Figure 19. Marketing Expenses per Barrel of Product for FRS Companies, 1980-1983

By KAREN TUMMUI.TY, Times Stuff Writer

Atlantic Richfield Co.'s bold deci-
sion earlier this year to eliminate its
credit cards is part of a much broad-
er strategy that Arco officials ac-
knowledge is likely to drive away
Some of the wholesale business that
only two years ago accounted for
more than half its gasoline sales.

Senior Vice President George II.
Balakian, who is considered by
many in the company to be the ar-
chitect of Arco's marketing plan,
said the Los Angeles-based oil com-
pany's focus in the future will be on
boosting sales at its own retail gaso-
line stations.

"What we consider our life line
and what we're basing our hope on
for the decade of the 1980s are our
own stations," Babikian said in an
interview.

Only about 65% of the 7,000 ser-
vice stations that carry Arco-
branded gasoline nationwide are
supplied directly by the company.

Buy From Distributors

The remainder of the stations re-
ceive their gasoline from Arco dis-
tributors, who buy it wholesale
from Arco, Other wholesale custo-
mers include large industrial and
coininercial users, and distributors
who sell the fuel under other
brands.

The company plans to increase
Sales volumes in the retail outlets
that it supplies by appealing to what
it perceives to be a growing number
of price-sensitive motorists, he said.

"We know what price marketing
could do," he explained, "and we
think we have the strength to be
able to compete on a price basis."

But to do that, he said, the com-
pany must make dramatic cuts in its
costs. The most visible cost-shaving
move was its decision to drop credit
cards last April 15, but Babikian

Sen also hr "put some N

tough requirements on the whole-
sale class of trade."

Among them are tighter credit
terms, aimed at eventually putting
gasoline wholesalers on the same
cash-only basis as retail customers,
and a tougher stance in requiring
wholesale customers to live up to

PETE HENTOVOJA / Lad Angeles Tues
George II. Babakian

minimuin purchase commitments in their contracts, Babikian said.

"This has been traumatic for many of our resellers," Babikian said. He predicted that inany of Arco's wholesale customers will turn to other sin here later te ver

what is predicted to be a temporary
tightness in gasoline supplies cases.

Thus, he acknowledged, a num-
ber of stations now carrying the
Arco brand may be selling gasoline
under another name.

He expressed little concern over
the potential loss of wholesale busi-
ness, and added, "It would be nice to
get it 100% retail."

Seeks Equal Profits

Tightening the demands on
wholesale customers is not intended
to drive them away, he explained,
but to ensure that wholesale sales
are as profitable as retail ones.

Arco declines to say how much of
its present business is wholesale,
but Babikian said that in 1980, retail
business accounted for less than
half of Arco's gasoline sales.

"The mix in our business was
wrong," he said, explaining that re-
lying on wholesale customers who
can turn to a number of suppliers
subjects Arco to "the vagaries of the
wholesale market.

"You don't have any stability in
that class of trade," he added.

Babikian declined to discuss the
effect that Arco's decision to drop
credit cards has had on sales, saying
only, "There are no surprises in the
results."

Arco had predicted at the time its
announced its decision to discon-
tinued retail credit that the business
it would lose as a result, would be
more than offset with new sales
generated by its lower prices.

Industry sources agree that Arco
has been able to set its wholesale
prices lower than those of most
competitors, although some have
speculated that the company cannot
maintain the cuts and soon will be
forced to narrow the gap between
its own and other companies' prices.

Los Angeles Times

Thursday, June 17, 1982

But others have suggested that
Arco has become a sort of "super
independent," and will continue to
compete with independent oil com-
panies, which generally sell gaso-
line at lower prices than those of
major oil companies.

Arco also has instituted a "zone-
pricing" system, in which its retail
sellers in highly competitive areas
receive gasoline from the company
at lower prices. Some distributors
have protested the policy.

However, Babikian said Arco's
attorneys have assured it the prac-
tice is "completely legal."

Among other plans Arco is con-
sidering, Babikian said, is introduc--
ing on the West Coast a chain of
tune-up centers it is test marketing
in Boston and launching a massive
advertising campaign aimed at
making motorists aware of how
much they paying for such services
as credit.

Mr. SHARP. Thank you very much, Mr. Robinson. Mr. Ferrara, we are happy to hear from you at this point.

Mr. FERRARA. The first thing I would like to know is, does he give an honorarium for directors of widgets. I understand some people make a living by doing that, and I would like to be on your board.

Mr. ROBINSON. You may not when this is all over with.

Mr. FERRARA. Well, I think that is a good entry for the record.

STATEMENT OF JERRY FERRARA

Mr. FERRARA. My name is Jerry Ferrara. I am the executive director of New Jersey Gasoline Retailers, representing 3,000 gasoline retailers, and a member of the National Coalition of Petroleum Retailers for which I am appearing here today.

