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Toronto future directions - 2015

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Toronto future directions - 2015

  1. 1. © 2015 The Lubrizol Corporation, all rights reserved.1 Agenda Welcome Paul Sampson Keynote Speaker Alex Sammut Base Oil Trends Patrick Mosier Driveline Ping Zhu Engine Oils Keith Corkwell 1
  2. 2. © 2015 The Lubrizol Corporation, all rights reserved.© 2015 The Lubrizol Corporation, all rights reserved. Era of Efficiency: Trends & Implications Lubrizol Future Directions – Toronto Ontario April 23, 2015
  3. 3. © 2015 The Lubrizol Corporation, all rights reserved.3 Agenda • Era of Efficiency • Industry Trends • New Testing • Lubricant Response
  4. 4. © 2015 The Lubrizol Corporation, all rights reserved.4 It’s more than achieving efficiency; it’s about maximizing it • Gain improvements in efficiency in production and transportation • Efficiency gain to help to reduce CO2 emission into the atmosphere • Today’s efficiency requires continuous yearly improvements not single event regulatory compliance • All partners of the transportation supply chain must work together to deliver efficiency The Era of Efficiency © 2015 The Lubrizol Corporation, all rights reserved.
  5. 5. © 2015 The Lubrizol Corporation, all rights reserved.5 Legislation creates opportunity to extract value from new product offerings Efficiency Driving New Insights and Products Products & differentiation Value proposition Opportunities
  6. 6. © 2015 The Lubrizol Corporation, all rights reserved.6 Industry Trends
  7. 7. © 2015 The Lubrizol Corporation, all rights reserved.7 The entire industry must do its part to help meet the drive to efficiency Passenger Car Regulatory Trends EUChina CanadaU.S. 80 100 120 140 160 180 200 220 1991 1996 2001 2006 2011 2016 2021 2026 CO2 / Fuel Consumption Passenger Car gCO2/km
  8. 8. © 2015 The Lubrizol Corporation, all rights reserved. 8 Emission regulations drive unique hardware and lubricant additive performance Global Emission Complexity Heavy Duty Truck *Brazil P7 aligns with Euro V. US EPA 201 aligns with Euro VI Information base upon Integer Research Limited, http://www.integer- research.com/contact/#sthash.LckJJzRz.dpuf 47% 53% 2012 3% 35% 56% 6% 2021 0 2000000 4000000 6000000 8000000 CHINA EMISSIONS IN USE TRUCKS China - Euro II China - Euro III China - Euro IV China - Euro V China - Euro VI Euro I Euro II Euro III Euro IV Euro V Euro VI US 2010
  9. 9. © 2015 The Lubrizol Corporation, all rights reserved.9 OEMs are addressing the drive to efficiency in many ways Global Hardware and Fuel Trends 2010 2015 2020 2025 HCCIGDI and lean burn GDI Car dieselization Variable displacement lubricant pump Emissions – SCR / DPF/ GPF Low viscosity lubricants Exhaust energy recovery – truck Increased use of roller element bearings CVT DCT and increased number of gears Aerodynamic improvements – fairing and tail on trailers Weight reductions – aluminum and composites Hybridization Stop start in non hybrids City bus series full hybrids Car Plug-in hybrids All electric vehicle Liquefied natural gas / natural gas More bio-fuels Low sulfur gasoline Hydrogen Electric lubricant pumps Hydraulic variable timing Mechanical/electric variable timing Turbo charging High temperature turbo FuelHybridVehiclePowertrain Source: Lubrizol & Ricardo roadmaps and technology planning Efficiency Emissions Systems Protection Durability Evolution + +
  10. 10. © 2015 The Lubrizol Corporation, all rights reserved.10 Modern engines are smaller, more powerful, lower emissions Passenger Car Evolution Engine 4.0L V-6 PFI (RWD) 2.0L I-4 TGDI (FWD) 50% smaller engine Power 145 HP/220 ft-lbs 240 HP / 270 ft-lbs 65 % more power Transmission 4 Speed Automatic 6 Speed Automatic 50% more gears Curb weight 4060 lbs 4557 lbs 12% heavier 0-60 mph (sec) 10.8 (AWD V-6) 6.0 sec (AWD V-6) 44% faster Interior Volume 104.9 ft3 172.7 ft3 65% larger Fuel Economy 15/20/16 mpg 20/28/23 mpg 43% more fuel efficient “Biggest change since carburation to Port Fuel Injection” 20141991
