Running on Empty

In the mid-1970s, Skelly was the brand of choice for Kansas City motorists. The company had a Midwest identity and a solid network of lessee dealers, which translated into the No. 1 market share. In 1977 Skelly was swallowed by Getty, which had a very different philosophy -- by 1985, when Texaco bought out Getty, most of the dealers were gone. Texaco finished the job. "When Skelly was there, the bigger wigs treated us very well," says Paul Brown, whose father was a Skelly dealer for years. When Texaco took over, recalls Brown, "They came to us and said, 'You're outta here.'"

The other big players in Kansas City followed suit. Amoco shed most of its dealers and has only a few marginal stragglers left. Phillips and Conoco demanded that their dealers close repair bays or take a hike. Company and commission-operator stations replaced them.

If the dealers wouldn't leave voluntarily, the companies had other means. Gene Sexton, a longtime Phillips dealer in Grandview, was told by his rep in 1995 that the company wasn't interested in his repair shop anymore. He scraped together the funds to buy the property himself and continued to fly the Phillips flag. But in 1997 the company terminated Sexton's supply agreement because he failed an image inspection. One of the items the company cited was an abandoned junker on the property, though the vehicle in question was a vintage Oldsmobile Sexton's manager owned and drove every day.

Sexton's sign now says "Quality Fuel," but he doesn't know how much longer he'll bother to pump. One mile away Phillips is building a large new convenience store. "We are considering whether to stay in business," Sexton says.

With most of its dealers out of the picture, Kansas City makes a good case study to see the results when oil companies gain control of a market. In June the city's drivers were paying the highest prices in the state, 70 cents higher than a year earlier. And statistics show that prices around the entire metro area differed only slightly or were identical. "Somebody's making money here," Attorney General Jay Nixon said at a state hearing on gas prices in July. "You don't double the price of a product without someone making more money."

The city does have an independent competitor that serves as a natural check against high prices: QuikTrip, a Tulsa-based convenience store chain. QuikTrip entered the market in 1967 as an aggressive low-cost competitor. Perhaps too lumbering to react quickly, the major companies sat by as QuikTrip grabbed a quarter of the market and became the city's leading gas retailer. Today the company owns and operates 46 stations in Kansas City. "I think they just watched 'em grow and go by them," says local gas distributor Roy Kline.

Sometimes QuikTrip may have been overly aggressive -- the company is being investigated for violating the Missouri law prohibiting companies from selling below their own costs.

Whether residents will continue to see higher prices remains to be seen. The companies, of course, deny that their domination of the retail market has anything to do with the price of gas. But Nixon announced in August that his office would investigate the possibility that they're acting in concert in Kansas City, which could happen only if the companies had sufficient control. "I have a deep and dire concern about the possibility of collusion in this market," Nixon said.

Motorists gouged at the pump aren't the only ones fueling record profits for America's oil companies. As Pitch Weekly reported last week, many of the nation's independent gas-station operators are paying an even steeper price. The nation's major oil companies have frozen out hundreds of local dealers in an attempt to keep profits for themselves -- and increase their ability to manipulate prices.

When the verdict came down in 1995, Jim MacDonald was elated. Three years after 22 southern California service station dealers sued Chevron, and three months after the trial began, a jury ruled that the company had defrauded the dealers and owed them $3.4 million. For MacDonald -- ironically, he'd won Chevron's coveted Platinum Award while the trial was in progress -- the judgment proved that the battle had been worth all the time and effort. "We felt vindicated," he says. "We felt great."

But Chevron appealed. A three-judge panel overturned the verdict. The company asked for attorney fees; last March a judge awarded the company $6.8 million. The dealers are challenging that award, but if the decision stands, MacDonald and most of the other dealers will have to file for bankruptcy. He's personally on the hook for $687,000 and will have to liquidate his last service station and auto repair business, leaving him with nothing. "I cannot pay even a portion of what they've been awarded against me," says MacDonald.

MacDonald, who has 44 years with Chevron as both an employee and a dealer, says the reversal has taken a heavy emotional and financial toll on all the dealers, only 10 of whom are still in business. He doesn't understand the apparent vindictiveness behind Chevron's pursuit of the cash. Company spokesman Fred Gorell has said Chevron owes a duty to its shareholders to recoup the fees. But MacDonald doubts they'd care much about the extra penny per share the amount represents -- even if they could collect it. "They know none of us can pay," he says. "There's been no human element in this."