ILMA Compoundings June 2017 - 5

LETTER FROM THE CEO

Automotive Trends That Can't be Ignored

hen the Model T was unveiled by Ford Motor Co., the dominant mode of transportation in the U.S. was the horse,
and the agriculture industry produced the fuel of the day - hay and oats. According to researchers at IHS Markit, 19
million acres of land were dedicated to it. Cities had to deal with tons and tons of pollution in the form of horse manure.
The Model T became available to consumers in 1908, and by 1927, 15 million units were produced and sold. With the introduction of this affordable, mass-produced vehicle, the agriculture industry faced disruption and had to revamp from hay and oats to
food production very quickly. Now, just a little more than 100 years later, some researchers believe that the automobile industry is on
the brink of a disruption similar to the one farmers and horse traders experienced in the early 1900s.
Almost daily, I stumble across articles and research that seem to confirm some significant changes to driving habits are underway,
and it's a topic at almost every conference I attend, including ILMA's recent Management Forum. At a recent meeting of the American Fuel and Petrochemical Manufacturers (AFPM), IHS Markit presented findings from a study on mobility and transportation
which were eye-opening, to say the least.
While I am skeptical of those who try to draw too many conclusions from these trends, I can't help but recognize that the American
love affair with the automobile is under stress and some changes are on the horizon that lubricant manufacturers ought to be watching.
REGULATION
Governments around the world continue to regulate with carbon dioxide emissions and fuel economy in mind. While the Trump
administration has put a hold on the previous administration's fuel economy standards, government bodies at every level are enacting policies to reduce tailpipe emissions and to encourage zero-emission vehicles. The traditional internal combustion engine
that propels transportation is under attack. Here in the U.S., California has aggressively adopted policies to move away from
"carbon-intense" fuels, such as gasoline and diesel, and toward electric vehicles (EVs), natural gas and renewables.
As sales of these alternative vehicles grow, lubricant demand will be affected. EVs and EV hybrids require significantly less lubricant. For example, the Tesla only requires a minimal initial fill of lubricants for the life of the vehicle.
URBANIZATION
According to the IHS mobility study, the U.S. is urbanizing along with the rest of the world. Currently, 82 percent of Americans
live in urban centers, and that number is projected to grow to 87 percent by 2025. While urbanization is lower in other parts of
the world, it's rising quickly. With increased urbanization, metropolitan governments are adopting strident policies to deal with
congestion. London, for example, imposes a "congestion fee" on all vehicles entering the city during business hours and is mandating zero-emission-capable vehicles beginning in 2018. The end game is to get people out of cars and to disincentivize drivers
by making driving as costly and inconvenient as possible.
THE DECLINE OF THE DRIVER'S LICENSE
Will Americans move away from vehicle ownership and toward a model of transportation that includes a variety of transportation
services? Statistics show that younger Americans are not embracing driving the way earlier generations did. According to a study
last year by the University of Michigan Transportation Research Institute, driver's licenses are on the decline in every age category,
but especially among the younger crowd.
For people ages 16 to 44, the percentage of licensed drivers has been decreasing since 1983. Teenagers, in particular, are less
interested in driving than in the past, with only 25 percent of 16-year-olds getting a license in 2014, as compared to 1983, when 46
percent were drivers. For older teens, only 69 percent of 19-year-olds had licenses in 2014, compared to 87 percent in 1983.
While the studies had difficulty identifying reasons for the delayed interest in driving, there's no question that there is an array of
options available today that didn't exist 10 years ago and even more on the horizon.
AUTONOMOUS DRIVING TECHNOLOGIES
Self-driving vehicles are on the road. Currently they are being tested, but it's only a matter of time before this technology becomes
available to consumers and businesses. What are the implications for lubricant manufacturers when fleets of self-driving vehicles
are available to consumers at the tap of a smartphone? It's hard to say, but there's a strong case to be made that car ownership by
individuals might take a hit. With fleets of vehicles operating around the clock, though, service of these vehicles will be necessary
more frequently than we see with consumer-owned vehicles that are only used a couple of hours a day.
The landscape is changing. It's hard to examine one trend and determine what it means for our industry when technologies are
evolving so quickly. Social trends such as driverless vehicles, car sharing, Uber
and others will change the way vehicles are used and serviced. And a multitude
Holly Alfano
of vehicle options - hybrids, natural gas, EVs - will mean ever-changing
Chief Executive Officer
specifications and standards for lubricant manufacturers. Where it will all end
up is hard to say, but there is no question that the next 20 years will bring many
adjustments for our industry.

ILMA Compoundings June 2017

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