No doubt there are certain challenges new car dealers face when trying to increase profits on services in fixed operations.
One area that is often overlooked, not because of sales volume or profitability, but because of lack of knowledge is the lube, oil and filter (LOF) service, and more specifically, the use of synthetic oil in connection with it.
Understanding what is happening in the market, why and what you can do about it, will help your dealership's business.
The total volume in passenger vehicle motor oil consumption declined by 10% from 2.04 billion liters in 1995 to 1.84 billion liters in 2000, according to NPD. By 2005, consumption is expected to drop to 1.74 billion liters, representing 100 million liters of business that is simply going away.
One aspect of the motor oil business that confuses consumers is the recommendation they receive for distances between oil change intervals. Recommendations are generally provided for “normal” driving conditions, but most consumers drive in “severe” driving conditions (stop-and-go traffic and frequent short trips).
Research indicates most consumers classify themselves as “normal” drivers. They do not understand these terms or what they mean for their automotive maintenance requirements. Most drivers do not know that their driving style should be classified as “severe” and that they need to change their oil more often than recommended for “normal” driving conditions.
In 1996, U.S. auto makers' recommendation for passenger vehicle oil changes averaged 5,500 miles. Today, that averages around 7,500 miles. By 2010, it is expected that OEM drain intervals will average 10,000 miles.
There is a way dealerships can continue to increase profits: change the mix of oils offered to customers. In 2002, the current volume mix of oil sold in North America was 90% conventional oil, 3% full synthetic, 4% part synthetic, and 3% high mileage.
Increasing the use of synthetics can increase profits while building customer loyalty. Several dealerships have done that. Since their profit on the synthetic oil changes was higher than with conventional oil, even if they did the same volume of business, they increased their revenues.
For customers to understand the higher cost of a synthetic LOF service, dealerships need to explain the advantages.
The functions of both conventional and synthetic oil are essentially the same — they both lubricate an engine's key moving parts. But that's where the similarities end.
Synthetic motor oil was first introduced in the early 1970s for passenger cars. Today, it's the factory fill oil in a number of European vehicles and several high-performance North American models.
The list of engine manufacturers recommending synthetics is expected to grow as engine designs place tougher performance requirements on motor oil.
Among the advantages, synthetic grades:
- Offer the highest level of high temperature protection.
- Begin to lubricate at lower temperatures.
- Contain compounds of a specific size and shape, which reduces volatility and makes them ideal for motor oil use.
- Provide more deposit control and protection of engine parts.
- Are “slicker,” increasing lubrication. That means less wear, cooler engine temperatures and better performance.
- Help extend engine life under the most “severe” driving conditions.
It's important to note that using synthetic oil does not mean fewer oil changes. Dealership service personnel should tell customers they need to follow the overall schedule for vehicle maintenance. Explain this is how vehicles retain value. It's a concept consumers grasp.
Synthetic oil gives better protection for customers' vehicles, while delivering profitability the dealership. It's a win-win for everyone.
Robert Landerer is trade marketing manager for new-car dealers for Castrol Consumer North America.