David Tsui, project manager at United States-based consultancy Kline & Co., said OEMs are seeking to drive consumers back to their franchise workshops, and genuine oils are only available through designated channels. This helps to build customer loyalty and allow sales and service staff to try and build a relationship with their customer, he added. Tsui said Kline expects OEMs in India will continue the genuine oil trend and expand their product offerings.

Gokhale echoed the sentiment, saying that OEMs are exploring launching their own lubricant brands in the worlds third-largest finished lubricants market due to growth potential – and because lubricants offer attractive margins.

Indias annual demand for finished lubricants is growing at a compound annual rate of around 2.5 percent and could reach 2.7 million metric tons by 2021, from an estimated 2.4 million tons in 2016, according to Kline.

Every company is looking to expand their product line to improve their top-line and bottom-line, and if lubricants offer that opportunity, they will go for that, Gokhale told Lube Report in an interview.

OEMs are investing huge capital to meet the countrys Bharat Stage VI automobile emissions standard from April 2020, Sanjay Kumar, chief general manager of business development at government-owned Hindustan Petroleum Corp., told attendees at the Asia, Middle East and Africa Base Oil, Lubricant and Wax Conference in early August. They are also aware that lubricant consumption will come down after electric vehicle penetration increases, so they are looking to diversify their revenue sources. They are looking at each and every opportunity to make money, he said.

Several OEMs are already active in the genuine oil segment. Indias largest car manufacturer, Maruti Suzuki, launched the Ecstar brand of lubricants in the country last year, while Tata Motors has also bet big on genuine oil by launching products for its entire range of commercial vehicles earlier this year. Maruti did not reply to an email seeking comment, while Tata Motors declined to participate for this story.

Tsui said it is still a bit early, as Tata Motors only recently introduced its own genuine oils, but Kline anticipates consumers will accept them. He noted that genuine oil helps OEMs protect their engines as well as brand reputation by preventing vehicle failure due to issues arising out of counterfeit and lower quality lubricants.

Citing from Klines recently completed OEM Genuine Oil Brands and Programs in the Consumer Automotive Segment: Market Analysis and Opportunities market study, Tsui noted OEMs frequently work with a lubricant supplier to select and blend a lubricant suitable to their needs and specifications. The supplier typically blends and packages the product, and the suppliers distributor network handles distribution, he said.

It is much more convenient for the OEM to let the lubricant supplier, which is equipped to handle all package types for lubricants, handle the supply, Tsui stated. Gokhale said OEMs would not be interested in investing to set up their own manufacturing assets at this stage.

Tsui said OEM genuine oil risks commoditizing the lubricants as far as OEM sales are concerned.

Suppliers would have to bid to produce OEM genuine oil. This takes away volume from merchant-branded products and could hurt [their] margins, he added.

Gokhale agreed, saying that there will be some impact, but traditional lube suppliers such as Castrol India and Gulf Oil Lubricants India will always have an edge over lubricants from OEMs due to their marketing strength and excellent brand loyalty. They dont have to worry so much on the retail front, he noted.

Such brands will always be perceived as suitable for multi-brand vehicles, whereas OEM lubricant brand could be perceived as more suitable for that OEM, Gokhale said.

Talking about existing tie-ups of OEMs and lube suppliers, Tsui said such partnerships are still valuable to many OEMs that lack lubricants expertise, and they will likely continue their association into the future.