Ruling Will Cost Consumers, Independent Dealers Claim

Independent service station operators, hard hit by an aggressive marketing campaign by Atlantic Richfield Co., lamented the Supreme Court’s decision Monday to throw out a lawsuit challenging Arco’s low-ball pricing policy, saying it would ultimately hurt consumers.

Arco won a significant victory when the court threw out a suit by independent gasoline marketer USA Petroleum Corp., which challenged Arco’s pricing policy as a violation of antitrust laws.

The policy has allowed Arco to capture business from its competitors, mainly independent petroleum dealers, and has pushed Arco to the top of the gasoline marketing heap in California.

But in ruling that Arco’s policy did not violate antitrust laws, the court left independent petroleum marketers with little legal recourse.

“It means the major oil companies can drive us out of business through pricing without fear of antitrust litigation,” said Lyle Schlyer, general counsel at USA Petroleum, the Santa Monica-based independent marketer. When all the small guys are gone, the majors like Arco will be free to raise prices, independent marketers argued.

Not so, said Arco. The Supreme Court opinion is another vindication of an innovative marketing strategy implemented in 1982 that has resulted in overall lower consumer gasoline prices and greater competition, said George Babikian, president of Arco Products Co. and one of the main authors of the strategy.

“We’re very pleased with the decision,” he said Monday. “Competition is the fundamental strength in the U.S., and we always felt that our program was one that fostered competition, not minimized it. And the Supreme Court apparently agrees with us.”

As for charges that Arco is trying to sweep clean the little guys, he said: “It was never our intention to drive the independent sector out of business. I think it’s a very vital, innovative segment of our industry, and I hope they live forever.”

The Supreme Court’s decision was closely watched by officials in the high-stakes, Byzantine world of gasoline marketing and service stations, particularly in the gas-guzzling West, where Arco does business. At the heart of the independent marketers’ concern is the future of small-business people in the face of increasingly hardball competition from major oil companies.

Arco, long an also-ran in the service station business, became perhaps the most aggressive player in 1982 when it slashed prices by eliminating its credit card, cutting full-service pumps and emphasizing high volumes. Arco’s express strategy was to emulate the independent gasoline marketers who had previously taken up the lower levels of the market abandoned by the major oil companies.

Though Babikian denies that Arco was trying to wipe out the small guys, the fact is that Arco largely succeeded in capturing a lot of their market share.

In 1983, independent stations accounted for about 21% of the market in five Southern California counties and Arco held about 17.1%, according to Whitney Leigh Corp., a Tulsa, Okla., market research firm. By this March, independents’ market share had shrunk to 10.7% and Arco’s had soared to 24.9%.

Independents and dissident Arco dealers accused Arco of price-fixing--that is, forcing its dealers to set low prices--and predatory pricing--that is, selling below cost to undercut the competition.

The allegations were contained in several lawsuits, including one by USA, whose number of stations plummeted from more than 300 in 1982 to about 105 now. The Federal Trade Commission informally investigated the charges.

But the FTC ultimately took no action, even though some FTC economists questioned Arco’s practices. Moreover, none of the lawsuits prevailed. USA’s suit, which was dismissed by federal district court and then reinstated by the 9th U.S. Circuit Court of Appeals, was seen by some as the last, best hope of prevailing against Arco.

One lawsuit remains pending in Las Vegas, but Monday’s opinion draws into question its chances for success.

“To me, bringing Arco into the court is like jumping into a swamp to fight an alligator,” said dissident independent Arco dealer Jack Greco in Las Vegas. “It’s their turf.”

Arco’s Babikian repeated that Arco’s pricing policies are above reproach. “The whole thing has been reviewed by the FTC, the Department of Justice, in several court cases and now by the Supreme Court of the United States, and never once have we been close to (losing),” he said. “And you know why? Because (the allegations) are simply not true.”

He blames the constant stream of charges on independents unhappy at finding themselves on the losing side of an economic war, or on independent Arco franchisees unwilling to accept Arco’s rigorous new program.

What’s left for the independents? “It’s going to be real tough,” said Art Boswell, spokesman for the California Service Station and Automotive Repair Assn., which represents about 2,700 dealers.

“They can either ‘brand up’ (i.e., sign a contract with a major oil company), go out of business . . . or (relocate to) places where the major oil companies don’t want to be,” he said. “This may speed it up. It gives (Arco) a big hammer.”

Arco’s reassurances ring hollow to some independents. “They’re gangsters,” said a bitter William Wright, president of Wright Oil Co., which operates 50 Express Gas stations.

Wright said he has closed 13 stations and been forced out of areas where Arco has a strong presence. Because he can’t buy gasoline as cheaply from the independent refiners he must deal with, he is losing money.

“My stations in 1985 pumped an average of 137,000 gallons per month,” he said. “Now, they pump a little over 100,000 gallons. . . . We can’t compete.”