location, that they have the equal ability to attract customers, and it seems to me you are asking us to assume that your advertising doesn't have any effect, it isn't superior to theirs. Therefore, they ought to be on your same level. They have a beautiful station sitting there

Mr. LEARNED. I think most of the pictures we showed you, the people that are in those pictures would be there. But there are a number of cutrate marketers that we did not show any pictures of who have no facilities of that type, who do not have the other services we referred to, that would establish the lower level. Of course, you would have to determine this anyway, based on your in-depth hearing. Whatever you came up with is the answer to it.

Our analysis may not be sufficiently complete to even have a sensible proposal. But I was unwilling to come in here and talk to you about the problems of this industry without having what I thought at least was a constructive suggestion.

55-013 0-66-vol. 1--47

Chairman DIXON. You certainly brought one, sir. You ought to be congratulated. I wish some of the others had seen fit to come and be as frank as you have been, sir. I thank you for coming.

Mr. LEARNED. Thank you.

Chairman DIXON. We'll hear from the last witness, Mr. James Marsden, representing the North Dakota Retail Gasoline Dealers Association.

TESTIMONY OF JAMES H. MARSDEN, EXECUTIVE SECRETARY, NORTH DAKOTA RETAIL GASOLINE DEALERS ASSOCIATION, FARGO, N. DAK.

Mr. MARSDEN. Mr. Chairman and members of the Commission, I have a copy of the text.

My name is James H. Marsden and I serve as executive secretary of the North Dakota Retail Gasoline Dealers Association, a position I have held since its inception in the fall of 1957.

Prior to that I was an employee of one of the largest major oil marketers in the country in a variety of positions, ranging from an oil company salesman to that of sales manager in charge of training for the State of North Dakota for this company.

My comments are thus the observation to and reactions to various practices and developments which have taken place in the past 15 years.

Our association consists of approximately 400 dealers of various brands and types of operation throughout our State.

The purposes of the association, as stated in its bylaws, are to promote in all lawful ways the general welfare of all retail gasoline dealers in our State; to foster cooperation and fair practices between suppliers, distributors, and retailers; to encourage and support equitable practices and methods within the industry; and to actively support, by every possible legitimate means, the enactment of wise and uniform Federal, State, and local legislation, especially insofar as the same may affect the purposes of this organization.

The importance of the truly independent retail dealer to a healthy and competitive petroleum industry has been widely recognized.

Based on the record of the past few years, where both the mediocre dealer and the better-than-average dealer, have "thrown in the sponge," the future of the remaining independent retail dealers is in jeopardy.

What does the dealer think and want? Based on my contacts with them, the following are typical comments:

1. Major brand dealers: The pricing of gasoline is so unrealistic that it is ridiculous. There is too much discrimination against me as a purchaser. I don't have the legitimate opportunity to set my price. My purchase price is set by my supplier, and in too many cases, my retail price is likewise controlled by him through the various devices, such as C stations, company-operated stations, et cetera.

Another complaint is made by a major brand dealer who was set up as a truck stop for several years only to be removed because the company built and set up another within three blocks. His own customers, who were receiving 2- to 3-cent discounts, now were purchasing from his new competitor-his own supplying company.

Several dealers have expressed disappointment and disgust at having one of their valuable commercial accounts being taken away by their own supplying company.

A very vehement complaint made by several dealers is that directed at a regional independent, who has the declared intention of selling at from 4 to 6 cents per gallon below them until they achieve their goal of 30,000 to 40,000 per month, regardless of whether or not a price war develops.

Another complaint made by these dealers and their jobbers is the practice of their supplying company operating both as a major and an independent in the same marketing area.

I'd like to depart from the prepared text for a minute. An excellent example is the case of Continental Oil Co., who owns Western Oil & Refining Co. Up in our part of the country, they advertise on television, and Barney-now Westy-says, the only difference is the price you pay, alluding again to the fact that the gasoline is the same. Chairman DIXON. They started that advertising?

Mr. MARSDEN. Yes; they have been doing that and I have something else that I'll show you later, Mr. Chairman.

The problem of receiving proper return for their investment in both time and money is high on the list of complaints, which they attribute in many cases to overbuilding, excessive rent, as well as rent discrimination between dealers of the same brand and in the same marketing area.

Emphasis is also placed on too many cases of uneconomical operation in terms of hours that the station is required to maintain.

In one of the most severe price war developments, the dealers are subjected to a "maverick" independent, who is located across the State line at Breckenridge, Minn. This dealer is also a car dealer and is using his cut price of 19.9 cents and now 22.9 cents per gallon as an inducement to get customers in to purchase automobiles.

His statement was to the effect that he didn't care if it cost him $6,500, he would charge it off as advertising.

Although Minnesota has a "below cost sales" law and the attorney general of that State was contacted, nothing has developed to improve the situation.

Both the dealer and his customers are greatly disturbed when the price is cut in a price war less than 100 miles away and their price is increased.

The dealer is also disgusted with major brand company announcements in the news media of price reductions with seldom, if ever, announcements of price increases. They interpret the move as more pressure.

2. Independent or nonbrand dealers, and these belong to our association as well as the major brand dealers.

Their biggest complaint is against unfair price competition by the majors and their dealers who price also as a nonbrand, and use stamps and gimmicks, excessive discounting and crosshauling, or moonlighting, as was referred to this morning.

