Automotive

So, what are the choices and challenges for both oil marketers and consumers? To begin with, we have industry specifications, and they usually set the minimum requirements for lubricants. The American Petroleum Institute’s API specs are key in North America, but API has global influence even when marketers choose not to license their products. Other industry specifications, such as the European Automobile Manufacturer Association’s ACEA sequences and JASO specs developed by the Japanese Automobile Manufacturers Association, rely on ASTM tests that are primarily funded by API’s licensing system. Without these engine tests and rules that help limit approval costs, none of the industry specifications might be economically viable.  

Although API funds a lot of the cost, industry also relies on volunteer contributions by original equipment manufacturers to sponsor and develop tests along with chemical additive companies and test labs, but without API funding, the system could be in trouble. Other groups must rely on voluntary contributions or use established tests. Base oil interchange/viscosity grade read-across rules may not apply nor detailed precision statements for engine tests, like those available for ASTM governed tests.

Then come OEM specifications that are tailored to protect and safeguard the warranties of specific equipment. Of these there are many. Not all OEMs have their own specifications, and some just mirror an industry specification. Some — such as General Motors’ dexos1 or Cummins’ CES — are very challenging and have complex registration and licensing requirements for formal approvals. In Europe and many parts of the world ACEA is not enough, and it is critical for products to have OEM approvals such as Daimler, Volkswagen, BWM, Peugeot and others to be viable in the commercial market.

For the lubricant industry, this involves critical investment decisions as many of these specifications have huge price tags, and the approvals are limited in most cases to specific base stocks and product formulations.  Super global business majors such as Shell, ExxonMobil and BP, for example, invest in many of the OEM approvals, especially when they have business-to-business relations with the engine manufacturer for either factory fill or service fill. These investments tend to be exclusive, and the lubricant marketers making them are among the first to market when a new OEM specification is launched. The additive companies also invest in general market products that can be sold to all, including many leading marketers, which allows most suppliers to have products available, especially by the time service fill and post warranty volumes are needed. These products may still have limited choices for base stocks and additives.

Investment decisions have become more complex since I started in the industry. There are many more base stock options, more complex and expensive testing protocols, not to mention the research and development work that goes into understanding the tests and validating formulation approaches. Engine test costs including instrumentation, use of computers and fuels have escalated, and the expense and complexity of navigating environmental regulations to deploy formulations and develop new molecules has done nothing but increase.

Regulations often differ between countries and regions and can significantly affect costs of obtaining engine oil specification approvals. The European Union’s  Registration, Evaluation, Authorisation and Restriction of Chemicals law, REACH, is a prime case. For example, complying with REACH requirements for one viscosity grade in one base stock for GM’s dexos1 can easily cost U.S. $500,000 or more,  and that does not cover R&D or regulatory costs. Investments into key European approvals can easily cost over $1 million dollars, with some costing several millions. Toxicology costs for new molecules run in the millions. All these costs come on top of those for approvals to basic industry specs like API or ACEA! We also need to remember that organizations such as SAE, ASTM and American Chemistry Council develop standards and guidelines associated with these industry trade association specifications. Doing so can take a long time, sometimes, many years not counting all the time needed for upfront development. 

So how does one decide as a marketer or consumer which specs to meet or what oil to use? Let’s begin with the marketer. Leading brands will always want to be first to market and have products that can meet all the needs of their customers. They command significant purchasing power that ensures additive company willingness to invest in product formulas that comply with various performance specs and to otherwise support their needs in exchange for significant additive purchases. 

The resulting products support the brands of those marketers and help them maintain market leadership. Some can command exclusive products, while others may have early access to general market products, but allow additive companies to leverage those investments to others. Choices about which base stocks to use in formulations can also play a significant role in investment decisions. It should be noted that industry specifications tend to be “table stakes” that additive companies must do to maintain their business for conventional products that make up most of the volume. Business gets differentiated when it comes to premium products, including key and sometimes exclusive OEM approvals, specialty viscosity grades and performance-marketing objectives. For most volumes, most marketers including some of the leading brands use general market technology for “fighting grade” performance that meets many applications. Despite very complex and technically demanding performance, additive companies have ensured wide availability of choices to meet most needs, and most decisions are based on lowest cost to serve.

