Gasoline allies - gas station swapping by oil companies

Washington Monthly, May, 1993 by David McKenna

Noticed anything odd about gas stations lately? It's not just that those men with the stitched-in-script name tags who used to top off the tank then buff the windshield have vanished; or that there are fewer fill'er-upand-get-a-Flintstones-mug promotions. The more subtle--and more ominous--change is the disappearance of brand choices throughout the country. Chances are that there used to be ten or so brands to choose from in your neighborhood; now there could be as few as three. And soon enough, three may seem like a veritable buffet.

Turns out that while we've been busy pumping our own, the oil companies have been quietly engaged in a large-scale, multibillion dollar swap meet. Some of the deals:

* Chevron and Exxon jointly announced late last year that they would swap retail gas stations in the Washington, D.C. area and South Florida. Under the agreement, which is scheduled to be finalized June 30, 1993, Chevron will obtain 59 Exxon properties in Broward, Dade, and Palm Beach Counties, and Exxon will acquire 66 Chevron sites in Maryland, Virginia, and Washington, D.C.

When the deal takes effect, Chevron will become the top marketer in South Florida, up from its previous position of number four. Exxon's presence in South Florida and Chevron's in D.C. will be effectively zero. A few months before that agreement was announced, Exxon declared it would withdraw from Los Angeles, a Chevron and ARCO stronghold.

* In 1988, Mobil received 330 BP stations in mid-Atlantic states and New England in exchange for 244 of its outlets in western and northwestern states.

* ARCO abandoned the entire eastern U.S. in 1985; Sun acquired more than 550 ARCO outlets in the northeast in 1988.

These deals would be no more wornsome than McDonald's swapping a few stores with Wendy's but for the odd relationship between wholesaler and retailer in the gas business. The mark-up on a gallon of gas is in most cases a matter of cents, even half cents, so individual stations have little latitude with their prices and not much hope of undercutting competitors down the street. Thus, Big Oil's home offices essentially set the price you pay at your local station and, as the number of available brands in an area dwindle, the comparties get a firmer grip on that price. If present trends continue, your local gas station will have all the competitive advantages of a public utility-minus the regulation. Unlike a Wendy's-forMcDonald's deal, which would leave lunchers with plenty of options if Big Macs got too dear, drivers are stuck with whatever choices the oil companies offer.

The oil industry's trade association says all this swapping is nothing to worry about. "We don't follow those types of deals," said Joe Lastelic, a spokesman for the American Petroleum Institute, after the Exxon/Chevron swap. So far the government has felt the same way; for technical and not very convincing reasons, the Justice Department has allowed Big Oil's divide and conquer scheme to progress virtually unimpeded. But already one consumer group and a whole lot of gas station dealers are sounding the alarm and trying to stop what looks suspiciously like the beginning of a brand new oil monopoly.

Mobil stations

In the early seventies--before the major companies lost ownership of crude oil installations to the governments of the Mideast and elsewhere--it wasn't odd for a refiner to blanket the United States with outlets. Texaco, for one, used to boast that it marketed in every state in the continental United States. A couple of years after the arrival of OPEC, President Carter began deregulating the oil industry and soon the government subsidies, which had kept the pump price of gas low, were gone. Without those subsidies, the oil companies were left looking for ways to reduce red ink in their retail segment.

The strategy of isolating refiners and retailers in discrete regions makes good business sense. Consolidation, of course, means that refinery-tostation shipping costs are reduced. These deals also provide a short cut to an increased market share, eliminating the zoning and other 1ogistical headaches that would otherwise be posed by building new gas stations. Ask the industry about the swaps and you'll get a perfectly sensible answer. "We can enhance our position in Florida and increase our profitability with this move," said Chevron spokesperson Bonnie Chaikind about her company's swap with Exxon. "We're not a big presence in the mid-Atlantic."

No doubt consolidating is good for the bottom line, but one of the morals of the Standard Oil breakup was that what's good for Big Oil isn't necessarily good for the American consumer. Some aspects of these deals smell rather suspect. It seems, to begin with, less than coincidental that all the major players have picked different sections of the country to do their consolidating. And it's slightly unnerving to learn that Citizen Action, a D.C.-based watchdog group, found in a 1991 study entitled "Destroying Competition and Raising Prices: How Big Oil Has Taken Control of America's Gasoline Markets" that all the oil companies' cost-cutting measures have yet to translate into lower gas prices.