Mr. FULLER. The retailers do today, sir, because, generally speaking, the refiners have practically withdrawn from the operation of retail outlets. In Ohio only one refining company operates its own retail outlets. Now, then, all distributors have to be competitive with the low-price marketer having a substantial gallonage and selling goods of camparable quality. He, for the most part, is the tank-car trackside operator to whom I have referred. I think unquestionably he has much more to do with determining retail prices than anybody else in any community which I have observed. Because, unless the price charged by the man whom you refer to as an integrated refiner, approximates that price-not necessarily meet it, but approximates it within a cent to a cent and a half a gallon-he is going to lose such a substantial portion of his gallonage that he has to come down to the same price, relatively, as that charged by the trackside or lowprice operator.

I think, from my extended observation, that operators of this type come much nearer to determining the price of gasoline in the market than the integrated companies.

Mr. HANCOCK. The trackside operator has to draw his gasoline from the refiner, and the price he has to pay, plus his margin, would fix the retail price? It could not fluctuate very much beyond the price fixed by the refinery, could it?

Mr. FULLER. These trackside operators, for the most part, buy their gasoline on a very favorable market from independent, nonintegrated refineries and brokers who are able to take advantage of low prices wherever they may prevail, and to give them the advantage of a favorable delivered price.

Then, as I pointed out, they do not have to operate bulk plants and they do not have to own delivery equipment. They simply take tank-car, and now more recently transport truck, deliveries dumped in large quantities into their underground storage equipment.

Mr. HANCOCK. The profit on this gasoline handled by the trackside chaps must be extremely small, is it not?

Mr. FULLER. We must keep in mind the fact that the trackside operator buys his gasoline at the same, or practically the same, price as the jobber; that is, the tank-car price. Yet he has none of the expense of the jobber, for instance, in bulk-plant investment, delivery equipment, salesmen, and so forth. His gasoline is dumped from the tank car into his storage tanks from which his gasoline pumps deliver it directly into the motorists' car. In fact, his is only a retail operation although he purchases his gasoline at the same price as the wholesaler. He buys at some 2 or 22 cents per gallon less than the competing retail dealer. Therefore, he can sell his gasoline at a cent and a half less than the price charged by the ordinary dealer and still have a greater profit per gallon than the dealer. In addition, his lower prices attract the trade of motorists who are more interested in the price of the gasoline they buy than in its brand or trade name, and thereby the trackside operator develops a very substantial gallonage. The amount of gasoline sold by such outlets naturally depends upon whether competitors handling branded products approximate the trackside prices rather than lose their gallonage. If these integrated or semiintegrated distributors hold the price of their gasoline much higher than trackside operators, the trackside operators would get practically all the gallonage.

Mr. HEALEY. If they had the supply. I think you have put a large "if" in there.

Mr. FULLER. They seem to have no trouble getting all the gasoline they need, sir. I have seen policemen regulating traffic at those trackside outlets. They do a very substantial volume of business. Mr. HANCOCK. Do they buy from the big companies?

Mr. FULLER. For the most part, they buy from independent refineries through brokers, and by "independent," I mean nonintegrated refineries. I have never heard of anybody in Ohio having trouble getting gasoline; no one has ever expressed any complaint to me about inability to secure gasoline.

Mr. HANCOCK. What proportion of the production of gasoline and petroleum products is controlled by the large integrated companies, these 20 integrated companies that we hear of?

Mr. FULLER. I do not happen to have the figure in mind, and I do not believe I can answer that question, sir.

Mr. HOBBS. I want to ask a question which has nothing to do with the subject matter of this inquiry, especially, but I would like to ask you where you get your figures that 60 percent of all the automobile owners never owned a new car, and that one in four cars were owned by people who drew less than $20 a week?

Mr. FULLER. The American Petroleum Industries' Committee, sir, published a very extensive and exhaustive study of the economic position of motor-vehicle owners, and those figures are taken from their published report.

Mr. HOBES. Thank you very much, sir. That is correct, is it-60 percent?

Mr. FULLER. Yes, sir. The theory of that

Mr. HOBBS. No; I mean I was quoting you correctly; that is, 60 percent?

