Gas Price Archive
Smoking guns, lone wolves and gaseous greed
originally published May 19, 1996
A personal question to my media colleagues outside of this newspaper: would you recognize a ripoff if it bit you on the ass? Let's say some beast attacked a guy, tore out his wallet, snatched his wife's purse and swallowed the evidence, along with a good piece of the victims' hides. Would you start looking for the perpetrator? Or might you accept the stock explanation by the beast's lawyers and PR men that nobody did it?
The latter seems to be the case with respect to the latest round of oil company rape and pillage at the gas pump. Maybe somewhere else out there, some other lone wolf is howling into the wilderness. If so, I haven't seen, read or heard it. If you know of any, please call me.
Locally and nationally over the past week, the mainstream media have been willing to accept the current spike in gas prices as strictly due to "market forces." Nothing could be further from the truth, as I've reported the past three Sundays.
The American consumer has once again fallen victim to a clever, well-orchestrated price-fixing scheme at the hands of the major oil companies, or MOCs. It hasn't happened overnight. It's been implemented over the past 15 years, during which your money, natural resources and governments have been cleverly used against you.
Why has it been so under-reported? Because it's complex and unsexy. Nobody has made a movie about it. There have been no murders for Robert Stack to re-create on video. Worst of all, the conspirators never have to talk to each other. Remember, the major oil companies emulate the telepathic Corsican Brothers from Alexandre Dumas' classic novel. They don't need to talk for each to know exactly what the other is thinking.
Over the past three weeks, I've detailed the execution of the price fixing. This week, the final, damning evidence.
1. SMOKING GUN:
THE INFAMOUS ARCO "S.P.U" MEMO. On January 26, 1982, ARCO's "strategic planning unit" or SPU held an important meeting. ARCO president J.S. "Jim" Morrison circulated a memo which opened with a request that "this material be treated on a very confidential basis with no copies or further distribution." This Jim Morrison didn't want his writing to become a big hit record.
The memo remained secret until a court order forced its disclosure in 1987. In a choppy outline, Morrison the monopolist gave the marching orders:
"PROCESS BREAKING DOWN: Surplus refining with condition to worsen. Market control eroding as consumer goes to lowest price mode of delivery (independent stations).
CONSEQUENCES OF LOSING MARKET CONTROL: Marketers drive refinery prices down -- competition moves from street to refinery gate...
CONCLUSIONS: Control of a critical mass of marketing essential. Traditional two-tier, major-independent market system no longer able to co-exist.
REQUIREMENT: Head off loss of market control!!!"
The last sentence was underlined. Otherwise, the above is reprinted verbatim.
The memo further states "the consumer preference for lower prices is making the traditional higher priced (higher cost) branded outlet concept un-workable. Trying to maintain this structure while supplying lower price independent outlets is becoming impractical and may soon be economically impossible. The root problem that really must be changed is the two tier market system for gasoline."
ARCO's Morrison reacted to a decade of desperation with consumers ready to do anything to get a price break, even patronize not-so-pretty, no-name outlets and pump their own gas. Morrison smugly called independent retailers "a middle-of-the-block dump." What made the difference between the slick MOC stations and the independent dumps? "A constant, wide-spread advertising effort to convince the motorist the branded gasoline was qualitatively better," Mr. Morrison wrote to his seven subordinates in the Strategic Planning Unit.
2. DISTINCTIONS AND EXTINCTIONS: Advertising and promotion had successfully created the myth of product differentiation. David M. Ogilvy's famous 1950s campaign for Shell provides perhaps the best example. When Ogilvy got the Royal Dutch Petroleum advertising account, Shell was a minor player in the U.S. He convinced them to create a distinction without a difference through a big ad budget.
Ogilvy filmed an endless series of rigged demonstrations. First, a car fueled by Shell "without Platformate" would be shown running out of gas and stopping. Then, another car containing "new Shell with Platformate" would burst through a huge paper Shell logo next to the stopped car. A muscle-throated announcer would then extoll the virtues of all the extra miles the second car got using "new Shell with Platformate."
What Shell called Platformate was really a mileage boosting additive common to all gasoline at the time. Consumers couldn't buy motorfuel, Shell or not, without it. Since you couldn't buy old Shell without Platformate, how could you compare the benefits for yourself? No competitor had the guts to do counter-advertising back then. Comparison ads didn't happen until struggling American Motors placed its Javelin next to a Ford Mustang a decade later. And certainly no competitor would say "we've got the equivalent of Platformate in our gas." Me-too ads are a no-no in the business.
Ogilvy's sin-of-omission duplicity made Shell a major player. He went on to make his ad agency, Ogilvy & Mather, one of the biggest in the world. Sir David, knighted by her majesty Queen Elizabeth II, today lives royally retired in France.
