Klines study of OEM genuine oils classifies products in three categories: OEM genuine oil, co-branded oil and merchant-branded oil.

OEM genuine oil is manufactured for an automaker based on its specifications. The products blenders may change, and multiple blenders may supply the fluid, Tsui explained, but the fluid is packaged with only the OEM genuine oil brand on the front label. Sometimes the product may identify the blender on the bottles back label.

Co-branded engine oil is manufacture for an OEM based on a partnership between a lubricant blender and the OEM. The products front label will identify the blender brand and OEM brand, and often the vehicle oil cap and owners manual will recommend the blenders brand.

Merchant branded oil refers to traditional mass market engine oil designed to meet multiple OEM and industry specifications, and sold through multiple channels. He noted that only the blenders brand will be displayed on the front label.

Merchant and co-branded oil still dominates PCMO demand in all regions, Kline found. Those types together accounted for approximately 70 percent of such demand in each region. OEM genuine oil is most prevalent in Asia-Pacific, followed by North America, Europe and South America, then Africa and the Middle East.

For automakers, genuine oil is a means to foster customer loyalty, reduce warranty claims by ensuring drivers use the correct type of engine oil and increase profit margins. Any warranty claims come out of their bottom line, he said. A more basic reason is the profitability of the aftermarket sector.

OEM Genuine Oil Volumes

Kline estimated Toyota accounted for more than 20 percent of around 1 million tons of global genuine oil consumption volume in 2017. It was followed by Renault-Nissan-Mitsubishi, General Motors, Honda, Fiat Chrysler and BMW, followed by smaller players.

Toyota is at the top mainly because it sells a lot of vehicles globally, Tsui said. The drain intervals they tend to use are pretty short by modern standards. So they typically are around 5,000 miles or 8,000 kilometers.

Some OEMs mandate the use of genuine oil at their dealerships. He said examples include Daimler, BMW, Mahindra & Mahindra and Honda in select countries. He noted most OEMs prefer to reward dealerships for using genuine oil – if they hit tiers for sales both in vehicles and parts, including genuine oil, they get rebates or discounts towards future vehicles and parts.

He noted that regional cultures and regulations impact genuine oil consumption. In markets such as the United States – where the Magnuson-Moss Warranty Act prohibits OEMs from requiring owners to use genuine oils to maintain their vehicle warranties unless the item is provided free of charge – dealership loyalty rates will be lower. In countries such as India and Indonesia, OEMs require owners to return to dealer workshops for maintenance and service on new vehicles.

Major lubricant suppliers tend to see engine oil supply to OEMs in two categories, factory fill for new vehicles and service fill for newer vehicles. Factory fill is notoriously low margin, but it also a very large volume, he said. For suppliers, its a good way to keep plant capacity occupied.

Tsui noted that service fill is generally tied to factory fill. Whoever gets the factory fill business tends to get the service fill, he said, adding that margins are higher for service fill.

Distributors

Distributors view working with genuine oils as a good way to occupy their warehouses and keep them busy, Tsui said.

It is a significant volume, he noted. They tend not to try to rely overly on any one particular OEM. They prefer to diversify in case contracts change with the OEM, so that they dont suddenly lose a big piece of business. Generally speaking, in interviews Kline has found distributors model and role shifting more towards logistics. So instead of handling the billing, sales, everything else involved, they tend to be paid for delivery service. But even when paid for delivery service, they still have the opportunity to sell non-competing products into the dealership.

Most genuine oils have an OEM specification of their own, and some follow American Petroleum Institute specifications as well. Another thing were seeing is Japanese and Asian OEMs going in one direction – thinner and lighter, he said. Within Japan they already have the equivalent of 0W-8, 0W-12, and globally youre starting to see some 0W-16 penetrate with new car models. It is occasionally available in their dealerships.

In America and Europe, OEMs are shifting back up to 5W-30 because of more use of turbocharged gasoline direct injection engines that run hotter and have more power output.

Other OEMs are expected to mainly follow API specifications, with viscosities lagging slightly behind American and European OEMs.

External Factors

External market drivers and trends that could impact OEM genuine oils consumption include vehicle subscriptions, the penetration of ride=sharing services and rising vehicle prices.

From our interviews, we believe genuine oil is going to grow at a much faster pace than the overall PCMO market, which is going to be kind of flat, he said. This could change, as disruptors come in. Should subscription and other things really take off, youre likely to see this increase a lot more.

Klines study is titled OEM Genuine Oil Brands and Programs in the Consumer Automotive Segment: Market Analysis and Opportunities.