Mr. FULLER. That is the correct figure. Sixty percent of all motorists have never owned a new car, and every fourth automobile is owned by a family with an income of less than $20 a week. Those figures are so amazing that they must impress you.

Mr. SATTERFIELD. It impresses me so much that I wish I were one of the 60.

Mr. FULLER. I was one of them, sir. I learned to drive.

That was my first car when

Mr. HEALEY. Are there any further question of this witness? If not, thank you very much for coming.

Mr. FULLER. Gentlemen, I thank you for your courtesy and patience.

Mr. HEALEY. The next witness is Mr. Pew, president of the Sun Oil Co.

STATEMENT OF J. HOWARD PEW, PRESIDENT, SUN OIL CO.

Mr. HEALEY (continuing). Where is

Mr. PEw. Philadelphia, Pa.

your residence?

Mr. HEALEY. And the principal office of your business?

Mr. Pew. In New Jersey.

Mr. HEALEY. All right, sir; you may proceed.

Mr. Prw. I represent one of the smaller integrated companies.

Mr. Chairman, the bill before you appears as a measure designed to cure certain ills that are alleged to exist in the marketing division of the oil industry. Particularly, it aims to improve the position of the jobbers of petroleum products, that group of middlemen who buy their supplies from the refiners and distribute them to filling stations to be retailed to the public. This is a service which is rendered in some cases by the refiners directly and in other cases is carried on through jobbers. Some refiners make all their distribution to the retailers directly, employing no jobbers at all; most refiners perform part of the service directly and part through the jobbers. In the industry as a whole the greater part of this distribution is carried on by the refiners directly, without the intermediation of the jobber. I had the records of my own company looked up over the last 7 years and found that in no 1 year had so much as 9 percent of our gasoline been sold through jobbers. The highest percentage distributed through the jobbers was 8.79 percent in 1937: the lowest was 7.25 percent in 1935. Our experience has been that we can give this service in most cases at less cost than the jobber can. Nevertheless we have found that in some areas and conditions it is more satisfactory to do business through jobbers. Thus in regions like the remoter parts of Maine and the Canadian Provinces, the business in motor supplies is highly seasonal, volume is thin, and the distances over which delivery must be made are long. In such conditions it may be more economical to employ a jobber who makes this particular business only a part of his means of gaining a livelihood. But we contented that while in such circumstances the jobber performs a service that is useful and economically justified, such exceptional conditions do not justify legislation which would turn over to him this entire business of distribution. To do that, in the manner proposed in this bill, would increase the cost of our products to the consumer and at the same time would work hardship on the refiner, because it would deprive him of all contact with the vitally important marketing problems of the retailer or the consumer.

In actual operation this legislation would effect the dismemberment of what are referred to as the integrated companies in the industrythose that engage in two or more of its four so-called natural divisions-production, transportation, refining, and marketing. As a matter of fact, the assumption that the industry falls into these four divisions is highly arbitrary. While it is convenient to consider these as natural divisions, such a break-down is wholly artificial and does not accord with the reality that all the industry's activities are closely related. It might quite as logically be considered as falling into any number of divisions, corresponding to the many and varied departments of its activities. Thus production could be broken down into several divisions, of which exploration would come first. Geologists and geophysicists study terrains and formations; their judgments tested with delicate instruments such as the torsion balance, the gravity meter, and the seismograph. If these make encouraging reports, leasing comes next-expensive and important. Next comes the final test-drilling. And finally, the operation of production. Each of these activities requires its own corps of specialists and is really a separate division.

In the same way transportation activities are of various and almost unrelated kinds. A pipe-line route must first be surveyed and lo

cated by one crew, another crew gets right-of-way contracts, another lays the line, and still another operates it when it is ready for business. That gives you four pipe-line "divisions." Rail transportation, by tank car, is a wholly different matter; so is the operation of the fleet of tank ships; still another is the operation of the great number of boats and barges on rivers, canals, and lakes; and the fleets of tank trucks that make final distribution of products. That makes eight "divisions" of the transportation-and the list could be further expanded.

Again, refining would break down into skimming, cracking, and almost as many divisions as there are products made from the crude. In fact you could go on dividing and subdividing the industry indefinitely, and the result would be just as logical as the theory of "four natural divisions."

