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INTERVIEW: Q&A with Shell lubricants

By Dave Leggett | 15 February 2010

Automotive lubricants is big business for Shell and it's about a bit more than engine oil. David Pirret, Executive VP for Shell Lubricants, and Dr Richard Tucker, a technology specialist at Shell Lubricants, tell Dave Leggett how the business is faring globally and explain how lubricants play a vital role in improving mechanical efficiency.

Dave Leggett: How much of Shell's lubricants business is automotive industry related?

David Pirret: If we include heavy duty trucks as well as cars, it is in the region of 60%. To take trucks, one in six heavy duty commercial vehicles uses our oil, globally. It's big business...

DL: And your company has a global infrastructure then, including in places like China?

DP: Yes, we have two operations effectively in China. We have our 100%-owned Shell branded one and we also have a majority share in a local Chinese company which specialises in the motorbike and automotive car plant business, not so much in trucks. And in November last year we opened our sixth blending plant, located in southern China.

DL: Looking at your automotive lubricants business globally, how much is OE and how much is aftermarket or service-fill business?

DP: The aftermarket is three or four times bigger than the OE business. But that changes in some instances – some automatic gearboxes are effectively filled for life at the OE stage, so you have to get the OE business because there isn't much afterwards..

DL : Is that a growing trend – 'filled for life'?

Dr Richard Tucker: When you get into more advanced transmissions - not the standard automatic transmissions – they are increasingly filled for life. And similarly, on the truck side things like axles are getting more sophisticated and tending towards longer drain intervals – half a million kilometres or even longer.

DL: So the OE proportion of the business is going up over time?

DP: Yes, logically, but it's a slow process in terms of the parc and the service-fill business. People get excited about extended drain intervals but the size of the existing parc makes such change slow.

DL: How's business going?

DP: The beauty of the lubricants business is that it gives you a fairly good indication of what's happening in the industrial economies. Across the countries we operate in we can see different economic performances according to how different industries are doing. For example, we can see that the mining industries have picked up quite well. The automotive industry has been a bit slower to recover generally, but we have seen business in China very strong and even in the US there's a huge service-fill business that hasn't been affected too much.

DL: There's resilience in the aftermarket side then, in a recession?

DP: To some extent, yes. People may delay a vehicle service maybe, but it doesn't fall away to the same extent as the OE business does when firms may be making big output changes in relation to drawing down stocks – as was the case in Europe and North America in the early part of 2009. That's where we see variability in our business.

DL: What about profitability?

DP: That's not so bad because the OE side of the business tends to be very competitive. It's less competitive with the smaller buyers in the aftermarket.

DL: Can you describe how you work with your vehicle company OE customers?

RT: It varies a lot. We have been through a prioritisation process over the last few years to decide which OEMs we want to put our resources into and then we have established teams to develop those relationships on a global footprint.

As a part of that we have recognised that the technology relationship is absolutely key.

Increasingly, the lubricant is becoming a design component and an enabler or a constraint to the operation of the equipment. The best way to move forward is to work closely in partnership – not only with the OEM, but also with Tier 1 or Tier 2 suppliers. To take the transmission, it's not just the transmission builder, there's the firm that makes friction plates or the seals or some other component within it.

DL: The lubricant isn't a simple commodity product then?

RT: That is perhaps how some purchasing people would like it to be, but - especially when we are talking about advanced components like dual clutch transmissions, say – the fluid is an integral part of that machinery. It won't work properly without the right fluid.

DP: And some of the big manufacturers will supply us with the engine that they are going to use in two or three years' time...

RT: Yes, that's ideal for us, because then we can develop our lubricants in a better and more optimised way and work iteratively with the customer to get the best solutions for the future product.

DL: If we picture a generic car, how much lubricants content is typically in there?

RT: There are 4/5 litres of engine oil. Then there's the transmission fluid – which is critical according to the type of transmission. You are looking for smoothness of operation, for refinement. If you get that wrong it might be fine for the first 10,000km but problems may develop after that. Rear axles and 4WD transfer cases require fluids; there are also shock absorber fluids; brake fluids; there are also greases. CVJ (Constant Velocity Joint) grease is a very special product.

