Finished Lubricants

Late to the Party


Over the next five years, the automotive aftermarket is facing several headwinds. First, the outlook for U.S. private-sector passenger car/light truck motor oil consumption suggests a mixed bag. The good news is that active vehicle registrations should grow between 1.0 percent and 1.5 percent annually over the next five years, rebounding nicely after vehicle production dropped almost 50 percent over the 2008-to-2009 time period.

The bad news – our first headwind – is that private-sector passenger car/light truck motor oil consumption (which Strategic Resources estimated at 582 million gallons in 2013) will be flat to slightly declining as a result of lengthier drain intervals. In 2008, vehicle maintainers changed their oil 2.8 times on average. Last year, that figure dropped to 2.54 changes per year, due to consumers waiting longer between oil drain intervals.

As described in last months issue (see DIY Punches Above Its Class), the do-it-yourself side of the motor oil aftermarket has faded from its peak in the mid-1980s, and do-it-for-me (DIFM) installers such as quick lubes, tire outlets and car dealerships have retaken the lead. That pattern will continue in the foreseeable future. Today we see three motor oil behavior camps: DIFM, which is generally accepted to account for 60 percent of the private-sector passenger car/light truck market; Enthusiast DIY, which accounts for 20 percent of the market; and Economic DIYers or In-Betweeners who account for the rest. This last group is more price sensitive and tends to switch between DIY and DIFM in response to economic pressures. If half these In-Betweeners change their own oil every year, the DIY side of the market may capture about 30 percent of the total, or roughly 233 million gallons last year.

Thus, it appears the industry will have to get used to 1) a private-sector passenger car/light truck market that is flat to slightly declining over the next five years, and 2) a DIY market that has a hard-core enthusiast base with 20 percent of the market and perhaps another 10 to 20 percent of maintainers who tackle their own oil changes from time to time.

Blowin in the Wind

A third headwind now is beginning to blow through the passenger car motor oil market. In years past, the market could depend on a regular, fresh supply of consumers – younger vehicle maintainers who were anxiously waiting to get their first car (with all the social and work freedom that it provides), and then would maintain that vehicle. This influx of younger customers always helped the automotive aftermarket to sustain or increase motor oil consumption.

The key question now is whether the automotive aftermarket can depend upon the millennial generation (24 years and younger) to become vehicle maintainers; to get their drivers licenses as soon as they legally can, purchase their first cars and care for them, and supply the usual injection of motor oil volume. (Motor oil sellers are depending on you, millennials!)

According to General Motors Chief Economist Mustafa Mohatarem (cited in Automotive World Megatrends), millennials seem increasingly disinterested in buying cars, or even having drivers licenses. From 2007 to 2011, the share of U.S. sales to car buyers ages 18-to-34 fell nearly 30 percent, and based on figures from January through August 2013, the percentage of new cars bought by millennial buyers has fallen to 11.4 percent, he told the magazine.

A study by the University of Michigan Transportation Research Institute (cited by John Hoffecker of Alix Partners) found that in 1983, 87 percent of 19-year-olds, 80 percent of 18-year-olds and 69 percent of 17-year-olds held a drivers license. In 2010, these percentages had plunged to 70 percent, 61 percent and just 46 percent, respectively.

As Hoffecker noted, had 2010s young license holders been consistent with 2000 levels, the U.S. driving population today would be about 6 million higher.

Its the Economy…

How can this be? Why do millennials seem increasingly disinterested in getting their drivers licenses or buying cars? The data suggest several important reasons.

Unemployment. Since the 2008-2009 recession, jobs normally taken by teenagers have been filled by adults who lost their jobs and are working in lower-paying occupations. Recently, weve seen fast-food employees demanding their pay be raised from $7.25 an hour to $15.00 per hour because they cannot support their families – a clear indicator that jobs designed for teens and younger individuals are now being taken by heads of households.

In a presentation last summer to the Center for Automotive Research, GMs Mohatarem pointed out that unemployment for 16-to-19-year-olds in 2006 was close to 15 percent. As of May 2013, this percentage has increased to 24.5 percent. Young people are not working in the numbers that typically would support car purchasing, and that, he believes, is the number one reason they are not participating in the vehicle market.

It looks like teens just cant afford to drive, echoed Matt Moore, of the insurance industrys Highway Loss Data Institute, in October. Paying for their own cars, gas and insurance is hard if they cant find a job. At the same time, kids who count on Mom and Dad to help them also may be out of luck if their parents have been affected by the recession.

Cost of Vehicle Operation. In addition to teens not being able to get work, the cost of owning and operating vehicles has increased significantly over the past 20 years. According to the U.S. Bureau of Transportation Statistics, the average cost to own and operate an automobile (assuming 15,000 miles of driving annually) was 38.8 cents per mile in 1992. That rose to 50.2 cents per mile in 2002, and 60.8 cents in 2012. The total cost to operate a vehicle in 2012 was $9,122 per year. Back in 1992, when those 16 to 19 years of age had greater opportunity for first-time jobs, the annual cost to own and operate a vehicle was $5,824 – about 60 percent of the cost today.

