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Back in the day, when the engine oil industry was debating whether to introduce the API category designation system and its donut trademark, one of the astute marketers involved commented that if the category system were introduced, brand differentiation would be lost and engine oils would rapidly move to commodity status.

Merriam-Websters defines a commodity as a mass-produced, unspecialized product. Wide availability of such products typically leads to smaller profit margins and diminishes the importance of all factors, such as brand name, other than price. So obviously, this oil marketer had some legitimate concerns.

Of course, the impetus for the API system was the fact that each automaker was asking for tests unique to its product, and the oil and additive industries were concerned that test requirements and costs would escalate. The engine oil designation system in place at the time was so generic that it couldnt be used to tell what performance criteria were met, much less if original equipment manufacturer requirements were addressed. The OEMs pushed for a more useful system, and were willing to help with test development.

I think its safe to say that our astute oil marketer was right. From the time the API designations appeared, brand names such as Pennzoil, Quaker State, Valvoline and Castrol began taking a back seat to API SE, SF and so on. Where customers before would ask for Havoline, they gradually began to ask simply for API so-and-so. Brand loyalty took a hit, and only the biggest dogs on the street survived. Brands still lived in the auto-parts and big-box stores, but increasingly garages and dealers were more in touch with API performance. With the advent of quick lubes, this trend continued.

Lest you think this is wrong, please remember that Dexron and Mercon transmission fluids – brands owned by auto companies General Motors and Ford, respectively – are now the called-for products at quick lubes, garages and dealers, not oil brand names. In fact, many oil marketers have given up and label their ATF products with the GM or Ford designation. In general, the pricing of these sophisticated products does not reflect the chemistry, quality or oil marketers image; rather, pricing is the lowest common denominator. In fact, ATF is the most common oil to be swapped in blend tanks due to its complete fungibility from brand to brand.

With the API system in place, oil marketers began to try a new way of differentiation, namely the use of different application designations for their oils. Light truck and 4×4 oils, racing oils, high-performance oils are some of the ways in which oil marketers attempted to gain ground. Of course all of these oils met the then-current API category designation and only differed in viscosity.

Fuel economy became a big deal in the mid to late 70s, and oil marketers capitalized on that, introducing first a fuel economy brand application, and then converting their primary brand into a fuel economy line. Again, this improvement was primarily driven by viscosity grade rather than a truly different formulation.

There were a few specialty oil marketers who offered some unique products, such as partial and total synthetic formulations, although these were still identified by their API category designation. A few tried different components such as Teflon, graphite, molybdenum or liquid tungsten as a differentiator. Each of these products developed a small but loyal following.

So youre asking yourself, why is all of this important or even worth writing about? The answer lies in GMs recent introduction of the trademarked Dexos engine oil specification. While all of the OEMs always had their own oil specifications, there was an unwritten understanding that the API categories, and later the ILSAC versions, were sufficient to define oils suitable for each OEMs vehicles.

Dexos changes that. GM says it needs Dexos in order to simplify and standardize its oil requirements globally, and that is true. However, it does introduce a new, OEM-specific oil into the market. Some major oil marketers (e.g. ExxonMobil and Shell) have indicated that they will be offering a licensed Dexos oil. Others (Valvoline, Citgo, Castrol) have said that they will market oils which meet the Dexos performance requirements, but will not pay GM to license the Dexos name.

Why is a this an issue? Oil marketers have developed a system of oil blending that uses large production runs based on a single additive system. Changes in viscosity grade can be made by adjusting the viscosity index improver dosage and base oil blend ratios, but the core additive system remains the same.

By contrast, Dexos will require a different additive pack because of some unique requirements. That adds complexity for blenders, since Dexos ingredients are reportedly costlier than those used in the new API category SN/ILSAC GF-5 oils.

Yet another factor in this mix is GMs plan to charge licensing and royalty fees for approved Dexos products, which are specified only for new 2011 model year vehicles. Blending more Dexos volume than these cars need might be an unnecessary cost to oil marketers, so they will be very cautious about signing up. One can only expect that other OEMs are watching this with great interest and may be thinking about their own unique oil requirements.

