HOUSTON – U.S. vehicle production is dropping, miles driven are declining, and 2008 motor oil consumption will likely slide more than 5 percent from a year ago. But despite the grim trends, one industry expert sees some bright opportunities for motor oil marketers.
Larry Solomon, president of Strategic Resources, a Union, Ky.-based market research firm, provided last months NPRA Lubricants and Waxes Meeting an updated projection for U.S. motor oil consumption by private sector passenger cars and light trucks, projecting out to 2013.
Based on his consumption model, Solomon estimated that U.S. passenger car motor oil consumption will decline 5.6 percent to 616 million gallons from 2007 to 2008, before it begins to inch upward next year. Solomon predicted that consumption will rise slowly to 683 million gallons in 2013, not quite returning to the 2004 level of consumption.
Looking at 2008 and beyond, Solomon highlighted key market conditions affecting motor oil demand. The vehicle population is aging, and annual drain intervals are exceptionally depressed in 2008. Gasolines peak at over $4.23 per gallon in July caused consumers to extend drain intervals significantly, to just 2.8 oil changes per year. This all means that motor oil consumption has turned out to be exceptionally depressed in 2008, said Solomon.
Private sector vehicle registrations continue to rise at about 1.75 percent per year, Solomon continued, while passenger car and light truck production has declined in recent years. How is this possible? The answer is quite simple: reduced passenger car and light vehicle scrappage rates, said Solomon, explaining that the lower the percentage of vehicles scrapped, the more older, higher mileage vehicles on the road. Average vehicle age in the U.S. has climbed from 9.1 years in 2003 to 9.7 years in 2007.
Volatile gasoline prices and the recent economic downturn have negatively affected annual miles driven, Solomon continued, which are estimated to decline 0.5 percent from 2007 to 2008.
Market Opportunities
In this challenging market, there are still opportunities, Solomon contended. As he has recommended in the past, he sees continuing opportunities to market motor oils to the enthusiast segment of the do-it-yourself oil change market, and to professional installers managing the do-it-for-me businesses increasingly favored by most drivers.
Nine years after Valvoline introduced MaxLife Motor Oil, marketing to higher mileage, older vehicles is still a viable opportunity, said Solomon. Consumers are postponing new car purchases and want to keep their vehicles as long as possible, so target older cars.
Another opportunity is to market to extending drain intervals, as Mobil did in 2005. Mobil forged this position against the grain, and proved it to be successful in my opinion, said Solomon. There is opportunity to market added performance while extending drain intervals.
Finally, said Solomon, there is opportunity in marketing to fuel efficiency concerns while gas prices are fluctuating and the economy is in a downturn. Currently, greater fuel efficiency is more important to consumers than longer engine life or greater vehicle performance, he said. If there was any time in history to market to greater fuel efficiency, now would be that time.