Heavy-duty Market Shifts to Genuine Oils

Global demand for heavy-duty motor oils shrank slightly over the past four years, but consumption of genuine heavy-duty oils rose during that period and now accounts for 13 percent of the market, according to Kline & Co. consultancy.

During an April 24 webinar, the firm forecasted that the growth in genuine oil sales will accelerate the next five years and that they will account for 15 percent of volumes by 2023.

David R. Frazier Photolibrary, Inc./Alamy

Trucks on an interstate in Boise, Idaho. Global demand for heavy-duty motor oils shrank slightly over the past four years, but consumption of genuine heavy-duty oils rose during that period.

Global sales of commercial vehicles grew at a healthy cumulative average rate of 4.6 percent from 2014 through 2018, topping 45 million units in the latter year, Kline reported, though those numbers included light and medium-duty commercial vehicles, along with heavy-duty. Nevertheless, heavy-duty motor oil consumption declined a bit during those years, to roughly 8.5 million metric tons.

At the same time, demand of heavy-duty genuine oils - those branded by original equipment manufacturers - were growing at a compound annual rate of 2 percent, said David Tsui, project manager in Klines energy practice. Demand of genuine oils topped 1 million tons by last year, he added.

Asia-Pacific is the region with the highest overall lubricant demand and the largest consumer of heavy-duty oils, but it accounts for an out-sized portion of service-fill genuine heavy-duty oils - around 70 percent, or more than 700,000 tons in 2018. This amounted to 20 percent of Asia-Pacifics heavy-duty oil demand. Klines research covered on- and off-highway commercial vehicles. Off-highway vehicle sales, which include sales in the agriculture and construction industries, accounted for approximately 14 percent of total sales last year. Off-highway genuine oil consumption, however, accounted for an estimated 25 percent of genuine oil consumption this past year, meaning penetration of genuine oils was higher in that segment, driven by strong brands such as John Deere and Caterpillar, said Tsui.

Tata Motors, John Deere and Mahindra & Mahindra had the most demand for their genuine oils among OEMs, followed by FAW - a Chinese state-owned automaker - Daimler, Foton, VECV (Eicher), Jinlong and Isuzu. The vast majority of demand was accounted for by all other OEMs.

Growth in new vehicle sales will have the biggest influence on genuine oil growth. As new emissions regulations roll in, consumers and fleets are more likely to pre-order newer vehicles before the regulations take effect and raise the price of vehicles, Tsui said, a positive for genuine oil growth.

E-commerce, which demands more shipping and logistics to support it, will bring about increased Class 8 truck sales, another net gain for growth in genuine oils on the heavy-duty side.

Increased emphasis from OEMs on extended service contracts and warranties, while not a new concept, encourage genuine oil use with compensated repairs and maintenance. Customers are more likely to take advantage of free labor service and parts, but will still have to pay for the genuine oil cost if they get their oil changed by the OEM authorized workshop.

Co-branding, where an OEM will partner with big lubricant brands to create new oil products, is more prevalent in the heavy duty genuine oil market than in the consumer genuine oilmarket. OEMs are really leveraging these big name brands to build their own brand equity, said Tsui.

OEMs prefer genuine oils because they can provide better protection for their equipment, such as emissions systems. Each OEM is going to pick their own particular combination of [diesel particulate] filters and [selective catalytic reduction], said Tsui. But with exhaust after-treatment systems, sometimes the oil will have to be tailored for their particular choice of systems.

Each manufacturer has special needs for their engines as well. Some engines may be more prone to wear or scuffing, said Tsui. Knowing the strengths and weaknesses of a particular engine design can help a lubricant marketer design an oil for that OEM to help better protect the engine.

Genuine oils also help OEMs tout a lower cost of ownership for vehicle owners if their products can keep the cost of maintenance and repairs down over the vehicles lifetime. It certainly helps OEMs sell vehicles and maintain a good brand reputation, said Tsui.

Genuine oils also provide an alternative revenue source for OEMs, helping to balance out vehicle sales which tend to fluctuate.