Debt. Anthony Pratt, Americas vice president of forecasting at IHS-Polk, pointed to another issue millennials are struggling with: student debt. The student loan balance climbed 91 percent between 2003 and 2012, Pratt pointed out to the Center for Automotive Research in August. The younger buyer is broke, he said bluntly. Their lower net worth, reduced income and higher student loans are all marshalled against car ownership at this stage of their lives.

Given these trends – less opportunity for teens to have jobs because of a contracting economy, greater debt to pay off, and the near-doubling of the cost to own and operate a vehicle – the automotive aftermarket should not count on a wave of millennial drivers coming along to offset the motor oil sales volumes being lost to extended drain intervals.

Compensating Activities

Oil marketers need to ask two questions: How are millennials compensating for not owning and operating vehicles? And when can we expect them to become vehicle maintainers?

There is an old saying, If I cannot afford it, I dont think about it. Previous generations of teens and those in their early 20s were quite isolated without owning a vehicle; they closely correlated cars with freedom and socializing, as Alix Partners Hoffecker points out. Not so today. The advent of greater social media (like Facebook and Twitter) and cell-phone interactive communication allows anyone to stay in touch with friends and colleagues without the need to own and maintain a vehicle.

Younger millennials and younger professionals living in an urban setting have greater access to public transportation and even less need to own and operate a vehicle. Additionally, they face greater costs for vehicle parking, tolls, and incrementally higher insurance rates when living an urban environment. (Nationwide, Mohatarem estimated, 16-to-19-year-olds pay an average $2,923 a year for insurance, and those 20 to 24 pay $1,994.)

Moreover, the advent of one-way rental cars, ridesharing and bicycles, in addition to public transportation, give convenient and economical access to entertainment, work, shopping and socializing. They ease the need for full vehicle ownership.

When, and How?

The answer to the question when will millennials buy vehicles? depends on how quickly the economy recovers. Over the next couple years, the economy is expected to recover at a moderate rate. The longer the recovery, the longer it will take millenials to come to car ownership and the automotive aftermarket. The best way to look at it is that a growing proportion of millennials are on an economic hiatus. When the economy recovers enough for them to afford to purchase or lease, they will begin owning and operating vehicles.

When they do come out of their economic hiatus, a high probability exists that they will become DIFM vehicle maintainers or perhaps Economic DIYers, jumping between DIY and DIFM behavior. Their disassociation from owning and operating vehicles at a younger age has taught them that cars neednt be central to their lives.

The longer this disassociation goes on, the less likely it is that millennials will become passionate Enthusiast DIY vehicle maintainers. The vehicles they finally purchase or lease will represent practical transportation from here-to-there, and not so much personal identity and freedom. Now, some of those finally getting into automotive aftermarket may become Enthusiast DIYers, but in this authors opinion that some will most likely be a minority.

Aftermarket Opportunities

The previously mentioned University of Michigan study said that the populations buying/leasing cars right now are 1) Baby Boomers, who are 44 to 65 years of age, and 2) those who currently own or lease other vehicles and are expanding their vehicle inventory platform.

For the short term, targeting those who already own cars and are expanding the number of vehicles they own or lease seems to be the automotive aftermarkets lowest-hanging fruit. These consumers are already in the marketplace and they have enough disposable income to properly maintain their vehicles and invest in improving and modifying them.

While millennials are in their current economic hiatus, the data suggest that automotive aftermarket players should cultivate them, so when they come into the market they know all about and most likely will purchase that brands product or service. No matter if they become a DIFM, Enthusiast DIYer, or Economic DIYer/In-Betweener. Learning about millennials needs and wants through extensive marketing research, then communicating with them using social media and very targeted traditional media will generate greater brand awareness that leads to potential long-term cultivated usage.

Lastly, it appears that millennials cannot be relied on yet to help the automotive aftermarket deflect the headwinds that are tamping down volume demand. However, it is always true that improvements in the economy help to improve all things. (Proverbially, A rising tide lifts all boats.)

If the economy further improves as predicted, more millennials can slowly begin to purchase, own, operate and most importantly maintain vehicles to provide some longer-term headwind deferment. Who knows? A growing economy may also prompt the post-millennial generation to resume prior early consumption patterns – but thats not guaranteed.

Heres one final question for aftermarket motor oil suppliers to ponder: Will you be ready when millennials come off their economic hiatus?

Larry Solomon is president of Strategic Resources Inc., a marketing research and consulting firm that specializes in the automotive aftermarket. His experience includes over 23 years in automotive research with Valvoline. E-mail him at or phone (859) 817-0301.

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