  11. 11. © 2015 The Lubrizol Corporation, all rights reserved.11 The economic impact can be significant Thinner Viscosity Benefits What is the Benefit: • Commercial and environmental concerns about fuel economy • A 1% saving on fuel economy for a 250 truck fleet equals over $160,000 annually • For OEM fleet a 1% saving could mean the difference in paying thousands of dollars per vehicle in credits or fines • Developing tools which can quantify the financial benefit from efficient lubricant
  12. 12. © 2015 The Lubrizol Corporation, all rights reserved.12 Lubricant Part in Overall Efficiency *Source = Tribology International (Global energy consumption due to friction – Kenneth Holmberg) Chart shows HD efficiency as an average across all truck and bus fleets. The small impact of lubricant efficiency is increasingly important 0 10 20 30 40 50 60 70 80 90 100 HD Efficiency* Fuel Energy Mechanical Work 50% Exhaust 30% Cooling 20% Aero/Rolling losses 24% Engine 9% Trans 7% Braking 9% Aux 4%
  13. 13. © 2015 The Lubrizol Corporation, all rights reserved.13 New Testing
  14. 14. © 2015 The Lubrizol Corporation, all rights reserved.14 Lubricant efficiency measurements that are understood by the customer • Field testing needs to precisely measure lubricant efficiency • New bench tests that are more relevant to modern engine and transmission hardware Measuring the Value of Efficiency
  15. 15. © 2015 The Lubrizol Corporation, all rights reserved.15 Testing beyond specification to deliver quantifiable efficiency gains • Fully instrumented heavy duty engine that measure BSFC testing on over the road efficiency • Driveline real world drive cycle evaluated on motorized rigs Improved Fuel Economy Testing
  16. 16. © 2015 The Lubrizol Corporation, all rights reserved.16 Better testing leads to improved insights • New OEM hardware is changing how we screen and evaluate new chemistry and formulation • Unique surface and contacts demand new methods beyond traditional tribological testing Updating Traditional Bench Testing
  17. 17. © 2015 The Lubrizol Corporation, all rights reserved.17 Insights Lead to New Understanding SAAS Layer Technology: • Produce thick protective films on powertrain hardware • Advanced analytical methods now allow visualization of macro layer composite additive systems
  18. 18. © 2015 The Lubrizol Corporation, all rights reserved.18 Lubricant Response
  19. 19. © 2015 The Lubrizol Corporation, all rights reserved.19 ACEA 10 TIMELINE CI-4 PlusCI-4 (PC-9) ACEA 02 JASO DH-1 DH-2/DL-1-2005 GF-4 ACEA 04 CJ-4 (PC-10) Update JASO DH2 GF-5 ACEA 06 ACEA 08 PC-11 Japan 2004 Japan 2010 EURO IV EURO V EURO VI USA 2000 USA 2007 USA 2010 LUBRICANTSPECIFICATIONSEMISSIONREGULATIONS N American PCMO Japanese Diesel European PCMO & Diesel N American Diesel Lubricant Specifications Evolve in Response to Emission Regulations GF-6 2002 2004 2006 2008 2010 2012 2014 20162003 2005 2007 2009 2011 2013 2015 2017 ACEA 15 Update JASO DH2 Japan GHG/FE USA GHG/FE Emission Age to Efficiency Age Emission Age Efficiency Age ACEA 17
  20. 20. © 2015 The Lubrizol Corporation, all rights reserved.20 Maintaining a quality lubricant portfolio is increasingly complex for the overall industry Significant Upgrade to Lubricant Specification • Specifications are coming thicker and faster: – Numerous major industry lubricant upgrades are forthcoming  ACEA 2014 F Series  PC-11 A&B  GF-6 A&B • Increased need for application specific drivetrain, transmission and axle lubricants
