By Anna Pulley
By Erin Sherbert
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By Rachel Swan
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None of the major oil companies agreed to be interviewed for this story, though they all asked for a written list of questions. Only one responded to the list -- Equiva Services, the administrative arm of a joint marketing alliance between Texaco and Shell -- and that response was selective. Nevertheless, the views of the companies generally can be gleaned through press releases, news accounts, and documents filed in courts throughout the United States.
In lock step, the companies say they're simply responding to changing market conditions, that new policies affecting dealers are designed to keep pace with the aggressive competition. Despite record profits the last two quarters, the majors say they make relatively little money selling gas. Yet documents show that while the companies regularly demand new concessions from their dealers, they don't make the same demands of their own company-run stations. Steve Shelton, a Los Angeles gas retailing expert, says there's no question the companies are propping up losing stores on the backs of the dealers. "They use subsidization selectively to go after competitors," Shelton says.
The complexity of the gas business makes the purpose of eradicating dealers hard to pin down, and the companies won't discuss their marketing strategies. But evidence shows that management would like to capture the profits once enjoyed by the dealer network to bolster the bottom line. "They always left a little on the table for us, but now they're taking everything," says Jerry Gorczyca, a successful Shell dealer in Cleveland for 40 years. "And they want the table, too."
As the number of vehicles in America exploded in the early and mid-1900s, so did the number of stations needed to serve them. Oil companies, wanting to establish market share for their product, would buy property wherever they could find it, build stations, and lease them to dealers. By 1970, 400,000 stations pumped gas and repaired cars across the nation. Texaco alone had more than 40,000 stations; Exxon (then Esso) had almost 30,000.
The proliferation of stations meant each one sold relatively few gallons, averaging only about 30,000 a month. Former St. Louis Shell dealer Warren Schuermann remembers how it used to be. He bought his station on Natural Bridge in 1952, when customers could buy gas on just about every corner in town. Until he gave up fighting Shell and closed down last October, Schuermann employed a simple philosophy that over the years earned him a loyal customer base and a host of performance awards. "There's nothing like courteous, honest service," he says.
"I tried to impress upon the customers that we were a step above everyone else," he recalls proudly. "That was my theme: You can't get 'em all, but you sure as hell can get a lot of 'em." Even in the 1950s Schuermann pumped 100,000 gallons a month.
But the station network was inefficient and costly to maintain, and the 1973 Arab oil embargo hastened a major shakeout in the industry. The oil companies began to shed their lower-volume outlets en masse -- by 1982 the total number of stations in the country had been cut in half. Most of the abandoned stations were torn down and the property sold. In addition to improving efficiency, the majors were looking for other ways to increase profits at the retail level, including the conversion of select high-profile locations from dealer-run to company operations. The advent of self-serve gas and the rise of the convenience store in the 1970s and '80s prompted oil companies to replace bay stations with large food marts and multiple gas pumps.
Initially the dealers were pretty much at the mercy of their parent companies. They would sign lease agreements that protected them for the duration of the terms, usually three to five years, after which the companies could effectively choose not to renew. Even then, however, oil companies knew they had to tread carefully. A 1973 BP plan discussing how to convert desirable locations from dealers to company stores urged secrecy in implementing its mission. "The two items of highest priority are to secure possession of those units we desire to use in the program and to commence the divestment of other outlets," the plan stated. "A continued effort in this field will help solve the possession problem without alerting the dealer organization to our ultimate plans."
In 1978 Congress passed the Petroleum Marketing Practices Act (PMPA), which guaranteed dealers certain franchise rights. But that didn't stop the oil companies from moving aggressively to shrink the number of dealers. In 1982 ARCO led the charge when management decided to reinvent the company as a low-cost competitor. One component of the strategy was to get rid of dealers by tripling and quadrupling their rents and converting their stations to company operations. As an ARCO planning document stated, "What happens to the 700-800 stations that dealers would leave? Closing might be bearable, but would clearly be less attractive than company operated."
The same year ARCO conceived its scheme, Texaco produced a "Keepers and Losers List" that named 121 Nevada and California dealers the company wanted to disown. In a 1998 ruling, a Florida judge noted that "Exxon secretly divided its dealers into "keepers' and "non-keepers' and internally recognized that its pricing practices were driving the "non-keepers' out of business."