Oil Giants Fuel Station Turf Wars

Dealers Caught Between Rising Rent, Falling Sales

April 29, 1991|By ROBERT LEE | ROBERT LEE,STAFF WRITER

Some of the toughest business competition in Pasadena isn't waged between the stores in the shopping centers or numerous restaurants thatcome and go.

It's between service stations.

With 22 outlets within a three-mile radius of Jumpers Hole Road, it might appear that the area has a glut of gas jockeys. Four stations have closed in the last year, one has reopened under new management, and another is being renovated to peddle milk and other staples to attract more customers.

But two of the dealers whose stations are closing say the nastiest dealings don't involve the competition. Theysay they're being squeezed out of business by the big oil companies.

"We've got a problem. The industry needs massive reform and the government doesn't want to address it," said W. James Munroe, who operates the Jumpers Mall Exxon on Ritchie Highway and the recently closed Sun Valley Exxon nearby.

Munroe shut down his one station after Exxon tripled his rent in February. He believes he is being pushed out of his Jumpers Mall station, too, and has vowed to fight his landlord and fuel supplier to hold onto his livelihood.

"A lot of dealers won't tell you what I'm telling you because they're afraid of reprisals," Munroe told a reporter Thursday.

On Friday evening Exxon marketing spokesman L. K. Herlong told The Anne Arundel County Sun thatExxon plans to revoke Munroe's remaining franchise.

"Exxon has notified Mr. Munroe of its intent to terminate its existing franchise agreement with Mr. Munroe effective July 15 for various reasons, including non-payment of amounts due and owing to Exxon," Herlong said.

When pressed to elaborate, Herlong responded: "Exxon sees its relationship with its dealers as a private matter," and declined further comment.

Munroe learned of the termination notice from a reporter. He said he has never missed a payment to Exxon and owes the company nothing. He plans to contact his lawyer today and anticipates a court battle.

F. George Hinkleman, who owned the Shell Station at the southwest corner of the same intersection until it was closed down in May, is involved in a costly legal battle with Shell.

Hinkleman saysthe rent increases were designed to push him out of business. Shell says it terminated his franchise because of bounced rent checks.

The case was rejected in December by U.S. District Court Chief Judge Alexander. Hinkleman has appealed that decision to a federal court in Richmond, Va.

At issue in both disputes is the legality of a landlord/oil company, which makes its money from both rent and gas sales, jacking up the rent when gas sales decline.

"I'm losing money on gas and the only thing keeping me in business is the service shop. If they triple my rent when my sales go down, that kills me," Munroe complained.

The state Comptroller's Office, which inspects service stations, and the state Service Station Automotive Dealers Association were called in to mediate both Munroe and Hinkleman's disputes.

Gasoline sales have declined steadily at Munroe's two Exxons and Hinkleman's Shell sinceRoute 10 opened in 1985, drawing traffic away from the Jumpers Hole Road area.

Both mediators strongly advised Munroe to find common ground with their companies and stay out of David and Goliath litigation battles.

And both agreed with the statement: "The playing field is tilted infavor of the oil companies" in disputes with their franchisers "because of the cold, hard realities of the marketplace."

Roy Littlefield, head of the Service Station Automotive Dealers Association, explained: "The association is trying to form a better partnership with the oil companies rather than fight them because most dealers who get into the business do it because they like to work with the oil companies. Jim has dug in his heels, and the oilcompanies have dug in theirs.

"Our experience is when that happens, the oil companies always win."

Littlefield said that dealer lawsuits inevitably become "wars of attrition" that fail. He anticipates"a weeding out" of dealers over the next couple of years because oilcompanies are making a conscious effort to go with volume.

"Back in the 1960s, the marketing strategy was 'a service station on every block,' but in the '80s, they changed that. Now they wanted fewer stations with more volume, and they've designed their leases to represent that. We lost 110,000 stations nationwide in the last 10 years. Maryland has done pretty well so far, but now our dealers are getting into destructive price wars that are bringing them down," Littlefield said.

Arthur Price, of the stateComptroller's Department of Fuel Tax Inspection and Testing, said that since the Persian Gulf crisis began, Baltimore area dealers have waged intense price wars that meant an average loss of 1.43 cents on each gallon of unleaded regular they pump.

He said the competition has been aggravated by oil companies-- like Exxon -- with "rent rebate volume incentives," which give rent discounts to dealers who surpass gasoline sales quotas.

"You can lose money on the gas you pump, but if you pump enough of it, you save money on rent. There's nothing illegal about it, but it hurts thesmaller dealers who don't get the rebate and still lose money on their gas to compete," Price said.

Price said the "rent rebate" system was designed "to circumvent" state uniformity laws that prevent oilcompanies from undercutting competitors by selling gas cheaper to one franchise than another.

Littlefield said his association is divided over whether to fight or support the rent rebate incentives "because many of the dealers don't want to give up their rebates."

The dealers association has scheduled meetings this and next month with seven of the eight major oil companies in Maryland, he said, "to find better ways to work with each other during these hard times."

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