California cracks down on obsolute oils-Quick lube facilities

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.