InterviewFuel efficiency key for lube market

20 November 2008 21:00  [Source: ICIS news]

By Heather McGuire Doyle

HOUSTON (ICIS news)--Finished lubricant sellers who market fuel efficiency in an economic downtown will win as an aging vehicle population, reduced automobile production and longer drain intervals continue to drive the lube market, an analyst said on Thursday.

“Greater fuel efficiency is now the attribute that out trumps longer engine life and greater vehicle performance as being important to vehicle maintainers,” said Larry Solomon, president of US firm Strategic Resources.

“If there was ever a time in history to market greater fuel efficiency, now would be that time,” Solomon said.

Motorists can improve their gas mileage by 1-2% by using the manufacturer's recommended grade of motor oil, particularly those that are labelled as “Energy Conserving” on their performance symbol, which means the oil contains friction-reducing additives, according to the US Department of Energy.

Havoline Energy said the use of its motor oil in European vehicles have demonstrated fuel savings of up to 6% in comparison standard motor oils.

“Higher and fluctuating gasoline prices, tougher economic times and extended drain intervals are driving the lubes market,” Solomon said.  “This resulted in a decline in motor oil consumption that will continue through 2008 and into 2009.”

Total US lubricants sales volumes during the second quarter of 2008 slipped by 3.2% compared with the same period one year ago, according to data from the National Petrochemical & Refiners Association (NPRA). Third-quarter data was not yet released.

Automotive aftermarket manufacturers should look at developing new products or positioning existing products to take advantage of these consumer trends, Solomon said.

Strategic Resources is not alone on that idea.

“Lubricant market value will approach $20bn [€16bn] in 2012, driven by shifts toward higher-quality formulations,” according to a study by Cleveland, Ohio-based research firm Freedonia. “Volume gains will be restricted by trends toward longer-lasting lubricants, which extend oil drain intervals and reduce overall lubricant requirements,” Freedonia said.

“Data suggests consumers are putting off vehicle purchases for now,” Solomon said. “If so, they want to keep them as long as they possibly can until the cost of maintenance outweighs the value of purchasing another vehicle.”

Vehicle sales have run about 16m-17m units/year this decade, according to JD Power and Associates, but it predicted sales will fall to about 13.6m units this year and 13.2m units in 2009.

US 2006/2007 passenger car and light truck production was down 6% and 5%, respectively, while vehicle registrations grew 1.5% during those years, Solomon said.

“The vehicle registration population is growing, but it’s not because of vehicle production, but due to reduced scrappage rates,” Solomon said. The scrappage rate is generally defined as the percentage of vehicles of a certain type in a given age class that are retired from use in a given year.

The lower the percentage of vehicles scrapped, the more older higher-mileage vehicles are on the road, according to research firm RL Polk and Co.

The average American vehicle sees about a decade of use before it is scrapped.

As long as gasoline prices fluctuate significantly, consumers will re-evaluate their driving habits and products used to achieve greater fuel efficiency, Solomon said.

 “Traditionally, gasoline price points have not affected driving and motor oil-changing behaviour,” Solomon said. “But when gasoline exceeded $4/gal, behaviour did change, including in the motor oil segment.”

The large fast-lube chains (companies with an average of 270 stores) reported an average oil-change interval of 4,718 miles for all customers’ vehicles, and a slightly longer interval of 4,755 miles for the 46% of vehicles equipped with oil monitors, according to the National Oil &Lube News 2008 Fast Lube Operators Survey.

“The 3,000-mile oil-change interval continues to die as drivers become more attuned to their owner’s manuals and environmental marketing,” a lube producer said.

In 2005, Mobil repositioned its line to capitalise on manufacturers recommending extending drain intervals with 5,000, 7,500 and 15,000 mile protection.

“While other manufacturers resisted marketing to extended drain intervals, Mobil forged this position against the grain and it proved to be successful,” Solomon said.

The Mobil 1 brand dominates synthetic sales at quick lube shops as 53% of store owners listed it as their best seller in the category, according to a report by National Oil & Lube News.

Although gas prices have fallen in recent days, Solomon said the industry still needs to treat fuel efficiency as a priority.

“Every time we get a volatile drop in gas prices, everyone thinks the issue is over,” Solomon said.  “But gasoline prices were volatile going down, and they will be just as volatile going back up. While consumers are now enjoying lower prices, the industry needs to continue to plan for higher prices - maybe not as high as the $4/gal level, but higher than current levels.”

Consumers may now have relief from gasoline prices, but the cost of goods and services are now up as a result of past higher fuel prices, Solomon said.

“The higher prices consumers are now paying for staple items will stay high...they are calling them sticky price increases, because they are not coming down,” Solomon said.

Greater fuel efficiency may not be as active a concern for consumers as it was when gas prices were high a few months ago, but it may be a secondary concern, Solomon added.

“Overall, I think that if the consumer is not paying attention to greater fuel efficiency with current lower gas prices, the industry should pay attention and keep it an important issue.”

($1 = €0.79)

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By: Heather McGuire Doyle
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