Exxon Corp. says it will begin giving discounts for cash purchases of gasoline in the Washington area next Tuesday over the objections of service station operators and car owners who complain that the practice involves deception, fraud and unfair marketing techniques.
The discount-for-cash program will give a 4-cent-a-gallon price break to cash buyers of Exxon gasoline, while charging a higher fee to credit card customers.
Exxon spokesman Jack Halloran said yesterday that the program is designed "to put the cost of credit where it belongs -- on the people who use it."
"We're going to do this nationwide . . . to become more competitive in the market place," said Halloran. "This is part of an industry trend" to increase declining gasoline sales.
But two D.C. area groups, the Greater Washington-Maryland Service Station Association and the American Automobile Association-Potomac, say the Exxon plan and similar schemes are unfair to credit card users.
The service station group on Monday filed a petition with the Federal Trade Commission, asking the agency to block implementation of the Exxon program and to void others on grounds that "these programs will result in pervasive, endemic deception and fraud in an industry that affects every American consumer."
"The discount-for-cash is the greatest sham going," Robert Oliver, vice president of the dealers' association, said yesterday. Oliver said his group maintains the oil companies using the so-called discounts "actually are charging a surtax for the use of credit," he said.
In their petition, the station owners put the accusation this way: "Assume . . . that the selling price of a given grade of gasoline is $1.209 per gallon and that the cash discount is to be 4 cents per gallon. FTC regulations and common sense . . . require that the new cash discount price be $1.169 per gallon and that the credit card price be $1.209, a true discount for cash.
"The oil company programs, however, yield a very different result. The cash discount price would be $1.209 per gallon and the credit card price would have risen to $1.249, clearly a surcharge for credit."
In "educational materials" sent to its dealers, Exxon argues that the discount is a true discount. "With discount for cash, you can offer a lower cash price to compete with retailers who are already selling on a cash-only basis. And you can continue to offer the convenience of credit to customers who may need it or want it," said one company brochure on the discount-for-cash plan.
But the same brochure also told the dealers that the plan "provides an incentive for you to increase the price for credit transactions to recover your credit costs. . . ."
That strategy bothers Thomas Crosby, staff director for public and government affairs at AAA-Potomac, which represents 362,000 Washington-area motorists.
"We support anything that lowers the price" for car owners, he said. "But we don't like making people pay more for using credit cards" that originally "were given to them freely and, in many cases, without solicitation."
He said the discount-for-cash offerred by Exxon, Amoco, Mobil Oil Corp., and Gulf Oil Corp. "is sort of like bait-and-switch." He said the companies at first tried to drum up "brand loyalty" by offering customers credit. Now, he said, the companies in effect are penalizing customers for using that credit.
ARCO last March became the first major oil company to drop credit cards entirely and since April 14 has accepted only cash. The company said it would pass its credit cost savings on to its customers by cutting pump prices almost 3 cents a gallon. The discounts boosted ARCO's gasoline sales by 52 percent, according to company figures.
Exxon and other companies scrambled to get in on the cash discount bonanza. But rather than alienate credit card holders by dropping the card, they elected to "walk on both sides of the street," as one analyst put it, by letting customers pay with either cash or credit cards but at different prices.
Exxon said in its explanatory brochures to dealers that it decided against charging a flat fee for continued use of credit cards "because our research indicates that customers react negatively to a specific charges for credit."