Base Oils 2013: Getting ready for mega-changes ahead
How will changes in the automotive industry affect lubricants in 2025?
The convergence between communications, electronics, and automobiles is one of ten automotive trends that Roland Berger Strategy Consultants identified in its recent study entitled Automotive Landscape 2025 as the main driver for growth within the auto industry. These automotive trends are derived from Roland Berger's research into the effects of five global megatrends that we believe will have a universal impact on all industries through 2025: environmental concerns and regulations; urbanization and the growth of megacities; the movement to a more web-based and connected population; shifts in culture; and the changing behavior of consumers.
THE APPROACH TO THE STUDY
Roland Berger leveraged its recognized thought leadership in the automotive industry and its relationships with a range of automakers and suppliers to identify the trends that will shape the future of both the automotive and lubricants industries. We also used our understanding of those five global megatrends to shape the discussions. In compiling and analyzing the data, we interviewed more than 60 experts to discuss the key trends that they foresee and to explore the implications for both industries.
These experts came from passenger vehicle manufacturers (OEMs), key component and system suppliers to those manufacturers (OESs), government agencies around the world, universities, and think tanks with transportation expertise. We also integrated the points of view of the more than 300 consultants and partners of Roland Berger Strategy Consultants that work full time in our Automotive Competency Center. Our analysis led us to identify ten trends that we believe will shape the future of the automotive industry. Some of these trends, which are discussed in this article, deal with the changing dynamics of markets, products, employees, and customers, while others focus on changes in organizational structures, business models, and the value chain.
TOP TRENDS IN THE AUTOMOTIVE INDUSTRY
ALWAYS ONLINE, ALWAYS CONNECTED. Online vehicles will send and receive information constantly by 2025; the car will become the ultimate mobile device. Through increasingly standardized OEM-provided platforms, consumers will be able to integrate their electronic devices into their car, allowing them to access information or order additional services through voice, touch screen, or from steering wheel controls. Connectivity is a key factor in the near term, but intelligent traffic solutions, including accident avoidance technology, will remain a goal well beyond 2025.
SHIFT TO ASIA. We expect a dramatic shift to Asia in the growth of both vehicle sales and production capacity. Regional trade blocs will grow and production will continue to move to low-cost locations. In our view, 300,000 jobs in Europe will be at risk.
POWERTRAIN ELECTRIFICATION. Roland Berger ran several scenarios and expects an acceleration of global electrification and hybridization. In the most positive of all cases, we expect electric vehicles to account for approximately 10% of new-vehicle sales by 2025, with hybrids to reach a 40% share. That said, internal combustion engines will still account for 50% of all new-vehicle sales.
SMALL IS BEAUTIFUL. Most Europeans are used to them, but mini cars and small cars still turn heads in the U.S. Consumer benefits include better fuel economy and increased ease of getting around a city, including parking. The Euro Car segments A and B (Mini or City cars up to 3600 millimeters and small cars up 4100 millimeters long, respectively) will show disproportionately strong growth. Mini cars include the Ford Ka, Smart Fortwo, Volkswagen Up and Golf, and Opel Corsa.
DEMOTORIZATION. Roland Berger's research shows that cars have been losing and will continue to lose their appeal to younger generations in developed countries. In terms of an emotional connection, the automobile has ceded its 'pole position,' losing out to communication devices including smart phones, tablets, laptops, and portable music players. In addition, the motorization rate is decreasing in big cities, and not just in the mature industrial nations. By 2025, car ownership in major urban areas will become almost unnecessary, with mobility ecosystems providing cars on demand, changing one’s relationship from ‘my car’ to ‘a car.’
STEM GAP. Escalating the global war for talent, countries in Europe and North America with aging populations are lacking in graduate and advanced degree holders in the STEM subjects of science, technology, engineering, and mathematics. Automotive OEMs and OESs cannot significantly increase their R&D departments abroad because there are not enough of STEM graduates. For example, in the US, the total number of students who graduate from university is steadily rising, the percentage of graduates who study a STEM discipline actually fell from 8.5% in 1999 to 7.0% in 2008. In addition, the rising average age of the population and decline in the workforce is likely to put significant pressures on the number of qualified workers for R&D, technology and development, and manufacturing. With an increasingly IT-based world, demand for the labor force is also shifting toward technology, IT, electrical and chemical engineering, drawing even more from STEM disciplines.
SELECTED TRENDS THAT WILL IMPACT THE LUBRICANTS BUSINESS
Some of the trends that will significantly shape the automotive industry by 2025 will also naturally impact the lubricants business. These automotive trends will have an impact across a lubricant company's marketing plan, affecting where the lubricant is consumed, the types of products sold, the distribution channels that are important, and approaches to product promotions.
ALWAYS ONLINE, ALWAYS CONNECTED presents the most exciting range of opportunities for the lubricants industry, with nearly limitless promotional opportunities. These include real-time oil monitoring from the streaming of operating data that could provide users with diagnostic information on their vehicles, marketing opportunities that might present themselves for Do-It-For-Me outlets and communication with the driver regarding service scheduling.
SHIFT TO ASIA is one trend with which lubricant suppliers are familiar, having already seen the impact of increased sales of lubricants in Asia. As OEMs move production capacity eastward to be closer to growing markets, OESs will follow to be closer to where cars will be manufactured, purchased, and ultimately serviced, and so moves the lubricant required to make the vehicles. In addition, as vehicle sales grow in Asian markets, so too will the consumption of automotive lubricants required to operate the vehicles.
ELECTRIFICATION AND HYBRIDIZATION bring increasing opportunities for lubricant suppliers on both the technical and marketing fronts. As high-tech, fuel-saving technologies continue to evolve in traditional engines, so does the demand by auto makers for specially formulated lubricants. In addition, the growing share of quieter running electric and hybrid vehicles increases the interest in quiet-running lubricants, particularly greases. Hybrid vehicles utilizing continuous variable transmission (CVT) systems also require unique fluids. From a marketing perspective, there is an opportunity to position specific products at a premium price level to hybrid owners, who may more readily understand the total life-cycle cost of the product.
SMALL IS BEAUTIFUL reminds us of Castrol's old ads in North America, touting the fact that Castrol oil was "designed for smaller engines." Even as the lubricants industry tries to create industry-wide specifications, we see opportunities for more segmentation, looking to fashion new categories with specific customer value and to create new product, promotion, and even channel opportunities.
In conclusion, our research has identified five global megatrends through 2025. These winds of change that will blow across the world will have an impact on all industries, with the automotive and lubricants industries being no exception. We believe that these megatrends will then drive key changes in the automotive industry, which, in turn, will ultimately influence the lubricants industry.
In our opinion, four automotive trends in particular – ALWAYS ONLINE, ALWAYS CONNECTED; SHIFT TO ASIA; ELECTRIFICATION AND HYBRIDIZATION; and SMALL IS BEAUTIFUL – will have a particularly powerful impact on the lubricants industry. This will create opportunities for lubricant marketers who are able to anticipate a shift in location, who can create the right new products, who are positioned in the correct channels, and who are able to take advantage of new promotional tools.
About the Authors
Bill Downey is Partner in Roland Berger’s Oil & Chemical Competence Center. Dr. Yiqun Bai from Roland Berger's Boston office and Rebecca Peredo from the Chicago office both contributed to this article.