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Warranties are a comforting thing. We have warranties on homes, appliances, automobiles and a myriad of other goods and services. Warranties give an impression of reliability and convey the suppliers confidence that a product or service is just a little bit better than average.

In May, Valvoline introduced an engine warranty program called the Valvoline Engine Guarantee. Depending on which Valvoline engine oil you use and providing you change your oil regularly, the oil marketer will guarantee that your engine will last up to 300,000 miles.

Of course there are caveats to this guarantee. According to the programs wesite (www.engineguar antee.com), drivers must:

Register their privately owned vehicles before reaching 75,000 miles;

Change their motor oil with Valvoline for 18 months before they can take advantage of the coverage;

Meet several additional requirements regarding vehicle use.

Also, engine failures caused by an outside force (e.g. accidents, natural disasters, problems with non-engine vehicle systems) or involved in a manufacturers recall are not covered.

The length of the warranty depends on the engine oil used. Valvoline sees this as a way to reinforce the differences in engine oils. In order to get the full 300,000-mile coverage, youll need to use Valvoline SynPower or MaxLife full-synthetic motor oil. If you use regular MaxLife or Durablend synthetic blend, the vehicle is warranted for 225,000 miles. If you choose Valvoline premium conventional motor oil, coverage is for 150,000 miles.

However, in all cases owners must change the oil and filter every 3,000 miles (there is a 1,000-mile cushion), and keep careful track of the oil changes online as well as documentation of the oil used and service done. They can simplify greatly by having the work done at a Valvoline Instant Oil Change Center, which will handle the tracking and documentation.

This is a very interesting strategy. Given that personal vehicles are being kept for longer periods of time (9.4 years is the median age of cars and trucks on U.S. roads), its apparent that owners want to keep them in good working order. By offering this engine warranty, Valvoline is speaking directly to those owners.

It is also good business for Valvoline. Changing oil every 3,000 to 4,000 miles certainly improves or at least stabilizes its sales volume. Drivers who use Valvoline Instant Oil Change centers dont have to do the bookkeeping required to keep their warranty intact, so this should increase the outlets throughput. In addition, raising the guaranteed mileage for synthetics versus conventional oils offers a way to differentiate the higher-cost products.

The question then becomes: How can Valvoline make this guarantee? It is not their engine and they cannot control the driving habits of the vehicle owner. The environment where the vehicle is operated is also outside of the companys control.

For most passenger cars, 300,000 miles can be reached only after a very long time; at 15,000 miles per year, it would take 20 years. So Valvoline will own that cars premium oil changes, five times a year, for decades. A synthetic oil change last year averaged around $60, according to National Oil & Lube News, and its easy to see how the dollars will mount up. Of course, for drivers who choose to use conventional Valvoline oil the guarantee is for only 150,000 miles, and based on 15K per year, thats only 10 years. Still a nice piece of business.

The record-keeping aspects of the program are pretty onerous as well, such that many people will opt to go to a participating oil change center, which also improves the bottom line. This is a very important part of the program. Not only does Valvoline sell more oil, it also builds traffic at its 850 branded oil change centers. Its independent quick-lube franchisees will be very happy for that. Technically speaking, Valvoline must have some pretty strong information to support this scheme. In order to feel comfortable with a 300,000-mile guarantee, it would have turned to field tests and engine tests – it has tons of both – and asked whether regular drain intervals and normal operations result in manageable wear and deposit formation for at least a significant percentage of the 300K miles.

In most field tests that Ive been associated with, the engines tend to break-in within a few thousand miles. After that, they go through a long period of normal operation without significantly degrading. Eventually, bearings and liners begin to show more wear and engines become looser. Oil consumption goes up and performance begins to degrade.

Engine testing is designed to stress the oil as much as possible. Every aspect of the oil is evaluated including deposit formation, sludge, wear, oxidation, fuel economy, seal swell, viscosity retention, water tolerance, alcohol compatibility and foam resistance properties. The standard test procedures are tough enough, but many companies run tests for extended periods of time to see just how much the oil can take. (There have been disputes in the past about whether extended-length tests are meaningful or just so much hype. Personally, I come down on the side of somewhat meaningful, although difficult to quantify.)

Besides weighing test data, Valvoline also did some serious marketing studies over the course of two years to determine if the motoring public would be interested, sources inside the company told me. The research started with focus groups – groups of consumers who agree to be interviewed at length on various subjects.

In these focus groups, Valvoline asked about what is important to car owners: What sorts of issues are on their minds, and what value could Valvoline offer to them? Some of the questions seem obvious: Who changes your engine oil? What oil do you use? How often do you change it? How long do you plan to keep your current automobile? Those answers and others were all reviewed and analyzed. The company then moved on to large online quantitative studies, to gauge value.

In addition to gauging consumer interest, Valvoline undoubtedly analyzed the odds of actual claims being made. By determining what percentage of program participants might actually make a valid claim, Valvoline would be able to calculate what impact that would have on the viability of the program and compute the make-or-break point.

An engine oil warranty is a very safe bet since the number of engine failures that can be attributed to the oil is minimal. However, Valvolines guarantee is on the engine. Basically, if the engine fails, they will cover it. This is still a good bet since the number of engine failures in a well-maintained vehicle is pretty low.

To boost its odds, the company also cherry-picked the vehicles it would cover, eliminating the clunkers: no models before 1990; no leased vehicles (many are poorly maintained); the warranty dies if the car is resold (most are); no diesels, farm or racing vehicles, and none over 10,000 pounds (all too stressful). And if the auto manufacturers warranty is still in place, it has precedence.

Generally, the vast majority of engine failures are due to engine design issues or operator errors, and trying to identify what happened is a real challenge. In Detroit, the automakers get very worried if a few hundred complaints regarding any particular issue show up. For example, in the late 1970s and early 80s there were a number of cam failures in the then-new Ford 2.3-liter four-cylinder engine. Not knowing for sure what was going on, Ford instituted an emergency specification requiring a high level (0.14 percent minimum) of engine oil zinc to protect the cam. Later it changed metallurgy and changed the engine design to correct the problem.

More recently, Toyota, Chrysler and Volkswagen made headlines when they had to recall millions of late-1990s and early 2000s vehicles, due to the engines being plagued with sticky black sludge. Some faulted the engine designs, which had narrow passages and excessive heat that led to oil thickening and gummy deposits, but Toyota blamed poor maintenance and infrequent oil changes (then paid for the damage under its own warranties).

Certainly, these cases are not common, so an engine guarantee is still a reasonable bet. And by limiting the oil change interval to 3,000 (at most 4,000) miles, Valvoline has done what it can to hedge against engine design glitches.

Maintaining ones vehicle is an every day kind of job. It takes some time to keep track of the things that need to be done to make it safe and to keep it running for the long haul. Valvolines program, while it does cover drivers, requires that proper engine maintenance in addition to oil changes be followed. For instance, timing belts must be changed according to manufacturers recommendations and are specifically excluded from the oil companys warranty. It also means that abuse due to poor driving, accidents or flood damage wont be covered.

The bottom line is that Valvoline has come up with a pretty good plan, with the potential to increase its engine oil market share as well as increasing throughput at its branded quick-lube locations. The companys exposure to warranty claims is going to be low and unlikely to break the bank. A nice marketing coup if there ever was one.

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