When it comes to the consumer, understanding about all these specifications is greatly diminished, and most totally rely on their service provider to ensure the right product is used, especially for gasoline engines and personal vehicles. Some trust in a brand, most also look for lowest price. Fleet managers and service providers, including dealers and quick lubes, have more knowledge, but from market research I have conducted over the years, their knowledge is still well below that of marketers and industry professionals. In my research, most will look up the desired grade, but not necessarily understand why one car uses a 5W-30 and another uses a 0W-20 or what any of the alphabet concerning specifications truly means. 

Is the car under warranty? It’s a factor that impacts some decisions!  Some consumers may know what brand the installer selects, but some don’t. Fleet managers for diesel engines tend to know more about OEM approvals and meeting their warranties, and larger fleets are more sophisticated. Price remains a major factor in the buying decision. My all-time favorite experience was visiting a small fleet in upstate New York and trying to understand why the fleet manager chose one oil over the other. His reply was simple. “I could feel the difference when squeezing the oil between my two fingers.” I did not debate him. He favored one brand over the other for whatever reason, but for practical purposes the products were identical in terms of viscosity and the additives contained in the oil.

One industry insider predicted the existence of numerous engine oil specifications and reliance on them will continue for the foreseeable future.

“Industry and OEM specifications will continue to drive the lubricant business as we advance the technology and help engine makers improve fuel economy, reduce emissions and above all protect engines to last for many years and miles,” said Rick Finn, former business manager and director of corporate strategy for additive supplier Infineum. In our discussion he noted that costs have significantly increased, especially for fully approved OEM engines oils, and he talked about the problem that poses given engine oil sales volume trends. 

“Although vehicle car parks have seen significant growth, especially in Asia, oil drain intervals continue to rise for both passenger cars and heavy-duty vehicles, greatly reducing volumes of lubricants sold, especially in North America and the European Union,” he said. “When you add in that [battery electric vehicles] are growing in sales and as a share of the car park, volumes of lubricant sold will continue to decline, and total global lubricant volume will likely peak in the next decade, greatly impacting the global lubricant business. This will force suppliers at all stages of the value chain to evaluate all phases of their business to maintain profitability and continue to fund ongoing efforts to meet all the evolving specifications.” 

From my perspective and history of the business, I remember some of these same concerns in years gone by when I was relatively new to the business.  I was once at a dinner with Mike McMillan, who then led GM’s lubricant programs and was head of the International Lubricant Specification Advisory Committee. I was questioning him about some of the industry’s needs, and he said, “If we build it, the lubricant industry will come.” Of course he was referencing the famous line from the movie “Field of Dreams,” but he was also expressing confidence in the value oil marketers and additive companies would place in performance specs.

In the end, marketers and their customers have choices to make. Do I pay more for a brand, or is a private label good enough, and does it matter. Do I need all the bells and whistles such as upsells via synthetics, high mileage or just for additional protection above the minimum specification? Will official OEM licenses in a specific base stock be worth a premium? In warranty, beyond warranty, for extended drain or other warranty tied to the marketer or OEM are all considerations for end users.

For my own vehicles, I want to make sure I use what my manual tells me to use, the correct viscosity grade and have some idea about who supplies the oil, but I do know more than most, and there are many great oils, both branded and private label I also know to change the oil at least once a year even if I do not go as many miles as some oils are allowed to go. There are many choices, and most consumers do not even know what to ask, so we rely on industry to supply the products that meet or exceed manufacturer and industry standards and protect our engines. We also rely that good choices are made, especially from service providers.   

Steve Haffner is president of SGH Consulting LLC. He has over 40 years of experience in the chemical industry, primarily with Exxon Chemicals Paramins and Infineum USA. Contact him at sghaffn2015@gmail.com or 908-672-8012.