For this, our Outlook Issue, Automotive Editor David McFall turned to senior executives, asking for their top-down views of the same issues. Where will the industry get the resources, money and people to create future engine oils? Is it possible to have a U.S. engine oil system that recognizes and rewards truly outstanding performance? Can engine protection, longer drain intervals, fuel economy, and emissions systems find a rational balance? Is the process of engine oil development on the verge of collapse?

In a nutshell, what is the most important issue facing engine oil today?

Steve Kirk, Executive Vice President, Lubrizol Corp., Wickliffe, Ohio

A key question for the lubricants supply chain is: How do we make our industry and the individual companies attractive to investors or owners? Investors and owners want to see growth in the business, but growth is the biggest challenge in the lubricants and additive industries. Worldwide lube growth is less than 1 percent and some developed markets are actually shrinking.

The engine oil additives business is particularly difficult, making capital investments a challenge because, in the current market, they do not project to return the cost of capital. Technical expenses are high and increasing; raw material prices are increasing; and selling prices are too low. The run-up in raw material and energy costs has been so rapid and extensive that hundreds of millions of dollars are yet unrecovered by the industry.

All of these problems come at a time when some of the retiring legends of the industry are suggesting a need for investment of new resources and technology to help the OEMs to meet emissions and fuel economy targets of the future. We must get the lubricants and additives industry back to better health so we can consider these investments, and know they will build rather than erode shareholder value.

Despite these huge challenges, my outlook for 2006 is optimistic. With the hurricanes behind us (at least for this season), the additive industry is back to normal supply capabilities. The industry has sufficient capacity and supply and demand will return to a more balanced position. We will no doubt continue to juggle tight raw material supplies, but Lubrizol anticipates being able to supply its current customer demand. I am also optimistic about demand since it doesnt appear that there is an excess of inventory in the lubricant supply chain following the hurricanes.

In the development of new performance categories, OEMs, lube marketers and the additive industry have been working together much more effectively, but the financial returns for upgrades are still not adequate for most stakeholders. We must continue to make improvements in this area.

Doug Boyle, Vice President, Global Marketing & Strategy, Shell Lubricants, Houston, Texas

Balancing the competing demands for performance, fuel efficiency and emissions standards has been an issue in the industry for some time now and will continue to be a challenge. Our research team considers fuel and motor oil simultaneously when dealing with emissions standards. We recognize that the next time a new development in motor oil is needed, it will likely be driven by higher emissions standards, and we plan to be ahead of that curve.

We understand the importance and large cost advantages that bench tests play in concert with real-world testing. However, engine tests are the ultimate validation and are essential to confirm and see how a lubricant will perform.

Although we dont foresee dramatic changes in additive testing methodology, test development and cost of qualification are big-ticket items that need to be strategically managed. Another cost, much more significant than testing, is the cost of the additive packages – we need to balance these additives costs against the demands for emissions standards, fuel economy and performance.

Globalization is another issue that should have an increased impact on the industry in the next 10 years. Shell uses global processes to integrate and align our operations to capitalize on our worldwide research and development facilities. We use common standards and a simple structure to create synergies, leverage our size and provide a consistently high level of service for all our customers and business partners.

We are a global player, active in approximately 120 markets worldwide. China and other emerging markets hold great potential for industry growth. Our joint venture with the Shanghai Automotive Group Co. Ltd., for example, will develop fast lube services for motorists in China. This joint venture, modeled on our pioneering Jiffy Lube chain in North America, will develop about 10 pilot outlets in Shanghai, and by 2015, we aim to have a network of outlets across China. As in the United States, brand strength in China means a great deal. In the next decade, as the Chinese marketplace continues to open up to foreign business ventures, companies in the industry who have a history of doing business in China should have an advantage.

Walter Groff, Vice President, Southwest Research Institute, San Antonio, Texas

Being involved in the lubricants industry for the last 36 years has given me the privilege of witnessing the really significant improvements in transportation fluids quality, brought about by a core of dedicated, very intelligent, unselfish, insightful and forward-looking people.