  21. 21. © 2015 The Lubrizol Corporation, all rights reserved.21 Introduction of Low Ash CJ-4 Lubricants Lubricant requirements change as a result of market and hardware changes 2007 • EPA regulates lower particulate emissions from heavy duty diesel trucks Market Changes • Engine manufacturer add diesel particulate filter to on highway trucks Hardware Changes • New low sulfur fuel is required by DPF equipped vehicles • New lower ash additives developed • Cross industry coordinated change to have hardware, fuel, and lubricant changes available to support the industry • Lubricant additives were changed to support the ash limit yet maintain the wear and cleanliness performance of previous formulations
  22. 22. Efficiency is Unique for Each Application Engine Oils: It means advanced protection and reduced friction, while maintaining integrity of smaller, hotter, more demanding engines that consume less fuel and produce less CO2 Industrial: It means equipment running longer, faster and more effectively. This added productivity—even in more demanding environments for lubricants— means more customer profit. Driveline: It means delivering more power as a function of energy exerted, and delivering more torque while reducing fuel consumption, CO2 and transmission wear. Fuels: It means technology that enables flexibility in use of increasing complex fuel options while still optimizing engine performance. © 2014 The Lubrizol Corporation, all rights reserved.
  23. 23. © 2015 The Lubrizol Corporation, all rights reserved.23 Efficiency demands continuous yearly improvement Era of Efficiency Legislative Demands
  24. 24. © 2015 The Lubrizol Corporation, all rights reserved.24 Macro Trend: “Thinner” lubes reduce frictional losses, but… • Engine lubricants are moving, 5W-30 (passenger car) and SAE 15W-40 (Heavy Duty) to 0W-20 and 0W-16 and 10W-30 and 5W-30 • Gear oils that traditionally have been 85W-140 now use 75W-85 • By moving lubricants to thinner viscosity, churning and pumping loses are minimized How Lubricants are Delivering Efficiency Whiskey 75W 85W 90
  25. 25. © 2015 The Lubrizol Corporation, all rights reserved.25 Lubricants are required to protect in all regions of operation Understanding the Challenge
  26. 26. © 2015 The Lubrizol Corporation, all rights reserved.26 Maintaining lubricant physical properties are key Fluid Protection • Lubricant physical properties are critical • Additives work to maintain viscosity • Disperse soot and sludge • Reduce oxidation • Prevent shear • Maintain flow when cold
  27. 27. © 2015 The Lubrizol Corporation, all rights reserved.27 Lubricant must focus on Surface Protection and limit friction increase Surface and Compression Protection • With increased load, lower speeds and thinner viscosity, surfaces of the moving parts begin to interact • Without a lubricant film, additives must react and form on the surfaces to protect
  28. 28. © 2015 The Lubrizol Corporation, all rights reserved.28 Era of Efficiency is moving our focus to surface and compression protection Era of Efficiency • Thinner lubricants • Efficient drivetrains • Downsizing • Downspeeding • GDI • Turbo • More gears
  29. 29. © 2015 The Lubrizol Corporation, all rights reserved.29 As oils get thinner friction increases occur sooner Impact of Viscosity Bench Testing Viscosity decreasing Friction Speed
  30. 30. © 2015 The Lubrizol Corporation, all rights reserved. 30 Simply lowering viscosity without other changes will not work Thinner Lubricants Increase Wear in Engine Test • Industry testing shows cam wear increases with thinner lubricants • Small amounts of cam wear reduces valve lift, airflow, and engine output • Engine wear and decreased performance can negate the benefits of lower viscosity: – More repair cost – Lower torque, less work, decreased fuel efficiency
  31. 31. © 2015 The Lubrizol Corporation, all rights reserved.31 Where Do Additives Deliver Performance?
