Market Topics

Need to Know


Think were still playing by the old rules when it comes to performance upgrades? Were not.

There was a time not so long ago when it seemed many of the rules in the world of engine oil additives were made in America by a tight-knit group of industry elders. Together, representatives of the American Petroleum Institute, American Society for Testing & Materials, and the U.S.-based Society of Automotive Engineers wrote engine oil specifications – and the needs of the American motoring public, American automakers and the U.S. EPA held center stage.

And why not? The United States was the largest market for lubricants in the world, and the worlds biggest additive companies were U.S. based. The Big Three auto companies were also U.S. based. It was a good system for advancing lubricants, and very disciplined.

But times are changing. The Asia-Pacific region is now the largest and fastest growing market for lubricants in the world. And where once the United States led in automobile sales, Detroits Big Three in July took a back seat to foreign automakers on their own turf. Foreign car manufacturers commanded nearly 52 percent of the U.S. market that month.

These and other changes are having a significant impact on the lubricant additives business, and should be cause for concern for any in the business who think we are still playing by the old rules. We are not.

Take for example, the unspoken rule about performance upgrades. The soft rule says that when API comes out with a new engine oil category, the old juice should come off the shelves; only the bottom feeders would continue to supply the old stuff.

Well, that rule doesnt go over well in some of Asia Pacifics rapidly growing markets. And why should it? Why should countries where one of the leading modes of transportation is two- and three-wheelers care about ILSAC GF-4 volatility? Why should buyers in these regions – operating fleets populated with 70s and 80s vintage, two-stroke Detroit Diesel 6V71s – care about API CJ-4, the newest heavy-duty engine oil category? They dont. Nor are they willing to pay extra for lubricant quality they dont need or worse yet, that offers lower performance in their engines.

This inertia probably wont surprise anyone who has been selling into South America. Many countries in this region are one to two specifications behind the United States. This doesnt mean they dont have high-quality engine oils; in fact, some of the regions majors appear to pay more attention to quality than those in the United States. However, it does mean that performance levels set in the United States may not meet the needs of the regions domestic markets.

But what might come as a surprise is how additive companies are responding to the competitive landscape in these developing countries. Rather than running engine tests to qualify older-generation oils, some additive companies are now relying on computer models to calculate additive treat rates for obsolete lubricants and predict whats needed to meet past specifications with new base stocks. By doing so they can compete more cost effectively in markets that are highly sensitive to cost and less sensitive about quality.

As many know, this is not a new practice. It has been going on at a low level in other regions of the world for a period of time. What is new is the magnitude of this activity, and the growing awareness of it in countries such as India, Vietnam and other developing countries in Asia.

Whats also new is that blenders in these countries are reportedly not stopping there. In an effort to further reduce their cost-of-goods-sold for finished automotive lubricants, they are increasingly demanding components over packaged additives. Historically, this would be a taboo request that would get few if any takers. But today, when the global players in the additives business are looking at flat to declining demand in the United States and Europe, its tough not taking a bite out of this apple. In the views of some, though, additive companies that do will be enjoying short-term gains for long-lasting pains. Because at the end of the day, theyll be letting go of their most valued possession: technology.

And for those who think this is all just an offshore issue and the United States will remain as disciplined a market as it has in the past, think again. One neednt go all the way to Asia to see how some of the unspoken rules of the business are being broken and the old rulers challenged.

In fact, take a look at whats happening with Dexron III/Mercon automatic transmission fluid in California, Texas, Illinois and other states. Although this is now an antiquated product superseded by General Motors Dexron VI fluid specification and Fords Mercon V, many independent blenders and even the majors are offering an unlicensed version of the old ATF for pre-2006 passenger cars and light trucks. Do you think its just a coincidence they call their fluids D3M, D/M, MD3 and other names suggestive of Dexron/Mercon? And beyond that, take a close look at some of the engine oils offered by the majors; are they also hanging on to old specs, or maybe even offering unlicensed products?

Where they are, maybe the reasons are the same as in other parts of the world. Those reasons are cost, price, performance and most importantly, meeting the needs of the customer.

Related Topics

Market Topics