Arco dealer's BP revolt may spread

A legal dispute that began in August between a single Tacoma Arco dealer and the oil company now threatens to spread down the West Coast as dozens of dealers seek to break the restrictive agreements that tie them to the company.

If they are successful, they could change the competitive landscape in the gasoline business throughout the country.

Dealers and former dealers who operate a total of 76 Arco service stations in Washington, Oregon and California last week wrote executives of BP America Inc., Arco’s parent company, contending the company is in default of their gasoline dealer and AM/PM convenience store agreements. The letter, from a Texas lawyer representing those dealers, contends the company is in violation of Washington franchise protection laws.

BP spokesman Bill Kidd said the company couldn’t comment on what is a complicated legal issue.

The net effect of all of BP’s policies is to enrich itself at the expense of its dealers, said their attorney, David Schiller. Those dealers are married to the company with 20-year dealer agreements they signed when they bought the stations and the associated convenience stores from the oil company.

“They’re trying to squeeze the last bit of blood possible out of the dealers,” Schiller said.

Any legal challenge to BP’s dealership agreements is likely to be a long and difficult task, said Tim Hamilton, executive director of a service station owners group, Automotive United Trades Organization.

BP’s legal army could prove a difficult opponent for the dealers’ lawyer, Hamilton said.

Among the dealers’ allegations:

• BP provided prospective station buyers with information about the volume of gasoline the stations sold and the profit margin on each gallon, but declined to provide them with a specific accounting of the station’s income when they were considering buying the stations. Dealers discovered, the attorney claimed, that while the gallonage figures were accurate, the margin figures were not. That resulted in dealers realizing profits far less than they had expected.

• The oil company improperly sets the price that dealers charge customers for gasoline through a system of “zone pricing” that raises or lowers the price the company charges the dealers for gas based on the market in their area, not the price of production or of crude oil. Instead, the dealers contend, the company decides on what price it wants the retail dealer to charge and then charges them a wholesale price that provides them just a few cents margin between that price and the target retail price. Arco’s niche in the market has been its bargain-priced gas. If local dealers raise their prices too high, the dealers’ lawyer contended, the company punishes them by raising the wholesale price for the whole zone.

• The oil company cuts dealer margins and pads its own, the dealers contended, by delaying delivery of gas to them when the price is rising, allowing the company to charge more for the gas when it is eventually delivered. Likewise, the company, speeds up deliveries when it expects the price to begin declining, stocking dealers’ tanks with high-priced fuel when the retail price is falling.

• BP promised to supply its dealers with Arco gasoline, but from time to time the company substitutes gas from other suppliers. Such substitution happens when BP doesn’t have timely access to a products pipeline that brings gas to local terminals from the company’s Cherry Point refinery or when the refinery has production problems.

• The dealers claim the company requires them to buy goods and services only from BP-approved suppliers when other suppliers might be less expensive and just as reliable. The oil company’s new move to accept credit cards in addition to debit cards and cash at the dealers’ stations requires the dealers to buy credit card processing services through Citibank, the lawyer contended. That arrangement allows Citi and BP to hold funds destined for the dealers for two days instead of directly crediting them to dealers’ accounts. That’s a big concern to dealers where cash flow is an important issue, said their lawyer.

• Contrary to law, the dealers claim, BP is treating some dealers differently than others. The company now is allowing some new dealers to rebrand their stations as Arco without agreeing to operate an associated AM/PM mini-mart with the station. That AM/PM agreement is a standard feature in many existing dealers’ deal with the oil company. A dealer who isn’t required to operate the AM/PM enjoys a cost advantage over a dealer who does, the dealers contend.

• BP has routinely allowed its dealers to run out of gas, cutting their sales and their profits. The dealers claim BP should compensate them for lost sales.

BP hasn’t replied to the letter yet. If the company doesn’t reply by Friday, Schiller expects to write a termination notice to the company. It will have two weeks to respond to that. If the company takes no action, he will ask that the dealers, whose numbers have swelled in the last week, be added as intervenors in a dispute already in federal court.

In that case, Tacoma dealer Hatem Shalabi is fighting BP over its decision to cut off his gas supply because he was late paying for his gas. The Tacoma man, who operated 15 Arco stations, claimed he was on the verge of getting the money, when BP shut down his deliveries. Shalabi covered the Arco signs at the stations or took them down and began selling gas obtained from another supplier.

BP sought a restraining order to keep him from selling other gas at the stations. The company contended the stations were still identifiable as Arco stations. The oil company said the dealership agreement that Shalabi signed when he bought the stations required him to sell only Arco gas for 20 years.

A federal judge declined to issue a temporary restraining order against Shalabi, and the issue is now scheduled for trial next year if a judge approves the lawyers’ proposed schedule.

John Gillie: 253-597-8663
john.gillie@thenewstribune.com