Vertical Outlook 2012: Challenging the Status Quo
How Leading Operators Believe the Industry Will Fare This Year

by Tammy Neal
NOLN Staff Writer

As the calendar flips to a new year, we've made it a tradition to poll the country's operators for their outlook on the lube industry. Over the years their concerns, predictions and keys to success have evolved with the business. This year is no different.

Last year presented opportunities and challenges alike for the nation's lube operators, and while they may use these events to try to predict the outcome of 2012, forecasting the future is never an easy thing to do.

Keep reading to delve into the brains of your fellow operators as they offer hypotheses about the state of the industry, the future of the industry and the tidbits needed to be successful for another year.

Significant Issues
Prices — In the last few years this issue has remained on the list. Here's why:

"Cost of goods continue to rise, but what is new about that?" said Brad Phillips, general manager of Express Care in Lubbock, Texas. "We will continue to deal with them the way we always have — raise our prices. I haven't seen any other products or services going down at the store, so why are we going to be afraid to raise prices when necessary? To stay profitable, we must maintain our margins and not be apologizing for it."

Another operator chimed in on the subject. "The most significant issue facing the lube industry is the incredible increases in oil prices we have had to 'absorb' in 2011," said Debbie Bearden, managing member of American Lube Centers in Bryan, Texas. "It can not continue. The last increase in September was uncalled for."

Virgle Ward, general manager of lube services at Benny's Car Wash and Express Lube in Baton Rouge, Louisiana agrees. "The rising cost of motor oil is rapidly eroding our gross margins with most suppliers having had three to four price increases this year," he said. "Also, costs associated with trying to maintain and train a stable work force have been rising."

Unification — One operator believes a main challenge facing the lube industry is a lack of industry unification.

"The fast lube industry does not function as one solid industry and must come together to be able to provide a strong, unified voice when legislative and regulatory issues affect us or in combating the continuous assaults from the OEMs and dealers," said Pat Wirth, operator of Potomac Falls Express Lube & Car Wash in Potomac Falls, Virginia. "At one time there may have been proprietary information that different fast lube groups wanted to protect, but the evolution of our industry now demands that we work together."

OEM and Dealership Threats — Numerous operators echoed two of Wirth's aforementioned points as major issues facing the lube industry.

"I believe some of the significant issues facing the lube industry are dexos and an increasing number of proprietary oils, and the constant pressure from dealerships to lure customers back to have their vehicles serviced," said Harold Smith, operator of the Express Lube chain in San Antonio, Texas.

Actions by OEMs in 2011 — such as creating proprietary lubricants and issuing misleading warranty statements — still weigh heavily on operators' minds, including that of Nick Vuko, general manager of Quick Nick's Snappy Lube in Lincoln, Nebraska.

"I think the most significant issue facing us right now is if the OEMs send out damaging articles pushing people back to the dealer and violate the Magnuson-Moss Warranty Act," Vuko said.

Darren Elliott, lube operations director for Fabulous Freddy's Carwash in Las Vegas, Nevada echoes Vuko's statement.

"Significant issues are challenges to the Magnuson-Moss Act by manufacturers and dealerships trying to regain lost ground in the service area," Elliott said.

In response to the subject, Ben Thompson, CEO of Grease Lightning Automotive Centers said, "Car manufacturers are making it difficult by requiring highly specialized fluids that are specific to their own brands in an attempt to drive cars back to the dealerships for service and forcing fast lube operators to add inventory to be competitive."

Extended Drain Intervals — Some operators believe extended drain intervals are on the list of industry concerns.

"The OEMs are pushing extended drain intervals, and it's not just bad for the lube industry," Phillips said. "Does anyone remember the gelling issue on the V6 Toyotas due to engine design and extended drain intervals? The consumer will ultimately pay for it in the end."

Phillips goes on to say, "Regardless of how far oil technology has come, there are other fluids and filters that need attention more often than once a year or 10,000 miles. You do not have to be in a lube shop for long to know that the typical consumers do none of this on their own. Bottom line, it's not getting done. We need to be educating each and every customer that comes into our shops. Regular and routine maintenance is what gets folks more than a million miles on their vehicles, not changing the oil once a year."

Ron Haugen, president of Westside Auto Pros in Des Moines, Iowa, said he believes the greatest issue facing the industry is "customer education on extended drain intervals and quality of oil."

State of the Industry
Operators' outlooks on the state of the industry are varied, but most see it filled with opportunities. However, for those operations that remain stagnant and do not move ahead with changing technology and changing times, they may be left behind and most likely acquired by a forward-thinking competitor.

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