Cover Story: Liquid Gold

There’s no doubt about it: Canadians are different compared to our friends to the south. And that difference shows up readily in what and how we drive. In the Great White North we keep our vehicles longer and rack up truly impressive mileages. Reasons vary, from lower disposable incomes and higher taxes to a lack of “car culture”, but whatever the cause, the result is that there are more older vehicles on Canadian roads. And every one needs a periodic oil change. Valvoline’s MaxLife product has now been joined by high mileage oils from Castrol and Pennzoil Quaker-State, and as more players enter the market, consumer awareness is growing. Can you get a piece of the action?

“It’s a huge market”, declares Valvoline product manager Dennis Favaro, adding, “of the 17 million cars on the road, 10 million of them have over 120 thousand kilometers on them. That means that over 60 percent of the vehicles on the road would benefit from (high mileage) products.”

High mileage motor oils generally work through additive packages with three primary functions. The first is to condition seals with a swelling action to reduce seepage past hardened gaskets and worn oil seals. The second is low volatility to reduce burn off in hot running older engines, while the third is enhanced viscosity for improved compression. Although high-mileage products are targeted toward one subset of the Canadian vehicle population, what makes the new category interesting from an installer point of view is the unusually wide range of potential customers. “It really cuts across the demographic”, says Keith Conlon, group product manager, High Mileage for Castrol North America. “We focussed on key DIY, but it has a broader appeal to buyers of three to five-year old cars. It crosses a number of different age groups. For DIFM’ers (Do it For Me), it’s an easy upsell for the installer, because there is a story to it. It’s an easy concept for a consumer to grab on to.”

The “story” Keith Conlon is talking about is the key to the high-mileage upsell. “This is an easy one”, agrees Scott Cline, product manager, Pennzoil-Quaker State Canada. “It’s harder to explain the benefits of synthetics and synthetic blends, but this product says “high mileage”. Once you get in the customer’s car and write the odometer reading down, it’s easy to suggest that ‘I’ve noticed that your odometer is reading over 120,000 kilometers. Can we use high mileage oil in your car today?’ The three bullet points about leakage, consumption and increased performance are very simple to explain to consumers.”

Another aspect of Canadian driving that high-mileage oils address is the increasing disconnect between vehicle age and distance traveled. Dennis Favaro relates: “There was always an assumption that the car with higher mileage is an old car. In today’s world, that’s not true. Most of the cars in the over 120,000 kilometers range are from three to seven-years old. Everybody drives a lot more.” That increase in road distance traveled has upside consequences for installers. More affluent suburban drivers often own newer vehicles with high odometers and are less resistant to the price of a premium oil change, a phenomenon confirmed by manufacturers’ focus groups. “We asked them, what would you pay for it?” asked Favaro. “They answered, yes, they would pay more than conventional oils.”

How does this willingness to pay more for specialty oils translate into installer profit? Valvoline uses sample numbers that suggest that this should be a lucrative subsegment of any garage’s maintenance business. Based on a $37.99 oil change, compared to a conventional change pricing of $25.99, the upsell generates $12 in gross revenue, which can deliver a per change profit of approximately $7.40. Assuming 35 cars a day in a shop’s lube bay, and converting only 10 percent of the oil change traffic, annual revenue increases by $8000. That eight grand comes without the need for additional training, equipment, support and little in terms of additional marketing support beyond that which smart shops do already to promote current oil change services.

With tightening emission standards requiring significant changes in additive packages for new cars coming as soon as 2004, there are unconfirmed rumors that oils for those engines will not be backward compatible with older vehicles. Add that issue to the 5W-20 grade recently specified by Honda and Ford and inventory may eventually become an issue. With yet another engine lube category, will jobbers and installers face pressure to stock additional product? Keith Conlon thinks that something will have to give:

“I think that there is saturation point; some of the “nice to have” (product) will drop off the shelf. There’s a limited market for heavy-duty, 50-weight and even 10W-40, which is a declining grade at this point as 10W-30 and 5W-30 is picking up. Manufacturers have a lot to do with it. The ‘old school’ guys are hanging on to 10W-40, but as they move through the market you’ll probably see it beginning to decline. Even now, with the 5W-20’s, the OEM’s are driving where the market is going. From an oil company standpoint, the more you go to the lower viscosity oils, the more difficult it is to protect engine parts.”

In the meantime, if the U.S. experience works its way North, look for fuel additives and coolant products optimized for higher mileage engines. Dennis Favaro says it simply: “Any engine today can achieve 300,000 kilometers if it’s treated properly, But a lot of people don’t. The benefit to the consumer is that they know that other than consumables like brake pads, the engine is probably the first thing that will break down, and that they’re expensive to fix. And when the consumer sees fewer leaks on their driveway, it’s selling the technician as the expert.”

Motor oils optimized for high mileage vehicles may not only create an entirely new market segment, but also keep consumers in their vehicles a little longer. And that’s definitely good for business.