The transportation industry today does not have significant lubricant-related problems, and this can be directly attributed to a system that works (albeit not without frustration) and those core group individuals and others must really be applauded.

This approach, however, has driven lubricant marketing to a commodity level, and success in marketing commodities is almost always price. When price is the major selling point with strong competition, then margins become very small. Coupling this fact with an essentially flat or non-growth market generates the current challenges we face. Today, the lubricant industry is forced to concentrate on the highest value per dollar spent, leading to less flexibility on the introduction of new categories, reduced performance testing, less-than-desired new test development funding, and compromise on acceptable pass/fail levels for performance tests – all coupled on top of the ever-increasing cost of performance tests. The quality level of current lubricants has not been compromised, but the trend is not healthy.

I see three important future issues:

Lubricant test-stand capacity industrywide will be significantly reduced, as the cost to maintain excess capacity will not be acceptable.

Environmentally driven regulations being legislated on OEMs are significant, and due to the complexity of todays transportation systems a systems approach will be required rather than simply improving a fuel, lubricant or piece of hardware as a separate non-related issue.

The concept of road to lab to math must be seriously considered in the development of future transportation systems, including lubricant quality levels and approval systems.

Ron Kiskis, President, Chevron Oronite, San Ramon, Calif.

I believe that the lubricants industry is approaching a tipping point, and will likely tip in one of two directions. One path would be a continuation of the trend over the last decade or so, where many lubricant product lines are becoming increasingly commoditized. The alternate path would be an increasing demand for a variety of true performance fluids, each designed as an integral part of a highly sophisticated powerplant.

In the automotive engine oil area, the increasingly complex lubricant requirements of a multitude of engines from various OEMs all but assure that lubricants designed to fit into this very tight formulating space will be a lowest common denominator of performance. These lubricants, designed to meet a myriad of competing and conflicting engine requirements, often just barely meet the needs of all of them, but optimally satisfy none of them. These lubricants do not do justice to the sophistication, durability and true performance capabilities of these modern powerplants. Nevertheless, this seems to be the de facto path we are headed down as an industry.

Today, we all recognize that engine builders face great pressure to design engines which simultaneously improve fuel economy, durability and overall performance while at the same time reducing emissions. An important way to ensure that these new, highly sophisticated and expensive engines are optimized is for their fluids to be custom designed at the same time as the hardware. These customized fluids would be uniquely suited to a specific engine. An engine might run acceptably on another lubricant, but certainly not optimally. To the extent that this optimized performance thinking prevails, we will head down the alternate path as an industry.

Somewhat ironically, commodity products, just meeting industry specifications, can be much more difficult and expensive to formulate because of their need to satisfy conflicting engine requirements. Multiple iterations of formulating approaches are often needed to develop a formulation fitting neatly into the formulating space. By contrast, customized formulations, focused on a particular need or engine, can often be developed quicker and less expensively. (Offsetting this advantage, however, is the fact that a fleet owner, who may have multiple engine types, may need to have multiple lubricants on hand to meet the unique engine demands. This could cause increased inventory and increase the potential for the wrong lubricant being added to an engine.)

One thing is for certain: Straddling both paths is the most expensive of all scenarios for the lubricant formulator. Companies will no doubt continue to make different choices on where to place their development emphasis, until it becomes clearer which way the market will ultimately tip.

James A. Spearot, Director, Chemical & Environmental Sciences Laboratory, General Motors, Warren, Mich.

The system used to upgrade engine oil quality has worked well in the past and has allowed the auto industry to achieve its goals – but not at the speed or efficiency that we desire. But, overall the oil and additives industries have done a good job in meeting our needs.

However, lubricants are becoming much more of an advanced-technology, precision product than they have been in the past and our expectation is that this technology will be put to greater use in meeting the needs of internal combustion engines and the powertrain system.

Because lubricants are a product of increasing value we expect that we will use this product longer in our systems than we have in the past. We already have fill-for-life rear-axle fluids and basically fill-for-life transmission fluids, and we will see extended oil drain intervals for internal combustion engines. I cant put a date or target on extended drain intervals because they are still under discussion, but thats certainly the direction in which we plan to move.