| INDUSTRY UPDATES
An overview of the latest news
in the lubricants industry
California Cracks Down
on Obsolete Motor Oils
Long obsolete API category SA, SB and SC engine oils are
appearing in discount, convenience and dollar stores across
the nation, and according to the National Petrochemical
& Refiners Association's Annual Report on U.S. Lubricating
Oil Sales, 275 million gallons of obsolete motor oil were
sold in 2001, up from 260 million gallons in 2000. Although
use of obsolete oils can have devastating effects if used
in modern automobiles, most do not display any kind of
consumer warning.
The state of California is intensifying the enforcement
of a law requiring obsolete motor oils to be clearly labeled
as obsolete and potentially harmful to modern engines.
Last spring, the state Department of Food and Agriculture's
Division of Measurement Standards sent letters to motor
oil marketers informing them of their plans to begin strictly
enforcing the law, and they spent the summer quarantining
obsolete motor oils found in retail stores without proper
warning labels.
The California Business and Professions Code requires
that obsolete motor oil containers of one gallon and smaller
display warning labels based on SAE J183, the SAE standard
for motor oil performance. The SAE J183 text for API SA
oils warns that the oil lacks additives, is not suitable
for gasoline engines built after 1930 and can cause unsatisfactory
performance and equipment damage in modern engines. The
text for API categories SB through SG is similar, but
identifies different obsolete dates and does not mention
lack of additives.
Amalie Oil Co. is among the oil manufacturers that had
product quarantined in California. "We would rather
not sell non-detergent oil," said Amalie Senior Vice
President of Sales and Marketing Dennis J. Madden. "There's
no question that it's not good for today's engines. I
tell people, 'It's not going to give your car a heart
attack. It's more like cancer.' But a lot of people are
only concerned with price and they'll buy that stuff because
it's 30 cents cheaper. And as long as people are going
to buy non-detergent oils, and other companies are going
to sell them, we feel like we have to compete."
Auto Dealers Enter Quick
Lube Market
An increasing number of automobile manufacturers have
developed programs to help their dealers become quick
lube operators, allowing them to compete for their customers'
oil change dollars and attract additional business. With
Chrysler recently introducing a program to help its U.S.
dealers develop oil change centers, each of the Big Three
carmakers is now officially in the quick lube business.
Building a quick lube facility is a major expense for
car dealers. According to Broegh Building Systems LLC,
a Salisbury, N.C. company that builds quick lube centers,
the cost of modular buildings, furniture, equipment, computer
software, tools and training can cost somewhere between
$200,000 and $400,000. Of course, those willing to make
the investment foresee increased business in areas other
than oil changes.
"For dealers, it's more than just oil changes,"
says Broegh Manager Jim Rydel. "They see the quick
lube business as a way to draw customers and to generate
traffic for the rest of their service business, as well
as sales. The ones that have them are seeing increases
in parts sales, their service business, even referrals
for new car sales. That's what's driving the interest."
Bright Future Predicted
for Synthetics
According to the latest study from the Freedonia Group,
demand for synthetic lubricants and functional fluids
will rise 7.2 percent annually for the next four years.
Demand for synthetic engine oils, hydraulic and transmission
fluids, metalworking fluids and dielectric fluids grew
from $829 million to $1.2 billion from 1996 to 2001. Freedonia
expects the growth to continue, with the market reaching
$1.67 billion by 2006. The healthiest growth is expected
for synthetic hydraulic fluids, transmission fluids and
engine oils, with growing use of Group III and PAO base
stocks.
Freedonia pinpoints specific supply and demand factors
that will contribute to the growth. Increased performance
standards for automotive and industrial lubricants, including
the upcoming introduction of GF-4 motor oils, will spur
demand for high performance lubricants. Ever-increasing
environmental regulations are also expected to boost demand
for synthetics.
Specifically, demand for synthetic hydraulic and transmission
fluids will grow 9.3 percent annually through 2006, while
demand for synthetic engine oils will increase 8.1 percent
annually, with the strongest growth seen in the heavy-duty
market. Synthetic metalworking fluids will see annual
growth of 5 percent, while synthetic dielectric fluids
will grow 5.7 percent.
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