Shell, of course, went on to greater fortune and fame, most recently causing devastating pollution in its Nigerian oil fields. Last year, the stooge government of Nigeria executed writer Ken Saro-Wiwa and eight other dissidents for daring to speak out against what Shell's been doing.
3. MONOPOLY MONEY. Morrison's 1982 SPU memo set the goal of destroying the independent gasoline retailer. Subsequent implementation tactics did not go unnoticed. Alas, then came Ron. In 1985, the Reagan administration killed a three-year Federal Trade Commission investigation into what a regulator termed "selective price cutting by major oil companies." In a federal court deposition this past March, an ARCO retailer's sworn testimony confirmed the ongoing process 15 years down the road.
Question: "Did (ARCO's representative) use the phrase 'eliminate the independent gasoline marketers?'"
Q: "And he said that that's what ARCO was trying to do?"
A: "Yes. Let me rephrase that. I kept asking him, you know, I said 'Why, if you're 10 cents below or eight cents or something below these other stations' major brands, why do you want to keep going lower? Why do you want to bury them?' I didn't understand that...I mean, after you kill somebody, do you want to just---I mean, how many times do you want to kill them?"
Another former ARCO dealer stated that he was pressured by ARCO to cut his prices to match other nearby ARCO stations trying to destroy a competitor. "We were pressured into doing it," he stated under oath. "These stations were selling their gasoline at retail prices that often were lower than the wholesale cost of gasoline ARCO has charged me."
Q: "What, if anything, did you do with your pricing?"
A: "My pricing had to come down."
Q: "You felt you were in competition with the other ARCO stations around you, right?"
Q: "And those were the ones that were causing your problems because of the artificially low pricing as you saw it, right?"
As I reported last week, a Las Vegas dealer for both Exxon and Texaco told a 1995 Nevada legislative committee that his name brand suppliers followed ARCO's pricing. A local gas dealer told me the same thing last week: "At every dealer meeting, Chevron executives said that once ARCO went up, they'd follow it tit-for-tat."
4. BACK TO THE FUTURE: The Corsican Brothers don't have to talk to each other. They just look down the street at the brotherhood's signs. The rest of the MOCs are content to let ARCO drive the little guys out of business. Their branded dealers can do well with service work, credit card sales and grocery business. After the few remaining independents are put under, we'll be back to the corporate controlled 1950s. Gas prices will stay uniformly high, with products differentiated only by Platformate and promotions. Only the MOCs will be left standing, "competing" once again only at the street level, not at the refinery level, as Morrison's memo states.
Ironically, Shell once again leads the way, now advertising a Trivial Pursuit game for its customers. Maybe that's how opposition feels to many mad consumers and compliant news media. But there are things that can be done, as I pointed out last week.
Ask candidates for legislative office this election year whether or not they support retaining Nevada's "divorcement law," which keeps major oil refiners from owning gas stations outright. The MOCs came within a cat's whisker of repealing the law last year with the support of northern Nevada state senators Randolph Townsend (R-Reno), Maurice Washington (R-Sparks), Bernice Mathews (D-Reno), Ernie Adler (D-Carson City), Mike McGinness (R-Fallon) and Dean Rhoads (R-northeastern Nevada).
Ask congressional candidates and officeholders to push the FTC to reopen its investigation, provide the budget for it, and support new anti-trust laws to break the MOC's bite on your pocketbook by promoting competition for a change. Ask them to support a national divorcement law to help break up monopoly pricing practices.
Support development of alternative fuels. Oppose any oil company ownership of other forms of energy. Break up existing MOC ownership arrangements.
Otherwise, the current contrived gas price crisis will keep re-occurring. Nameless, faceless market forces didn't do this. The MOCs did, and will continue to do so unless the above course of action is followed.
You have a choice---organize or continue to get mocked.
RIPOFF REPLAY: Several people have called wanting the Washoe Grand Jury report on how our county hospital, Washoe Medical Center, was stolen from the taxpayers for a song, a lick and a promise. At a dollar a page, it costs $44 a copy at the courthouse. I am happy to announce that interested taxpayers can once again get copies for just $2.21 plus sales tax at Office Depot on Plumb Lane next to Price/Costco. Ask for the Barbano Make-ready File at the business services desk. Pick it up when you're nearby on other business. These days, gas costs too damned much to make a special trip.
Be well. Raise hell.
© Andrew Barbano
Andrew Barbano is a member of Communications Workers of America Local 9413 and editor of U-News, where the past four years of columns may be accessed. Barbwire by Barbano has originated in the Daily Sparks Tribune since 1988.
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