Base Oils 2013: Getting ready for mega-changes ahead

15 February 2013 09:49  [Source: ICB]

A joint discussion about the "connected car" by two top executives from vastly different industries - Verizon's CEO Lowell McAdam and Ford's CTO and vice president Paul Mascarenas - at the International Consumer Electronics Show in Las Vegas on 8 January, came as no surprise to Roland Berger Strategy Consultants (RBSC). "The convergence between communications, electronics and automobiles," as discussed by McAdam in his keynote address on the connected environment, is a concept that RBSC had previously identified as one of 10 automotive trends in its recent study "Automotive Landscape 2025".

Toyota Yaris Hybrid Toyota

 Toyota

The 2012 Toyota Yaris Hybrid: The future of the automotive industry?

These automotive trends are derived from RBSC's research into the effects of five global megatrends that we believe will have a universal impact on all industries through 2025: environmental concerns and regulations; urbanisation and the growth of mega-cities; the movement to a more web-based and connected population; shifts in culture; and the changing behaviour of consumers.

RBSC leveraged its recognised thought leadership in the automotive industry and its relationships with a range of automakers and suppliers to identify the trends that will shape the future of both the automotive and lubricants industries. We also used our understanding of those five global megatrends to shape the discussions. In compiling and analysing the data, we interviewed more than 60 experts to discuss the key trends that they foresee and to explore the implications for both industries.

These experts came from passenger vehicle manufacturers (OEMs), key component and system suppliers to those manufacturers (OESs), government agencies around the world, universities, and think tanks with transportation expertise. We also integrated the points of view of the more than 300 consultants and partners of RBSC that work full time in our Automotive Competency Center.

Our analysis led us to identify 10 trends that we believe will shape the future of the automotive industry. Some of these trends, which are discussed in this article, deal with the changing dynamics of markets, products, employees and customers, while others focus on changes in organisational structures, business models and the value chain. (All 10 trends will be discussed in the author's speech on 21 February at 11:15am at the ICIS 17th World Base Oils & Lubricants Conference in London.)

RBSC'S TOP TRENDS

  • Always online, always connected. As noted by McAdam and Mascarenas, online vehicles will send and receive information constantly by 2025, leading Mascarenas to refer to the car as "the ultimate mobile device".

Through increasingly standardised OEM-provided platforms, consumers will be able to integrate their electronic devices into their car, allowing them to access information or order additional services through voice, touch screen or from steering wheel controls.

Connectivity is a key factor in the near term, but intelligent traffic solutions, including accident avoidance technology, will remain a goal well beyond 2025.

  • Shift to Asia. We expect a dramatic shift to Asia in the growth of both vehicle sales and production capacity. Regional trade blocs will grow, and production will continue to move to low-cost locations. In our view, 300,000 jobs in Europe will be at risk.
  • Powertrain electrification. RBSC ran several scenarios and expects an acceleration of global electrification and hybridisation. In the most positive of all cases, we expect electric vehicles to account for approximately 10% of new vehicle sales by 2025, with hybrids to reach a 40% share. That said, internal combustion engines will still account for 50% of all new vehicle sales.
  • Small is beautiful. Most Europeans are used to them, but mini-cars and small cars still turn heads in the US. Consumer benefits include better fuel economy and increased ease of getting around a city, including parking.

The Euro Car segments A and B (Mini or City cars up to 3,600mm (11.8ft) and small cars up 4,100mm long, respectively) will show disproportionately strong growth. Mini cars include the Ford Ka, Smart Fortwo, Volkswagen Up! and Polo, and Opel Corsa.

  • Demotorisation. RBSC's research shows that cars have been losing and will continue to lose their appeal to younger generations in developed countries. In terms of an emotional connection, the automobile has ceded its "pole position", losing out to communication devices including smart phones, tablets, laptops and portable music players.

In addition, the motorisation rate is decreasing in big cities, and not just in the mature industrial nations. By 2025, car owner-ship in major urban areas will become almost unnecessary, with mobility ecosystems providing cars on demand, changing one's relationship from "my car" to "a car".

  • STEM gap. Escalating the global war for talent, countries in Europe and North America with aging populations are lacking in graduate and advanced degree holders in the STEM subjects (science, technology, engineering and mathematics).

Automotive OEMs and OESs cannot significantly increase their R&D departments abroad because there are not enough STEM graduates. For example, in the US, the total number of students who graduate from university is steadily rising, the percentage of graduates who study a STEM discipline actually fell from 8.5% in 1999 to 7.0% in 2008.

In addition, the rising average age of the population and decline in the workforce is likely to put significant pressures on the number of qualified workers for R&D, technology and development and manufacturing.

With an increasingly IT-based world, demand for the labour force is also shifting toward technology, IT, electrical and chemical engineering, drawing even more from STEM disciplines.

LUBRICANT IMPACTS

Some of the trends that will significantly shape the automotive industry by 2025 will also naturally impact the lubricants business, predicts RBSC. These automotive trends will have an impact across a lubricant company's marketing plan, affecting where the lubricant is consumed, the types of products sold, the distribution channels that are important, and approaches to product promotions.

"Aways online, always connected" presents the most exciting range of opportunities for the lubricants industry, says RBSC, with nearly limitless promotional opportunities. These include real-time oil monitoring from the streaming of operating data that could provide users with diagnostic information on their vehicles, marketing opportunities that might present themselves for Do-It-For-Me outlets, and communication with the driver regarding service scheduling.

"Shift to Asia" is one trend with which lubricant suppliers are familiar, having already seen the impact of increased sales of lubricants there. As OEMs move production capacity eastward to be closer to growing markets, OESs will follow to be closer to where cars will be manufactured, purchased and ultimately serviced. The lubricants required to make the vehicles will move also. In addition, as vehicle sales grow in Asian markets, so too will the consumption of automotive lubricants required to operate the vehicles.

Logic flow diagram"Electrification and hybridisation" bring increasing opportunities for lubricant suppliers on both the technical and marketing fronts. As high-tech, fuel-saving technologies continue to evlve in traditional engines, so does the demand by auto makers for specially formulated lubricants. In addition, the growing share of quieter running electric and hybrid vehicles increases the interest in quiet-running lubricants, particularly greases.

Hybrid vehicles utilising continuous variable transmission (CVT) systems also require unique fluids. From a marketing perspective, there is an opportunity to position specific products at a premium price level to hybrid owners, who may more readily understand the total life-cycle cost of the product.

"Small is beautiful" reminds us of Castrol's old advertisements in North America, touting the fact that Castrol oil was "designed for smaller engines". Even as the lubricants industry tries to create industry-wide specifications, RBSC sees opportunities for more segmentation, looking to fashion new categories with specific customer value and to create new product, promotion and even channel opportunities.

In conclusion, RBSC's research has identified five global megatrends through 2025. We believe that these megatrends will then drive key changes in the automotive industry, which, in turn, will ultimately influence the lubricants industry.

In our opinion, four automotive trends in particular - Always online, always connected; Shift to Asia; Electrification and hybridisation and Small is beautiful - will have a particularly powerful impact on the lubricants industry. This will create opportunities for lubricant marketers who are able to anticipate a shift in location, who can create the right new products, who are positioned in the correct channels, and who are able to take advantage of new promotional tools.

  • Bill Downey, a partner in Roland Berger's Oil & Chemical Competency Center, has been a frequent moderator and speaker at ICIS Base Oils & Lubricants conferences. He can be reached at william.downey@rolandberger.com. Yiqun Bai from Roland Berger's Boston office and Rebecca Peredo from the Chicago office both contributed to this article

Author: Bill Downey



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