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Paying the Price 

Major oil companies are gobbling up independent gas station operators, all in the name of greed

Wednesday, Nov 29 2000
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It took Mike Chiaponi 20 years, but in 1994 he finally acheived his lifelong dream. Manager of the Shell station on San Bruno just north of Candlestick Park, Chiaponi scraped together $400,000 and bought the business from his boss. With Shell's help, Chiaponi built a thriving fuel-and-repair operation that provided him a comfortable living. Not bad for a kid who started out pumping gas and washing windshields in high school. "Things were great," he says. "This was gonna be my retirement."

A few years ago, however, Shell's attitude seemed to change. His competitors began to price gas to the public below his cost; instead of helping him out, the company pushed his cost higher, cutting his sales in half. Under Shell's long-standing rent rebate program, Chiaponi was paying no more than $3,000 a month; in 1998 Shell scrapped the program, and his monthly bill has now jumped to $13,000. Under his new lease, which takes effect in December, Chiaponi will pay $16,000, escalating to $21,000 in the third year of the contract.

Except that Chiaponi won't be signing his new lease, since the new rent payments make it impossible to survive. Last year he cleared only $4,000, and he had to take a job managing a Shell station for another dealer to keep himself afloat. "This year I'll lose 10 grand," he says. "Obviously I can't afford to continue."

Although time is running short, Chiaponi still hopes to sell his assets and recoup most of his investment. If he does, he'll be better off than Tim Miller, who this spring gave up a pair of Shell stations he leased in Cotati and Petaluma and lost more than $250,000 in the bargain. A loyal dealer who grew up in the business with his father, Miller still can't believe his own company pumped him dry. "I've had Shell blood since I was born," Miller says. "We worked so hard to get where we were, just to have the rug yanked out from underneath us."

The neighborhood service station, once as bedrock a community institution as the local hardware store and corner grocery, is disappearing. Attendants who once greeted motorists, filled their tanks, and checked their oil have become obsolete in the age of self-service. As cars have become more complex and a plethora of brake, muffler, and lube shops have evolved to meet demand, once-bustling gas station repair bays have been leveled or have become musty with disuse. Convenience store chains added pumps in the 1970s and '80s and captured a huge share of the market. Recently, mega-retailers such as Wal-Mart and Albertson's have entered the gas business, selling cheap to draw customers and further strangle the old-timers.

But the small-business owners across the country who have been the face of gas retailing for decades say something more than a changing marketplace is threatening their existence. They say they're perfectly capable of thriving in modern times, given the chance to compete. Most have invested in new technology, and many have borrowed heavily to upgrade their stations or to convert older repair facilities to convenience stores and add car washes.

Even so, the dealers charge, the big oil companies that dominate the industry -- in particular ExxonMobil, Shell, Texaco, Chevron, and BP Amoco -- are forcing them out of business. "The objective is to get the dealer out of the network, period," says Los Angeles-area dealer George Mayer. At the same location for 26 years, Mayer is taking a beating from a recent rent hike compounded by wholesale gas costs higher than his competition's. "My [repair] business stays busy," he says. "Otherwise, I wouldn't still be here."

The stakes are high. For the dealers, whose numbers are still measured in thousands, it's a matter of survival. For the oil companies, it's a matter of maximizing revenues -- dealer profits have long tantalized company executives. The easiest ways to extract cash are by jacking rents and fees or simply taking over the stations and running them with cheap labor.

The implications of ridding the landscape of service station dealers are broad. Independent dealers who can set their own street prices obstruct the ability of the major industry players to manipulate prices freely. And though industry leaders reject the notion that the companies have the power to push up prices at will, the motivation is certainly there: In the United States, a one-cent increase in the retail price of gas would be worth about $1.2 billion annually to the industry. "The majors are going after their own to gain control of the pumps," says Tim Hamilton, a consultant to several West Coast dealer organizations. "They want your wallet."

Dealers, the bulk of whom traditionally leased their stations from the oil companies in franchise arrangements, have been complaining of predatory practices for years. The media have occasionally reported the charges -- as well as the stock company denials.

But a review of thousands of pages of internal company documents, court records, and legislative testimony as well as interviews with more than a dozen current and former company employees has led to an inescapable conclusion: Major oil companies have been deliberately and systematically driving dealers out of business. In several cases, documents show, dealers were expressly targeted for removal. Although dealers have protection under the law, the companies have found ways to circumvent it, including:

  • Raising station rents 300 percent and more, instantly forcing dozens of dealers to close and shoving hundreds more to the brink of insolvency;
  • Withholding credit card reimbursements of as much as $100,000, resulting in serious cash flow problems;
  • Offering dealers take-it-or-leave-it lease renewals that include restrictions on reselling their businesses (thereby devaluing them);
  • Charging dealers different amounts for gas in the same metro area -- as much as 12 cents a gallon -- by putting them in different "zones," making it difficult or impossible for those in high-cost zones to compete; and
  • Building spacious new company-run stations with convenience stores, car washes, and other amenities close to existing dealer-run stations -- and then undercutting the dealers' prices.

About The Author

Bob Burtman

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