The bill before us, however, accepts this theory of four natural divisions; and its effect would be, not merely to improve the status and greatly enhance the power of the jobber but actually to dismember the integrated companies and set up marketing divisions as independent and unrelated entities.

To make this point clear I quote section 3 which is the heart of the bill:

It shall be unlawful for any person directly or indirectly to be engaged in commerce in the marketing of refined petroleum products while such person or affiliate of such person is also engaged in one or more of the other three branches of the petroleum industry, namely, production, refining, and transportation.

It is true, those six lines of print say nothing about general disintegration; they purport merely to divorce marketing. But in fact transportation, and the industry's transportation organization, constitute a very large part of the marketing operations. So when you divorce marketing you also divorce whatever part of the transportation facilities are used in marketing. And when you have done this you have gone a long way toward the complete dismemberment of the four so-called natural divisions; for much of the transportation organization used in marketing is also used to link together the production and refining activities.

As regards this matter of divorcing transportation as well as marketing, the members of the committee pressed some searching questions during your hearing of May 24, last. Chairman Healey asked: "Just what are the functions of the marketing operations of oil and gasoline; just what are the marketing operations as distinguished from refining operations and transportation operations; just where does marketing start?"

And a little later, appealing to Mr. Hadlick, the chairman asked: "This bill would not prevent an integrated company from pipe-line activities or transportation to the bulk stations?"

"Yes; it would," replied Mr. Hadlick. "It would have to separate those bulk plants to separate companies and distributing companies also, and they would have to make the sale to it, and the sales would have to be delivered by common carrier, it might interfere with the gasoline pipe line but it would in no way interfere with the crude oil pipe lines; that is a separate subject that we hope to have up in other legislation."

Then Congressman Hancock took up the questioning. "Take a concrete example," he suggested, "the Sun Oil Co. have a pipe line from Philadelphia to my home city in Syracuse. They would have to discontinue that, would they not, under the bill? That pipe line would have to be separated and made a common carrier." "Yes; that is right," admitted Mr. Hadlick.

There is the crux of the whole matter. This bill comes to your committee as a means to help the oil jobber; but it would in fact deprive the refining company of the right to use any transportation whatever, or make any deliveries of its products. That means that the refining company would have to get rid of, not only their gasoline pipe lines, but all the other transportation facilities that are used in connection with marketing. It is true, Mr. Hadlick concedesI quote "it would in no way interfere with the crude oil pipe line; that is a separate subject that we hope to have up in other legislation." That is, if the transportation facilities which are used in delivering refined products can be divorced by means of the present legislation, then the crude oil transportation facilities will be taken up "in other legislation." That "other legislation" has in fact been introduced and is now pending. If you pass the present bill you will greatly strengthen the argument for divorcement of crude-oil transportation; and that, together with the enactment of the bill now before us, would establish a precedent in favor of disintegration, the ultimate effects of which nobody can today forecast, for it would threaten the destruction of the whole system of mass production under which American industry has been built to its present high efficiency.

So we come to consideration of the part which transportation plays in this industry; and along with that, of the virtues, or evils, of integration in such an industry. First, let us look at transportation. Under this bill petroleum products must be sold at the refinery, but the refinery is prohibited from delivering them, and a marketer is prohibited from transporting them even after he establishes his ownership. Thus the refineries would have to dispose of all their marketing facilities they now possess, which means not only gasoline pipe lines but railroad tank cars, tank ships, and barges, tank trucks and storage plants. There are 150,000 tank cars. Some companies, like ours, own these tank cars and would have to get rid of them; the industry would also have to get rid of the 100,000 tank trucks it uses. But that is not all. The companies would have to divest themselves of a large part of their fleet of ocean-going tank ships, because these are used for transporting refined products as well as crude oil. All together, these marketing facilities-transportation plus terminal properties, bulk stations, et cetera, involve an investment of nearly $2,000,000,000. Somebody would have to take all that over; but this bill's mandate takes no account of that. Now, the oil industry deals in enormous tonnages of very cheap materials which must be moved long distances. It is calculated that, despite the very low transportation costs, still one-third of the cost of gasoline when it goes into the consumer's car represents transportation. A chief reason why petroleum products are cheap is because the industry has built up its own unique transportation system-by far the cheapest transportation in the world. My own company