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Tough choices when it comes to oil suppliers

Deciding which oil supplier to sign up with is getting progressively trickier for dealers because of two trends that are well established and becoming more influential in the sector.

One is that cars’ engines and transmissions are becoming more complex as they grow more efficient, and the other is that oil companies have consolidated greatly over the past two decades.

The big groups have become larger and more powerful because of the need to save or share costs as a result of the huge expense of finding reserves and installing equipment to pump it out of the ground.

Tony Roberts, managing director of the Magna Motor Group, said the starting point in making a choice had to be the diversity of lubricants: “Because one size – or rather viscosity – no longer fits all cars, your supplier has to be able to meet the demands of car owners.”

Magna has a lengthy understanding with Elf oils. There is still no formal contract – it’s more a rolling monthly agreement built on mutual trust to ensure car owners are well looked after.

"Some dealers might not find such an informal arrangement to their liking, but Roberts says it works for his company.

“We all have to be so careful now with the choice of oil,” he said.

“The wrong kind can ruin the fuel economy designed into the engine. We’re happy with what Elf provides and that’s probably because it has been a Formula One supplier.”

Roberts feels strongly that the choice of lubricant should extend beyond the workshop.

“It’s essential to be able to sell a litre of the right oil so that the customer is topping up with the right one. Otherwise it’s rather like pouring in a fine wine and topping up with a cheap one.”

Elf has a tie-up with Renault that has lasted more than 40 years. The value of agreements between oil companies and carmakers is based on testing and marketing.

Dealers can benefit from both. Extensive advertising and marketing activity associates the benefits of a particular brand of oil with motorsport, and this adds a touch of glamour to a product that you do not want to buy.

One dealer group executive said: “It is difficult to recruit staff good at selling lubricants. This is not an easy product to sell because, as they do with tyres, owners resent spending the money.

“Many drivers believe all oils are much the same and are acutely aware of prices – they want to spend as little as possible while convincing themselves their cars are protected.”

He said selection of an oil company should in part be based on belief in the value of its national marketing programmes to win loyalty from customers.

“If aftersales staff are given the right training they can demonstrate that it is worth spending a little extra on superior oils.”

Dealers have mixed views over the value of training programmes and other incentives offered by oil companies. Some say the additions to the supply of oil are valuable.

“There is a positive financial element for us in what oil groups provide for dealers in exchange for their loyalty,” said one.

“But new dealers, or others who decide they want to appoint a new supplier, should be careful not to get carried away by the extras.

"The most important part of the relationship should always be the range and quality of the lubricants and the profit margin for the retailer.”

One of Castrol’s methods of getting closer to dealers is to sponsor the Professional Car Service and Repair Trend Tracker report.

This surveys the proportion of motorists who visit franchised dealers for their make of car for servicing, MOT or repair work, or go to independent garages and fastfit centres.

This enables Castrol to demonstrate to dealers that it is aware of trends in the sector, which makes it more than a distant supplier of oil. It is a subtle message, but seems to be an effective one for Castrol.

Case study: The Tollhouse Group

The Tollhouse Group of Toyota, Suzuki and Kia dealers on the south coast of England has rejuvenated its top-up oil business in the last year.

John Newton, Tollhouse Group managing director, said: “Meeting with Mobil 1 just over a year ago helped to re-focus our energies and put in place a series of measures that has helped to increase our top-up sales by more than 400%.”

The Tollhouse service managers and advisers received training and saw the implementation of sales incentives.

“Not only has the focus helped deliver welcome revenue to our bottom line, but it has also added value to our customers.

"We now provide a one-litre top-up pack in every service and staff training has helped educate customers who now understand and welcome the benefits of us doing so,” said Newton.

Dan McGoldrick, Mobil 1 business development manager, said: “By working closely with the Tollhouse Group to put into practice a number of simple, easy to implement steps from our ‘Top Up Training Programme’ we have helped generate improved customer satisfaction and incremental sales.”

Appointing oil suppliers is a complex business

Experienced dealers recall the old days of the oils and lubricants business.

“It was fairly straightforward,” said one managing director. “A company would bung us some money to sign a contract, and all seemed good at that point. It was often in the form of a soft loan to buy equipment that was needed.

“But payback came later. Dealers found they were locked into an agreement and could do nothing about rising prices or breaking free.”

Several factors have changed things and made the relationship between a retailer and its lubricants supplier one of the more complex in the sector.

Dealer groups now run their business in a more sophisticated way and most can drive just as hard a bargain as an oil company.

Dealers are as aware as the oil company of the benefits of a continuing relationship. Though sometimes essential it can be a tricky business.

One managing director said: “It can take weeks, which makes it an expensive exercise where management time is taken into account.

“You also have to be extremely careful because of the need to respect confidentiality clauses.

"That said, every franchised dealer should be on their toes because switching suppliers can lead to a useful increase in profit margin.

"And this is especially important in 2010 when the economy is weak and demand for new cars and aftersales is affected.”

Oil companies emphasise the quality and the individuality of their products and especially those for high-performance cars.

But they know there are often similarities between brands and this can tempt dealers to make a change, or at least carefully consider one.


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