The questions that will be addressed today is why are we here, and is there a real need? Answers to the questions will provide basic criteria in support of our position that the Petroleum Marketing Practices Act is broken and needs fixing by passages of the proposed amendments in H.R. 2406 or H.R. 3338. Supplemental background information examples are provided in the statement that was provided for the record.

Why are we here? With the passage of PMPA in 1978 the right for us to go to State legislatures was given up. I know in New Jersey we had a very strong franchise act. It was a general act covering car dealers and whatever, and is still in existence. But in PMPA we had to sacrifice the rights of terminations, which was simply good cause, to reiterate the numbers and what they had to do.

We gave up a lot, and the only option that was available. Now only Congress can provide the remedy against unfair and unreasonable franchise terminations and/or refusals to renew and notification thereof.

The courts have come up with a virtual impossibility by requiring the retail dealers to provide bad faith motives when there are legal challenges to these unfair and unreasonable actions by the refiners. This imposes an extremely high burden upon the dealers.

We have carefully examined this predicament for an alternative, for we do not wish to burden the Congress. We found no alternative. We would prefer not to have these problems arise. We would prefer not to be here, but we have no other choice. That is why we are here.

With passage of PMPA we did not know the provision requiring good faith would mean proving bad faith. With me in the hearing room today is Jack Houseman from Georgia and myself who were chairman of the legislative committee of the National Congress of Petroleum Retailers who worked many years trying to arrive at a happy compromise. As you will remember, Mr. Chairman, we sat looking for a rule, 10, 11 at night that did not come about to give the vote.

Unless Congress provides for a change in the law for the courts to follow, the intended congressional relief is lost. Well, how can the dealers prove bad faith? Company records may exist, but we do not have access. Marketplaces and marketplace changes have se

verely impacted retail gasoline dealers. Mergers, acquisitions, and sell-outs have taken place since passage of PMPA.

Consequently, long years of mutual trust, of working relationship, of cooperative understanding of company philosophies with known management has suddenly disappeared. This has left the retailer with new product lines, new philosophies, and with new management personnel, strangers, to deal with.

Such conditions have resulted in arbitrary and unreasonable changes. Unless the Congress provides new guidance for the courts to follow under PMPA there is a questionable status of retail dealers in the future of gasoline marketing.

Congress extention for minimum standards governing termination and renewal of franchise relationships has not fully resulted under PMPA court interpretation. Amendments are necessary for maintenance of competition, and to place the dealer-the dealerthe name for that bill originally was the "Dealer Day In Court Bill." All we are asking is give the dealer his day back in court. By giving the courts provisions of the law upon which to draw conclusions based on evidence that certain franchisor unilaterally imposed terms and conditions are unfair and unreasonable under certain conditions, the courts can balance equity when dealing with certain issues, including but not limited to some of the following: minimum gallon purchases, mandatory operating hours stipulation, aggressive increase in occupancy costs, potentially coercive effects of short franchise renewal periods.

With the passage of H.R. 2406 or H.R. 3338 Congress will strengthen its response to the possibility that the destruction of the independent segment of the retail sector of the oil industry would eliminate the only level of independent pricing in the oil industry. I have eliminated a lot because I believe Vic Rasheed has covered a lot of the real essence. And in the interest of time, and I would like to take this opportunity that I did not in the beginning, Mr. Chairman, to thank you for continuing this hearing. We recognize Superfund is the big thing around here and we were worried that you would cancel it.

Mr. SHARP. Mr. Florio, as you know, would have been here if it were not for his active leadership on the Superfund issue.

Mr. FERRARA. I understand that.

Good faith is our problem. Where is good faith when we cannot deal. When we negotiated this bill one of the big issues was fair and reasonable or good faith. We conceded we will try good faith, because we did have a substantive relationship between some of the marketers there. It seemed to be a give and take. And Congress would assume that most people deal in good faith.

However, since then I think we have become a legal aid society. The lawyers for the major oil companies have tried to find ways of tightening PMPA to affect their interest. We have to go find attorneys trying to defend ourselves. But when we enter the courts, the court is hung up on the fact that we cannot prove bad faith.

All we are asking is that problems be looked at in a fair and reasonable manner. We ask, what is wrong with that? We feel in H.R. 3338, some of the opposition of the previous attempts from marketing consumer groups has been lessened. And hopefully, because of the simplicity and conciseness of such an amendment, it could

clear Congress this year. We cannot afford to wait another year. There will be a lot less dealers around.

And in conclusion, again we repeat, what is wrong with asking that the problems of the gasoline dealers be addressed simply in a fair and reasonable manner.

[Testimony resumes on p. 85.]

[The prepared statement and attachments of Mr. Ferrara follows:]