The requirements for greases are very demanding and very precise. Take the electric window-winder, for example. It's a seemingly basic component but there are plastics and metals moving parts, and you don't want it to be noisy and there is a certain durability factor in terms of number of operations for which the grease needs to do the job. That grease will be very different from what's in ball-joints, CVJs, or door hinges. Specific greases with specific properties do specific jobs.

DL: And these different lubricants and greases with different properties presumably come with different costs; is there scope for compromising on their technical properties to reduce costs for your customers?

RT: No, there isn't much scope for that. If there was much of that going on quality on the end-product would suffer and no-one wants that. They are always looking for lower costs, of course, but not to the detriment of the end-product.

DL: Can you give an indication of the international geographical breakdown of the automotive lubricants business?

DP: North America is the single biggest market. China now has the number two spot and then it's Germany, Japan after that. North America is twice the size of China, China is about 150% of Germany.

Although overall demand is relatively flat, there are some very significant changes going on underneath. There's the big geographical switch from OECD countries to the emerging markets as well as technical pressures that have impacted us on the environmental front – such as higher pressures and temperatures in the engine, pressures for better fuel economy, not damaging the particulates in the catalysts...

There's an enormous amount of change taking place.

DL: The regulatory environment and things like emissions rules have impacted your business then?

RT: Yes, absolutely. Each time the standards are tightened and the engine technology becomes more sophisticated to meet new requirements the lubrication demands change. Emissions legislation has combined with an ongoing demand for improved fuel economy to increase demands on the lubricants side.

DL: Is there an industry-wide approach to these things or do the vehicle OEMs do their own thing?

RT: When it comes to lubrication, some OEMs follow industry norms in areas like engine oils, but others prefer a more customised approach because, say, they want to go to longer drain intervals or something like that. But engine oils lend themselves to a degree of standardisation. Advanced Transmission fluids usually have to be very specifically developed.

DL: How do you see transmission type shares changing in Europe?

RT: I think there will be a much bigger role for dual-clutch transmission (DCT) in Europe and that certainly has implications for our business due to very different lubrication requirements. In small cars there is the 'dry' DCT and then there is the 'wet' DCT system which is for the majority of cars. In the 'wet' system you have to lubricate the clutch system which has very precise friction requirements and you also have to lubricate the gearbox. That's different to an automatic transmission. It is a very specific fluid which has to be carefully designed for that application.

And we are being driven by the pressures for continual improvement operating on the whole industry. DCT gets better fuel economy than an automatic but has the advantages of smoothness and refinement that you get with an automatic.

DL: So how can Shell Lubricants help the industry attain goals of improved fuel economy?

RT: In summary, there are two basic approaches to this. Firstly, we can develop better lubricants that improve fuel efficiency for the equipment that is already out there. That's the service-fill market. We put a lot of effort into that. Last year, for example, we launched a low viscosity engine oil for heavy-duty trucks. The low viscosity means better fuel economy; the challenge then is not to compromise on the durability. If you go to thin you can get into wear problems.
The skill of the formulator is to go as thin as you dare without producing durability issues. So, that's one approach – improving the efficiency of the lubricants that we sell into the service-fill market.

DL: So you are continually refining or improving the existing lubricants?

RT: That's right. The chemistry is constantly changing, too, so we are coming up with new additives that can reduce wear. We can get better, for a given viscosity, at protecting the engine. And those additives have to last for the life of the engine, so we are continually looking at all the relevant performance parameters to improve the product.

The second approach is to work closely with the OEMs and their suppliers on more fuel efficient equipment that is enabled by the lubricant. DCTs are a good example; that's an industry development where various OEMs are trying to develop that technology but a constraining factor has been the amount of torque the fluid can handle. We can work with them on that and it requires an intimate partnership, because we need to have access to the various materials and clutch plates, for example, to establish how we get to longer torque and make the performance of the fluid last longer, minimise wear and so on. So that's a progressive route to fuel efficiency working with the original supplier.