How will Electric Vehicles Impact the Quick Lube Industry
It seems everywhere you turn these days, someone is asking the question — how will electric vehicles (EV) impact my industry? What can I do today to minimize the disruption to my business? While we hear these questions from many new acquirers in the industry and clients we service, including quick lube and other service providers, the answer depends on where you live and your time horizon. EV’s still only account for roughly 2 percent of auto sales in the US, with only a few exceptions: California, Washington, Hawaii, District of Columbia, Oregon and Colorado. By 2050, EV sales are expected to have reached 19 percent, but for the most part, the transportation industry will still look much like it does today, with conventional gasoline vehicles dominating the market at 71 percent of new sales, according to the Energy Information Administration.
In the United States, sales of EV’s have been slow to gain market share for a variety of reasons including:
- Low gas prices
- Limited charging stations
- Battery resources
Gasoline prices have remained relatively low, while the fuel economy of conventional vehicles has improved in the last few years. In fact, according to a recent article published in the Washington Post, “the biggest trend in the automobile market is that American car buyers are abandoning sedans in favor of crossovers and SUVs. Less than five years ago, half of all new U. S. vehicles sold were passenger cars. Today, it’s less than a third, and heading lower, according to the Wall Street Journal.” Americans still want a vehicle that fills multiple purposes — one that fits the family and, yet, will accommodate a trip to the home improvement store. While several manufacturers are spending big on EV investments and promising new EV products, Ford has committed $7 billion for their vehicles in demand — SUVs and trucks. (For over 40 years, Ford’s F Series pickup has been the bestselling truck in the US.)
Another factor contributing to the slower adoption of EVs is the limited number of charging stations and the battery range. There are approximately 22,000 charging stations in the US and Canada, as of September 2018, compared to about 168,000 gas stations (roughly seven times more). Adding new charging stations is not as easy as one would think. New stations involve a lot of red tape, including local utility companies and soliciting land owners to donate a portion of their holdings. Compounding this obstacle, is the fact that the average range for an EV is 190 miles, compared to the range of a gas-powered car of 450 miles, making the process of planning your trip to Grandma’s a real adventure or nightmare, depending on where she lives.
Additionally, the lack of available raw materials (lithium, cobalt and graphite) to produce EV batteries has also contributed to the slow adoption. China and Chile hold three-quarters of the world’s lithium reserves, and considering our current political relations with China, this could prove challenging for the US and its companies. Cobalt, another key ingredient, has been primarily supplied from the Democratic Republic of Congo, which is politically unstable and suspected of using child labor. Moreover, there are considerable concerns about the toxicity of these materials, which is said to be three times greater, threatening the lives of the workers and polluting the mines.
Finally, for EVs to become readily adopted, the cost is going to have to come down. For example, an EV powertrain costs $16,000, compared to a conventional car powertrain at $6,000. It is hard to compare true costs of ownership because of the inconsistent variables, like utility costs and charging mechanisms, but until other factors are closer to equal, there will continue to be resistance in purchasing an EV.
So, bearing in mind, that 30-plus years into the future, conventional vehicles will still be dominating the transportation market, what changes can you make to your business today that will materially impact your top-line revenue, improve your profitability and cement your place in the customer’s eyes and more importantly, their wallets?
Hopefully, you are already offering your customers a quick safety check and recommending routine maintenance items, while also identifying immediate repair items during their oil change. Competition in the quick lube industry is greater than it ever has been, and I’m sure you’re experiencing it from all angles including discount retailers like Walmart and Costco, dealerships and large franchise groups like Jiffy Lube and Valvoline. Each of these groups has a unique offering for their customers: the discount retailers — cheap oil changes; the dealers — nice waiting area and broader services; and the large franchise groups — many locations and quick service.
Franchise competitors like Jiffy Lube and Valvoline are recommending offering 12-15 additional services beyond the traditional oil change. Their offerings include: air conditioning services, air filtration services, alignment services, battery maintenance and replacement, brake services, cooling system services, drive train services, engine services, fuel system cleaning services, inspections and emissions, suspension, tire and transmission services and windshield wiper replacement. While electric vehicles may not need oil changes, they do still require several of the same maintenance services: brakes, tire rotation, fluid checks and wiper blades. You might also consider adding a charging station as a way of inviting these customers to your business. If you have small stores with small footprints that cannot be expanded, consider selling them off to individuals and building new.
Another way to increase your revenue is to seek out relationships with businesses that own fleets of vehicles. Repeated daily use by employees almost guarantees extensive wear and high mileage on vehicles that will be maintained at the expense of the business owner. According to IBISWorld, in 2018, Business and Farm owned vehicles represented 14.5 percent of all industry revenue of $5.8 billion. Be sure to investigate who the top local businesses are and uncover how you might penetrate this untapped revenue.
Finally, consider growing your business by adding locations. The fundamentals of this business are still favorable for investment and provide a positive long-term outlook, as evidenced by recent acquisitions of Private Equity Groups like Wynnchurch Capital (523 stores in 23 states) and Roark Capital Group (882 “total care” centers). Growth through acquisition provides a much quicker return on your investment than trying to grow organically by providing immediate cash flow, knowledgeable staff, customer base and the ability to leverage your purchasing power across multiple locations.