Industry Veteran Says, Learn from the VW Scandal
Our industry needs to spend time thinking about what Volkswagen did, how they got there and what we can learn. The scandal, which could cost VW up to U.S. $40 billion according to Downey, has enmeshed other automakers, including Mitsubishi in Japan and 16 European and Japanese brands that failed German testing. My experience is that it is the people that make this industry great, and the challenge is to make additional investment in those people, whether it is by bringing young people into the industry or through training.
The axis between regulation and enforcement is becoming more complex and costly. In the Middle East, enforcement is often sporadic, presenting a dilemma for investors. However, Downey stressed that should not be construed as avoidance of regulations or legislation. I am not suggesting companies not comply with enforcement, but, in my view, the risk of enforcement is something to think about. You need to be clear-eyed, and in some cases the answer is showing the customer the value proposition through education.
According to Downey, that is a strategy for moving the whole industry forward and is predicated on scenario planning and looking at available options. He said the conference exposed a set of dichotomies that the industry is facing, citing discussions over low viscosity requirements, whether it is API Group II or III versus the heavy Group I required for industrial, marine and a number of engine oil categories.
A further dilemma faced by the industry is the increasing frequency of regulations and the correlated risk of enforcement or actuality of enforcement. We heard a lot about anticipated needs but also getting the required returns whether it is for the shareholder or investor. It is important to maintain and examine the detail of the industry, particularly when the business is confronted, as it is now, with significant supply overhang, he added.
The collapse in oil prices has resonated throughout the base oils and finished lubricants business, with some observers worried about a drift toward commoditization. Downey suggested base oil refiners, lubricant marketers and additive manufacturers move quickly to avoid a downward spiral of lower margins and reduced profits. He added that more people and more tools are required to look at business segments and subsegments of markets. Maybe we are underinvesting in our people, both their capacity and capability.
Still, in an industry grappling with overcapacity and plant closures, the concept of investing in extra resources and combining them with more rigorous analysis of segments will be a challenge for many.