Aug 28, 2020
Posted by Tom Weyenberg, Director, Insights Engine, Matt Rudd, Director, Consumer & Market Insights
This article highlights the key takeaways from our recent webinar, Impact of COVID-19 - An Early View, part of our Lubrizol360 Webinar Series featuring Lubrizol experts discussing important industry trends.
Over the past several months, the COVID-19 pandemic has changed the way we live, work, and do business. It has made a profound, tragic impact on countless lives, and has left the future somewhat uncertain for many industries—including ours.
Though we are still in the early stages of the long-term impact, there are a few projections we can begin to make, in order to better prepare ourselves for an ambiguous future. Broadly, the sudden decrease in economic activity in all economic sectors is likely leading to a recession. Assuming that the pandemic peaks in the second quarter of 2020 for most countries, and begins to recede throughout the second half, it’s expected we’ll see some sharp declines in GDP growth rates in most major economies.
We expect there will be a mix of temporary and permanent impacts that all stakeholders in the lubricants industry will need to contend with, and that consumer sentiment will be reshaped as we move into the future. Here are a few things to be thinking about as we continue to navigate an unprecedented time:
Impacts on Lubricant Demand
Before the Coronavirus began to spread in late 2019, our industry was seeing slow, but steady, growth (+0.9% CAGR over the past ten years) and was expecting more of the same over the next decade (an anticipated +0.7% CAGR). While North America and Europe have reached full maturation, Asia and Latin America were positioned as growth regions. Across all areas, a trend toward higher-performance lubricants continued to gain traction.
But then we saw the ramifications of the virus on some major drivers of lubricant demand. Maintenance intervals, vehicle usage and vehicle sales plunged in the transportation sector as many people began working remotely and as use of public transit took a nosedive. Consumer confidence took a major hit worldwide. Meanwhile, demand for industrial lubricants also fell due to production shutdowns.
As for the hard numbers: Industry analysts Kline & Company expect global demand to decline more than 15% in the near term, with passenger vehicle lubricants taking the biggest hit due to the nature of the lockdowns across the globe. They expect that the commercial vehicle sector will recover more quickly than passenger vehicles, and that the industrial lubricant recovery will roughly follow GDP figures.
How to Move Forward
While these impacts certainly aren’t encouraging, demand will inevitably rise again, and there are some proactive steps our industry can take in order to meet needs throughout the value chain.
Globally, consumption patterns are returning, especially in industrial production and freight. Pent-up demand for travel could stimulate the maintenance cycle for passenger vehicles, especially if consumers are hesitant to travel by airplane. Plus, new car sales incentives from OEMs to clear inventory and stimulate production could help accelerate a recovery.
But we must be cognizant of the potential “new normal” in several key areas:
- Ongoing remote work may continue to reduce total miles driven by average consumers, and longer term, may lead to lower passenger vehicle ownership. Does urbanization pause or reverse?
- In their own economic self-interest, we expect consumers may either look to the assurance of quality brands, or will begin trading down to save money in the short term. It’s incumbent upon the lubricant industry to continue to promote and advocate for higher performance lubricants.
- Electric and full hybrid vehicles may take a larger near-term sales hit due to higher relative cost and short-term regulatory relief. The longer-term view is more positive, as the cleaner air and skies resulting from COVID-19 shutdowns will likely strengthen political will for sustainable transportation.
- In shared mobility, e-hailing services have declined dramatically. Hygiene and safety concerns may slow the growth rate of shared mobility across private and public transportation.
- Those same concerns apply to service shops. Hygiene is paramount, and shops will have to place a greater emphasis on their “clean credentials” to gain and retain customer trust.
- Public transportation may see lasting effects. In China, the first country hit hard by the pandemic, public transit usage has only recovered to about 60%-70% of pre-COVID levels.
How our industry continues to respond to these dramatic changes will be important, and may take some radical rethinking. For example, some OEMs have reinvented their marketing communications and rebalanced their efforts toward offering concierge services. Elsewhere, there are several examples of lubricant brands encouraging and celebrating their customers staying at home and driving less—a move that won’t result in immediate sales, but will likely build longer-term brand loyalty. More generally, organizations that demonstrate empathy and stay connected to their communities stand to gain greater share of their customers’ hearts and wallets. It will take creative strategies like this to pull through successfully, as well as an ongoing commitment to delivering high-performance solutions where they’re needed.
For more information, contact your Lubrizol representative, and watch the full, in-depth webinar on the COVID-19 impact here.