3. Dealers of many different brands: Considerable criticism has developed as a result of the decision on the part of our present State administration to purchase their gasoline at the retail level at special bid prices, which in many cases is below the cost of the retail dealer.

There are also restrictive clauses in the bid proposals preventing others from bidding.

As a result, there are only 135 to 145 bid stations in the State permitted to sell to the State as retail, except in the case of an emergency when a purchase may be made.

I'm very happy that Mr. Petty, in his Oil Daily, has called to my attention that the Government has now withdrawn their request for that 2-cent discount that they were asking for before. I certainly think that is a step in the right direction, and I'm also extremely critical of Government forcing the small dealer out of business.

I have evidence that I can submit for the record, if you would like. 4. Dealer leasing arrangements: Considerable complaints have developed regarding the lack of established procedures in the leasing of service stations. There seems to be considerable favoritism in too many cases. In addition, there is too much company control over the lessee with only 1-year leases, especially in the case of a dealer who has been with the company for several years. A "do it or else" attitude develops too often on the renewal of the lease. The companies, in too many cases, have been withdrawing from their landlord obligations in the maintenance of property, insisting on the lessee absorbing the cost with resulting higher operational cost to lessee.

An overemphasis on the building of new stations, with little, if any, on maintaining old ones has taken place.

5. Company-dealer relationships: Although there has been some improvement in the company-dealer conferences, much improvement can be made. Dealers do not have as true representation at these conferences as they should. Dealers should choose, instead of having the company appoint, as is the case too many times. More emphasis needs to be given by all companies on the proper selection and training of dealers and their personnel.

Far too many are given limited training with the result that the customers do not receive the correct servicing of their vehicles and dealers do not manage their station affairs as they should. Several of the better-than-average dealers feel that fewer stations should be built and better facilities made available so that a good living can be earned and good businessmen will be attracted. Too many company salesmen are under such pressure to open up a station that they install unqualified personnel. Many of these dealers either do not know how to merchandise for profit or do not care. As a result, price wars and dealer turnover develop.

Summary: We are grateful to you members of the Federal Trade Commission and the members of your staff for permitting us, as a representative of our fine association, to appear before you and present these views. No doubt they are repetitious, to some degree, but sometimes repetition is most necessary to get the desired results. In conclusion, I would like to stress the following points:

(1) The grave economic sickness which afflicts gasoline marketing is due primarily to the prevalance of anticompetitive and monopolistic practices which are violative of the antitrust safeguards established by Congress and enunciated in decision of the U.S. Supreme Court and the Federal courts of appeals.

(2) Yet these anticompetitive practices continue because of advantages which can be extracted by powerful companies while the

victims wait for the law to catch up with the violations-and because such practices by even one company invite imitation by other companies who are under pressure to maintain their relative profit and market positions.

(3) Except for enforcement actions by the Federal Trade Commission, independent business at all levels of gasoline distribution could already have been destroyed. But it is now imperative that principles established through the case-by-case approach be incorporated in legally binding rules which are applicable to the economic situations involved on an industrywide basis.

I do have something that was referred to in the last gentleman's testimony. I think you asked him about advertising. It was very appropriate that this ad also refers to a West Side 66 station. This indicates the point to which gasoline marketing has arrived at right now. They don't only put price signs up, they put it in the paper. May I quote this? It states

Gas war declared, 26.9 regular, 29.9 ethyl, Rochester's North Star stations, operating as Scott's West Side 66 and Broadway North Star

That is a new one. I have never heard of a North Star Station called West Side 66 before

In fact, while you

join forces in bringing lower gasoline prices to Rochester. are reading this ad, we could be dropping prices to 25 cents, 24 cents, 23 cents, 22 cents or as low as 15.9 cents per gallon. That's exactly what we did during the last gas war. We guarantee our customers the lowest prices in town for the very same high-quality gasoline other companies advertise as the best. North Star gasoline is not any better-but it's just as good. It comes from the same pipeline as many major gasolines do. It exceeds the requirements of the State of Minnesota, in fact, the State buys gasoline in the Rochester area from both North Star stations, because it's as good as the best and we save them money. We guarantee to save you money, too. Not only in gasoline, we carry the same major brand motor oil you are now paying 55 cents to 75 cents forour price, 49 cents. You can save up to 50 percent on any major brand of motor oil when you buy it by the case we have them all. Conoco, Cities Services, Gulf, Kendall, Mobil, North Star, Penz-Oil, Phillips 66, Quaker State, Standard Oil, Texaco, Valvoline, Shell, Royal Triton-you name it, we've got it. Outboard motor oil, too.

Think about this. We state facts. You save at both North Star stations. Commissioner MACINTYRE. What is the date of that?

Mr. MARSDEN. April 30, 1965.

Chairman DIXON. Who is the advertiser?

Mr. MARSDEN. North Star. North Star is a regional marketer up in Minnesota. Although this pertains to Minnesota, I just present it to you as an example. We are certainly affected in North Dakota by the operations in Minnesota.

Chairman DIXON. May I have that for the record?

Mr. MARSDEN. You surely may.

(The document referred to was marked "Marsden's exhibit No. 1" for identification, and appears in the appendix, at p. 1027.) Commissioner ELMAN. That is an independent?

Mr. MARSDEN. That is an independent.

Commissioner ELMAN. What would you say is wrong with that ad? Mr. MARSDEN. I say it is an indication of what is wrong with the petroleum industry today.

Commissioner ELMAN. Could you spell it out? Is the ad false or misleading or deceptive?