This could rapidly escalate into an OEM free-for-all. The Japanese OEMs such as Honda, Toyota and Nissan have long preferred their own genuine oils for their vehicles but have deferred to the much larger North American marketplace for engine oil standards. They are active members of ILSAC (the auto industrys international lubricants group) who push for new API categories when the need arises – and it always does, due to government mandates on fuel economy and emissions. It seems plausible that these OEMs might be next to demand their own specific oils for their needs.

Could it happen soon? In August, Honda advised consumers that they must take their 2011 Acuras and Hondas in to their dealers for all service work, and must use genuine parts or risk losing warranty coverage. Service industry groups such as the Automotive Oil Change Association and the Automotive Aftermarket Industry Association raced to complain to the Federal Trade Commission, saying this violates U.S. law. The FTCs response could set the pace on this for years to come.

European OEMs also have their own requirements. In fact, the European market is characterized by almost all major OEMs specifying oils that meet their own vehicles needs. As is the case in North America, there are industry standards (ACEA categories) which form the basis of engine oil performance. On top of that however, each OEM requires other performance tests said to be necessary for its own products. I’m sure they would be only too happy to specify their own standard oil for use in their vehicles.

So where does this all lead? Will more OEMs begin to specify their own, unique oil formulation? Will oil marketers begin to blend some or all of the required oil specifications? Will the API system go the way of the dinosaurs? How will customers get the proper oil for their vehicle?

I think more of the bigger OEMs will seriously consider specifying their own unique products in the U.S. market. Most likely, the Japanese will be the next to do so. Both Toyota and Nissan have the market power to do it. Its possible that some of the European OEMs will also consider the same plan. They have oil formulations in place now that could be blended in North America. The German OEMs seem most likely to do something along these lines.

Who will blend these oils is another interesting question. Currently, the Japanese plants in North America get their factory-fill oils from nearby blenders, who also offer genuine oils in quarts for the aftermarket and bulk for dealerships.

Its certain that U.S. blenders would also be willing to serve up the European oils as well. Major oil marketer-blenders will be an obvious choice since they have the blend facilities and the base stocks to supply almost any composition. Some have almost soda-fountain-like setups where, with the flick of a few switches, a different blend is dispensed. The issue of tankage now becomes significant and may mean that some oils are blended directly into tank cars or trucks for shipment and never hit the blenders storage system.

As far as the API system is concerned, it will stay in place as a baseline. API category oils will continue as the lubricant of choice for the older vehicles already on the road. The API standards will undoubtedly be modified over time to capture the more general needs of OEMs, but there will always be that extra test which defines one OEMs oil vs. anothers. ACEA will continue as it is now, and the Japanese system will also continue. Perhaps (we can hope) all of the systems will get together finally for one worldwide, baseline core standard.

The question of where the end customer will get his or her engine oil is an intriguing one. Auto dealerships should grow significantly with such a system. In Europe, most engine oil is sold at dealerships. Oil changes represent an opportunity for the dealer to sell other services such as tire rotation, air conditioner service, etc. One would think that U.S. dealers would jump on the opportunity; most already do a big business in oil changes.

Quick lubes will likely take a hit insofar as general coverage is concerned, but some will probably survive as specialists in, say, North American vehicles or Japanese vehicles. Garages that specialize in one type of vehicle (e.g. German) will have good success.

Theres some speculation in this column but there is a pretty good chance that some form of what Ive laid out will come to pass. Oil marketers will recognize that more specific brands can command a higher price than a generic. Dealers, garages and quick lubes will also benefit from higher margins. Witness the fact that quick lubes currently charge almost twice as much for a full-synthetic oil change as they do for a conventional oil change. The difference in cost-of-goods is not that large, so they capture a larger margin for this specialty. Do-it-yourselfers will be able to buy their desired oil from the dealer.

It creates a much richer environment for engine oils, and one that offers pluses to all concerned. It also holds the promise of just the right oil being used for each and every vehicle. Id say its a good deal all around.

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