Unocal to Close Stations in Cost-Cutting Move

As about three dozen disgruntled dealers protested outside, officials of Unocal Corp. said Monday that the company will shut down 200 to 300 of its 2,900 West Coast service stations in the next three years to cut costs and improve profitability.

Separately, the company announced that its net income for the first quarter of 1991 was down slightly to $75 million, or 32 cents per share, compared to $77 million, or 33 cents per share, a year ago.

Across town, Atlantic Richfield Co. also reported lower earnings for the quarter. Net income was down 40.7% to $351 million, or $2.17 a share, from $592 million, or $3.55 a share, in the like quarter a year ago.

Roger C. Beach, president of Unocal’s refining and marketing division, said the company will begin notifying its dealers of the planned closures in Washington, Oregon and California in the next 30 to 60 days.

The closures will include about 100 announced last year. There are about 1,900 Unocal stations in California.

“It’s obvious that we have more service stations per gallon of sales than we should,” Beach told reporters after the company’s annual shareholders meeting in Brea. “We need to get the productivity up of fewer stations so that we have lower costs.”

The decision was met with anger by several Unocal dealers who had converged at the annual meeting to protest company policies that the dealers say have hurt their businesses. Dealers carried signs reading “Where’s the Spirit of ‘76?” and “Murph’s Broke,” referring to the mythical Unocal dealer who appears in TV commercials.

The company is trying to weed out independent dealers and replace them with company-owned stores, said Ed Boswell, assistant executive director of the California Service Station & Automotive Repair Assn., which helped organize the demonstration.

Charles (Chuck) Throop, a Fullerton dealer, said Unocal has been pricing its wholesale gasoline as much as 10 cents a gallon above the competition, raising rents and providing inadequate assistance to tide dealers over rough spots.

“A lot of these guys here have been with the company for 10 to 30 years,” Throop said. “Some of the banks won’t even lend them money because they can’t show enough income to pay back the loans, so they’re going out of business.”

Unocal Chairman Richard J. Stegemeier declined to discuss in detail shareholder questions about Unocal’s treatment of its dealers before a capacity crowd at the firm’s Fred L. Hartley Research Center.

But he said at a press briefing afterward: “We understand their problems, and we have an organization that’s been working with their problems.”

Analysts saw Unocal’s move to close stations as the latest effort by the cash-poor and debt-strapped energy firm to restructure. In recent months, Unocal has announced the sale of its service stations in the Southeast and certain chemical operations, along with the shutdown of a pioneering shale oil project in Colorado.

Unocal’s decision also shows a need to catch up with Arco and some other competitors that have already streamlined their marketing systems. “I think frankly they need to make investments in their West Coast refining and marketing system to become more competitive,” said Frederick P. Leuffer Jr., an analyst at C. J. Lawrence, Morgan Grenfell in New York.

But Unocal’s decision also reflects an industry trend in recent years toward building retail networks that consist of fewer service stations pumping more gasoline. Beach said Unocal’s goal was to improve the average station’s monthly “throughput,” or sales, to 140,000 to 150,000 gallons from about 90,000 now.

The need is clear. Arco has aggressively gone after market share since the beginning of the year by underpricing the competition, thereby taking advantage of consumer skittishness in the wake of the Persian Gulf War, analysts said. As Arco’s sales have increased, sales by Unocal and other major competitors have declined, they said.

In the first quarter, Unocal’s refining, marketing and transportation division reported a loss of $6 million, compared to a gain of $11 million a year earlier. By contrast, Arco’s refining and marketing profits rose to $74 million from $72 million. Arco remains the region’s No. 1 marketer.