Pumped Out

Major gas companies are driving away independent station operators, all in the name of greed

A Month before he closed his Texaco service station at Forest Lane and Webb Chapel Road, Greg Kraft surveyed the array of honors lining his office wall--Texaco Excellence Winner, Award of Achievement, Top Performer Award--and laughed grimly. "We never felt that our future was in question," Kraft said. "I don't see myself here in 30 days."

The large crack in the glass covering his desk is evidence enough of how times have changed. "That came after a conversation with Texaco," Kraft said.

Until a couple of years ago, Kraft had earned a good living at the two stations he leased from Texaco, pumping a steady volume of gas and repairing cars. He managed an efficient operation and brought home enough to keep himself comfortable, and his company reps worked closely with him when he needed assistance.

Texaco is making it impossible for independent dealers such as Greg Kraft to stay alive. Kraft shut down his service station at Forest Lane and Webb Chapel Road earlier this month.
Michael Hogue
Texaco is making it impossible for independent dealers such as Greg Kraft to stay alive. Kraft shut down his service station at Forest Lane and Webb Chapel Road earlier this month.
The neighborhood service station is disappearing -- and the big oil companies are glad to see them go.
Paolo Vescia
The neighborhood service station is disappearing -- and the big oil companies are glad to see them go.

But in 1998 Kraft began to notice that he was paying more for gas, and his competition was pricing on the street as much as 20 cents per gallon below his cost. Sales dropped by more than 50 percent. His rents also increased, and his profit margin eventually deteriorated to zero. To keep his business afloat, Kraft borrowed. And borrowed some more. He showed his rep the numbers and asked for a break, but the response was always the same: "Greg, that's just the way it is, and it's not going to change." He turned in his keys October 6.

Kraft isn't the only Texaco dealer to lock his doors recently. Nor is Texaco the only company that is making it impossible for dealers to stay alive. Ghanam Akshar, who built a network of six Shell stations in Dallas and six others in Houston and New Orleans, is more than $1 million in debt and teetering at the edge of bankruptcy. Since Shell eliminated its rent rebate program in 1998 and boosted his gas cost above competitive rates, Akshar has seen his expenses double and his income dip by half. He's trying to hang on. "We have to maintain the daily operation," he says. "If I shut them down today, I lose everything."

Tommy Vo already has lost his investment. After 16 years with Shell, Vo walked away from the last of his three Dallas-area stations and ate $100,000. "I knew it was time to get out," he says. "I had no choice."

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.

Instead, 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 the cash are by jacking rents and fees or simply taking over the stations and running them with cheap labor.

But the implications of ridding the landscape of service station dealers are much broader. 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. "All I ever hear [from the companies] is support for the dealer class of trade and how important the dealers are," says American Petroleum Institute spokeswoman Denise McCourt. "The reality is that overall there is a strong commitment to the dealer network."

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