All motor retail companies of any size should strive for a contract with an oil company that suits them best, says Chris Ross, Essex Auto Group aftersales director.
And that’s regardless of the size of the retail firm.
The main options for dealers are to negotiate a keen price, as they would for any commodity, or to enter a more complex long-term partnership.
Ross’s group is in a five-year agreement with Castrol. Essex Auto Group could obtain motor oil far more cheaply, but is paying over the odds because Castrol provided a loan to enable it to develop the business.
Ross said: “We pay a relatively inflated amount for our oil, which is the way we repay the loan, but we still buy at less than trade price.
“To make our profit we explain to our customers that if they buy from a motorway service station they will be paying three or four times as much for top-up oil than they would from us.”
Upselling is also part of the strategy. Car owners who do some research and take some trouble will ensure they are not paying over the odds for top-op containers.
And drivers are looking for ways to reduce motoring costs as they see filling station pump prices continue to rise.
“Many people are taking a choice on their oil levels,” he said.
“But many others are receptive to what we say. We have done well upselling people profitably to Castrol Magnatec.
“It has been made easier because people recognise the brand following a heavy TV advertising campaign two years ago.”
Some car manufacturers specify their own brand though oil suppliers can always provide the right specification.
But dealers often have to use manufacturers’ branded motor oil for warranty jobs in their workshops.
Dealers don’t like this because usually they cannot make any money out of it.
Essex Auto Group has five Ford dealerships, plus Mazda, Fiat, Kia, Volvo and Seat franchises, and sells around 120,000 litres of motor oil a year.
Ross said his group benefits from Ford’s approval of BP/Castrol oil: “Ford cars account for 70% of our workshop throughput.”
Philip Maskell, chairman of Essex Auto Group, was the founding chairman of the Retail Automotive Alliance, a group of Ford-based franchised groups that together negotiate keen prices for a wide range of products and supplies.
Ross believes market forces are working in favour of Fuchs. “The company operates on the price of motor oil supplied – dealers are finding its prices are cheaper than others and the company is gaining ground.”
The rise in crude oil prices is adding strength to Fuchs’ sales pitch. Ross said:
“Motor oil prices have risen alongside crude and fuel pump prices – there were five of them during 2010.
“We can’t keep altering our service menu pricing to account for the cost of oil used for customers’ cars so we have had to absorb the increases.”
For Ridgeway Group, motor oil is important – 240,000 litres a year go through its 16 car and truck dealerships.
Aftersales director Richard Spencer insists on ensuring that none goes to waste, and that the maximum profit is gained from each litre.
Ridgeway is into its second five-year contract with Castrol.
“We looked around at the alternatives and considered changing to one of two other suppliers, but stayed because of the support it gives to customers,” said Spencer.
“The price was competitive, but the analysis provided was the key factor. And we went with them because we are loyal to the supplier as it is to us.
"The company makes offers to us such as conference facilities and training but we don’t use them – it’s the analysis that matters.”
Once a month Spencer has a meeting with an account manager who provides a detailed summary of oil used so that Spencer can see where sales are going up or down at each dealership.
“I can see everything down to the use of oil by grade and viscosity,” he said.
“There is also an overview of changes at dealerships year by year. I am able to see where we are giving away oil or discounting.”
Armed with this analysis Spencer can then talk to dealership managers, give praise where it is due and attempt to put right anything that he finds unacceptable.
Providing the right oil for a customer
Ridgeway Group’s aftersales director Richard Spencer dislikes the upselling approach.
“I don’t call it that if we provide a good oil that is right for a customer to use for top-ups between services,” he said.
“We are sharp on pricing – cheaper than Halfords in fact – and tell owners their cars will burn oil.
"That’s what happens and if the warning light comes on during a motorway run the driver will stop at the next motorway service station.
“There’s unlikely to be any advice and they’ll pick up any oil of the right viscosity, even if it’s the equivalent of cooking oil.”
Spencer understands why car owners get confused: “Even I get confuse sometimes about what’s right for every make of car and truck.”