There is a frequent complaint in the lubricants industry that the prices marketers receive do not reflect the true value of their products, such as automotive engine oils. Such sentiments are probably common to many industries, but for engine oils the argument gets quite detailed. Engine oils, the complaint goes, have in recent years had to undergo large improvements aimed at helping important causes such as reducing air pollution, halting global warming and conserving petroleum resources – not to mention protecting engines. Some contend, however, that the customer side of the market has not recognized the value of these advances and has failed to compensate for them. Some in the industry say oil suppliers could take steps to improve their lot, from marketing strategies by individual companies to public information campaigns by industry groups. Whatever the approach, they said, the goal is the same: If marketers want to receive what their products are worth, they need to communicate that value to the market.
Rising Performance
Demands on engine oil performance have advanced continually for several decades, but most agree that the pace has accelerated in recent years. Automakers have asked lubricant suppliers to better protect engine components even as the task becomes more difficult due to increases in engine power coupled with decreases in engine volume. Original equipment manufacturers have also pushed for oils to last longer so that drain intervals can be stretched.
At the same time, extra demands have been heaped on engine oils, such as automaker requirements to help meet emissions and fuel economy mandates.
Lubrizol’s David Lancaster discussed these demands in October at the Annual Congress of the Independent union of the European Lubricants Industry (UEIL) in
Primary credit for these changes goes to automakers, which introduced several engine design changes, such as direct injection of fuel, as well as new hardware, such as three-way catalysts, exhaust gas recirculation and particulate filters. However, engine oils had to undergo changes to accommodate those improvements. Catalyst systems required oil formulators to replace some key chemical additives, while direct injection created a need for greater deposit control and soot-handling capabilities. One general solution was to switch to additives that are low in sulfated ash, phosphorus and sulfur – referred to collectively as SAPS.
“The introduction of more sophisticated hardware to realize the improved emissions control [has provided] significant challenges for engine lubricants,” said Lancaster, Lubrizol’s regional marketing manager for Europe, the Middle East and
“An ACEA C3, VW504:507 test program can typically cost U.S. $1.5 million [€1.1 million],” he said. “However, this is by no means the complete picture. Before an additive even reaches a test engine, there are significant costs associated. In the case of top tier engine lubricant additives these can typically be in excess of $5 million. A further consideration is the time it takes to progress an additive from conception to reality. The total time span can typically be five to six years.”
Extracting Value
Lubricant marketers often have difficulty gaining compensation that reflects such investment or the performance that engine oils provide, according to Veronika Vassileva, technology chief at Hemiksem, Belgium-based lube blender Wolf Oil.
“On the raw material side, [suppliers] have been successful in extracting value,” she said in a companion presentation to
William Downey, of U.S.-based Kline and Company consultants, said it’s no wonder that pricing receives so much attention from companies.
“My view is that lubricant marketers spend a lot of time thinking about and being concerned about prices,” he said in an interview with Lubes’n’Greases. “And in our view, they should. For one thing, you have multiple distribution channels, including distributors, exporters, repair workshops, vehicle dealerships, the automakers themselves. But the other thing is that price management is incredibly linked to profitability – probably as much as any other aspect of your business.
“So it’s understandable that it is such a big concern.”
The results showed that mainline 15W-40 engine oils had the lowest average price at €6.7 per liter. Near the other end of the spectrum were low-SAPS 5W multigrade oils, which brought an average of €18.39 per liter. Oils that meet Volkswagen’s challenging VW 504:507 specification were even more expensive – an average of €19.87 per liter.
“Higher quality lubricants command higher value in the market,”
Communication is Key
Still there also seems to be consensus that oil marketers can do more to recoup the full worth of their products.
“There is a lot of additional value that lubricant companies can realize by thinking harder about how they price their products,”
“If you have a synthetic oil that costs three times as much as a conventional product, that is probably going to be a hard sale if your pitch is simply that you have a better product,” he said. “But if you show them that your product will increase their drain interval by 50 percent, you can explain that this will reduce labor costs and improve profitability by reducing down-time for that vehicle. And if your oil improves fuel economy, it will reduce the single largest expense that fleets have. What is the value of that?”
At the UEIL conference, Wolf Oil’s Vassileva said the market will reward performance if customers understand it. During a questionand-answer period, speakers and audience members agreed that labels listing the specifications that engine oils meet – be they industry standards such as ACEA oil sequences, or OEM specs – provide a measure of performance. But they also complained that these references generally are not understood by the motoring public or often even by lubricant distributors or auto service providers.
Vassileva said lubricant companies need to educate their customers and partners – such as distributors – about the meaning of specifications.
“It is our task to transfer that knowledge further down the supply chain,” she said.
Lubrizol’s Neil Fahey, who gave another companion presentation on driveline lubricants, agreed that lubricant marketers, perhaps with cooperation from additive companies, need to work harder to communicate the various benefits that engine oils provide – from protection of engine components to improved fuel economy, longer drain intervals and reduction in emission of air pollutants.
“I think it is something that we as an industry need to do better – to quantify and qualify the performance that these products provide,” Fahey, a project manager, said during the question and answer period.
There was also agreement that the issue of value will not go away.
“Delivering fuel economy whilst maintaining engine durability will prove to be a major challenge in the coming years,” Lancaster said. “The demand on tomorrow’s engine oils will be greater than ever.”
The good news is that regulations are not the only motivating factor for better fuel economy. Motorists should also welcome improvements in that area, and if marketers can communicate the benefits of a fuelefficient oil, perhaps end-users will reward them for it.
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