The recent on-off merger talks between Fiat Chrysler and Renault, are an indication that the global auto industry is ripe for further consolidation. In fact, Renault Group itself is already an alliance between the partially state-owned French automaker and Japan's Nissan and Mitsubishi. Although Fiat Chrysler was unsuccessful on this occasion, commentators are clear that this is not the final roll of the dice, with Renault's French rival PSA also in the frame for a potential merger with the US/Italian car giant.
All of this comes at a time when global car sales are falling and set to fall further, while manufacturers also struggle with the challenge of the building wave of electric vehicle demand driven by national and regional emissions legislation. This, in itself, is creating surprising alliances, such as that recently announced between Ford and VW.
So why should the fluids and lubricants sector be concerned?
A fluid market
As well as facing up to global challenges, there are also some obvious benefits to consolidation. The ability to share design, technology and manufacturing expertise; exploitation of economies of scale and production facilities; and even the sharing of vehicle platforms, powertrains and components. And that includes lubricants.
The average passenger car requires as much as nine separate lubricants and fluids to keep it running smoothly, ten if it is a diesel. Electric vehicles, while obviously not requiring engine lubes, still require three or more fluids at first fill. In turn, each fluid has one or more designated OEM specification code and blending requirement for any single model. For example, a typical engine specification can have between one and five approvals; gear oil one to three and if a ‘multi type’ Automatic Transmission Fluid is used, there can be as many as fifteen different specifications the product is purported to meet. Now, start to multiply the number of variants for each model and that approval list expands dramatically. Apply the same maths to a single auto manufacturer and…well, you get the point.
It is the role of OATS and other lubricants database analysts (Auto Parts and other suppliers would be similarly affected) to keep track of the specification lists being generated by the automakers. They also have to combine and overlay these with a list of globally, regionally and nationally available fluids and lubricants from the many hundreds of small independent, national and multinational producers.
So, when a consolidation the size of Fiat and Renault or PSA is in the air, lubes producers, along with all the other suppliers, start raising business-critical questions. Will the new auto group maintain its current supply chain? Will it seek expansion, with the inevitable impact on increased product demand? Will they re-negotiate price structures, based on economies of scale, with the inevitable impact on supplier profitability? Alternatively, will they bring other suppliers to the table or even stop existing contracts altogether?
Keeping it together
For analysts such as OATS and auto parts manufacturers and suppliers, the key challenge is keeping track of changes to lubricant specification and other parts inventory and coding data as a result of any merger of this scale. This is not just in relation to the OEM itself, but also eventual decisions made by their suppliers – in OATS’ particular case, the oil and additive producers.
In the short-term, and that may be a couple of years or so, the individual brands are unlikely to implement massive systemic or process change. However, in the medium-term, as production lines become shared, along with some powerplants, drivetrains and other fluid-filled components, questions of coding systems and specification will start to arise. For example, while Ford and Mazda retained separate specifications, Volvo Trucks’ takeover of both Mack and Trucks saw no initial short-term change but, after a few years, there was consolidation of some lubricant specifications.
At top-line level, will post-merger specifications start with a generic VAG, GM or PSA code, or are they brand-specific? Does a generic code created for all brands and models under a consolidated OEM reach a point where it becomes too unmanageable?
These are not just questions relating to first-fill. In the longer-term, the consumer question "What Oil?" takes on an increased level of complexity. If post-merger specification codes change, how will they relate to vehicles built pre-merger and how will this be communicated to dealerships service departments, independent workshops and quick-lube centres? While older models are likely to retain their original specified fluids, to what degree will new lubricants be backwards compatible?
As with the initial merger negotiations themselves, the devil of the specification challenge will be in the detail and this is often lost in the initial adrenaline rush of 'doing the deal'.
Certainly, trade bodies such as ILSAC, ACEA and UEIL are likely to be monitoring the broader impact of any large-scale merger on fluid producers and suppliers.
However, it will be the task of the lubricants producers themselves to invest the time, money and technology into creating high-performance products. These will need to meet the specific needs of an expanded OEM getting to grips with both consolidation of its existing model range and development of new vehicles, while also ensuring continued profitability for the producers and their distribution network.
It will be the role of OATS and other analysts to work closely with both OEM and lubes producers to maintain an accurate flow and update of specification data, not only between the two but also with consumers of both vehicles and fluids.
All we can ask is for timely communication and clarity of thought by the newly-expanded OEM to enable the industry to achieve this.