Lubricants play a key role in personal mobility and vice versa, Blake Eskew, vice president of global consulting for oil markets, midstream and downstream for IHS Inc., said at Octobers Annual Congress of Union of the European Lubricant Industry in Berlin. Lubricant producers and marketers must be prepared for disruption.

Is the Love Affair Over?

People love their cars, and they love to drive them. As a result, automotive lubricants used by consumers is the largest segment of the global lubricants market because so many people depend on passenger cars, other light-duty vehicles and motorcycles to get where they need to go on a daily basis.

However, there are signs, Eskew said, that dependence on personally owned vehicles is waning. From 2000 to 2015, annual global sales of light-duty vehicles swelled from 56 million per year to 88 million per year, and the population of those vehicles grew from 730 million to 1.2 billion.

One country – China – was largely responsible for those increases, but growth in vehicle sales in that country has slowed considerably in this century. From 2000 to 2010, the average annual increase in sales was 23 percent. From 2011 to 2015, average growth was just 8 percent.

Could China be reaching saturation in terms of the number of vehicles per capita? Eskew posited. China now has 190 vehicles per 1,000 working age individuals. Thats far less than the United States and Europe, but its similar to Singapore.

Demographics are undergoing important shifts. Birth rates have fallen all around the world, and working age populations are plateauing in all regions except Africa, the Middle East and Asia-Pacific, excluding China and India.

As populations age, mobility needs change and typically decline, Eskew said. There is less commuting to work, less casual travel and for trips that are taken there is a shift from people driving themselves to being driven.

In addition, mobility patterns for young people are changing significantly in some parts of the world. Eskew cited numerous countries with falling rates of people obtaining drivers licenses when they are first permitted to do so.

In the U.S., the portion of people obtaining licenses at the minimum legal age fell from 80 percent in 1983 to 60 percent in 2014. In Sweden, the rate slid from more than 50 percent in 1983 to less than 30 percent in 2008, while in Norway it fell from nearly 60 percent in 1990 to less than 40 percent in 2010. Rates also declined in the United Kingdom, Japan, South Korea, Canada and Germany, though they increased in Israel, Finland, Switzerland, Spain and the Netherlands.

Mobility Shift

There are a lot of reasons for the shifts, Eskew said. Part of it is that costs of owning a vehicle are higher than they used to be, even accounting for inflation. The Internet has also had a big impact.

The growth of e-commerce means people are buying more things online instead of going to stores, and young people in particular use the Internet to socialize and feel less need to actually meet with friends. And to the extent that they do go out, many people will use alternative forms of transportation, such as public transportation or driver services such as taxis or Uber.

Urbanization is another factor that will impact mobility patterns, Eskew said, explaining that there are clear trends around the world for populations to shift from rural areas to cities. Eighty-three percent of the U.S. population lives in urban areas now, but the rate is forecast to rise to 87 percent by 2025. The rate in Europe is projected to rise from 77 percent to 82 percent over the same period, while the rate in China is expected to jump from 52 percent to 71 percent.

At the moment, the flock to cities is creating challenges such as congestion and pollution, but Eskew predicted that governments will tackle these problems and that the strategies they choose will discourage people from owning and operating their own vehicles. As an example he cited London, which already taxes or restricts use of personal vehicles in the citys core and is scheduled to implement regulations that will only allow low- or zero-emission vehicles to enter that area.

Growing congestion will result in policies to mitigate and prevent negative consequences, he said. Most increase the cost and impose restrictions on vehicle ownership and use.

What It Means for Lubes

Taken together, these trends bode significant changes for the personal vehicles that people use, as well as their decisions on whether to use alternative means of transportation. Government regulations should lead to increases in the number of electric and hybrid cars, which require either no engine oil or much smaller volumes.

But increases are expected in the use of public transportation such as trains and monorails, as well as ride services. The latter may include traditional offerings such as taxis or newer alternatives including commercial services like Uber or government options such as government-owned vehicles that are available for public use.

If people use more trains, that would mean less demand for automotive engine oils and more for train lubricants. If people use more ride services, that may not lead to a change in the number of kilometres driven by cars, but it would mean a change in the type of operator for those vehicles – and therefore in the decision maker about maintenance choices such as engine oil purchases.

Eskew said IHS has not yet tried to quantify the impact that mobility trends could have on global lubricant demand. The firm is now conducting a study titled Reinventing the Wheel which aims to develop a range of scenarios of how trends could develop and the effects they could have on the automotive, chemicals and oil industries. That study is scheduled to wrap up in the summer, and the firm may use those results for a spin-off analysis of potential impacts for lubricants.

To give a sense of the potential scale of impact, Eskew noted that electric cars consume as little as 4 liters of transmission fluids and no engine oils over a 10-year period. If 120 million EVs join the global vehicle population by 2040, and if one assumes that they replace Ford F-150 pickups, lube consumption would decline by 1.3 million metric tons per year – or 10 to 15 percent of global demand.

Eskew contended, though, that a bigger impact could be in the way that lubricant suppliers market their products. The marketing implications of mobility changes for the branded lubricants industry are potentially more disruptive than the demand impacts, he said. The use of ride-sharing and car-sharing – whether autonomous vehicles or not, electric vehicles or not – severs the relationship between the driver/rider seeking mobility and the purchase and maintenance of the vehicle that provides mobility.

So they will no longer be involved in maintenance, selecting a lubricant brand or even selecting the quick-lube to go to. The original equipment manufacturer and the fleet operators will be making those decisions. Accordingly, the entire structure of consumer advertising, marketing, racing sponsorships, etc. may become obsolete, and the value of the established lubricant brands may come into question.