  32. 32. © 2015 The Lubrizol Corporation, all rights reserved.32 Additive technology can return lubricant performance Preventing Friction Gain Friction Speed
  33. 33. © 2015 The Lubrizol Corporation, all rights reserved.33 Lubricant additives provide complete protection Era of Efficiency testing has led to new formulations: • Protect surfaces in thinner lubricants • Main fluid flow in high soot tests • Reduced fuel consumption Delivering Complete Protection ReducedWear
  34. 34. © 2015 The Lubrizol Corporation, all rights reserved.34 Lubricant technology enables efficiency gains for future market needs • Efficiency performance mandates continue to affect the entire industry • Engine designs are smaller and more powerful; thus, thinner lubricants with robust additive chemistries are needed to cope with efficiency demands • Surface Activated Additive Systems (SAAS) Technology provide new levels of protection, particularly in the challenging boundary lubrication regime • Proposed ILSAC GF-6 oils will need to be designed to help improve engine fuel efficiency while still delivering on overall engine durability Summary
  35. 35. © 2015 The Lubrizol Corporation, all rights reserved. Working together, achieving great things When your company and ours combine energies, great things can happen. You bring ideas, challenges and opportunities. We’ll bring powerful additive and market expertise, unmatched testing capabilities, integrated global supply and an independent approach to help you differentiate and succeed.
  36. 36. © 2015The Lubrizol Corporation, all rights reserved.© 2015The Lubrizol Corporation, all rights reserved. The Outlook for Base Oils Lubrizol Future Directions – Toronto, Ontario April 23, 2015
  37. 37. © 2015The Lubrizol Corporation, all rights reserved.2 Overview • Global lubricant and base oil demand • Supply drivers • New supply • Supply / demand balance • Conclusions
  38. 38. © 2015The Lubrizol Corporation, all rights reserved.3 Global Demand
  39. 39. © 2015The Lubrizol Corporation, all rights reserved.4 -10 -8 -6 -4 -2 0 2 4 6 8 10 20 22 24 26 28 30 32 34 36 38 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Lube Demand (MT) Lube Demand Change (%) GDP Change (%) Lube demand tracks GDP (average 4% offset) GDP vs. Lubricants Growth Source: Fuchs Petrolube SE; 19th ICIS World Base Oils and Lubricants Conference, February 19, 2015
  40. 40. © 2015The Lubrizol Corporation, all rights reserved.5 Global Lubricant Demand Forecast • IMF’s five year forecast with “4.0% lubes gap” • Model predicts: – Continued flat to modest expansion – Base oil demand tracks with modest lubricant growth • Or a more optimistic outlook: – Annual growth more like ‘boom / bubble’ years (2004-07)  Averaged 0.8% annually  No dramatic economic downturn *Source: IMF World Economic Outlook Actual Projections Global 2012 2013 2014 2015 2016 2017 2018 2019 GDP Growth (%) 3.4 3.3 3.3 3.8* 4.0* 4.1* 4.0* 4.0* Lube Growth (%) -0.5 1.0 0.5 -0.1 0.1 0.2 0.1 0.1
  41. 41. © 2015The Lubrizol Corporation, all rights reserved.6 Canada /US Lubricant Demand • Five year forecast for Canada / US projection • Observed: – Continued moderate decline in 2013-14 • Expect: – Slower rate of decline thereafter Sources: IMF World Economic Outlook October 2012 w/January 2013 update GDP-Lubes Gap from SBA Consulting LLC Actual Projections Canada / US 2013 2014 2015 2016 2017 2018 2019 Canada GDP 21.0 2.3 2.4 2.4 2.2 2.1 2.0 US GDP 2.2 2.2 3.1 3.0 3.0 2.7 2.6 Canada Lube Growth (%) -1.5 -1.2 -1.1 -1.1 -1.3 -1.3 -1.4 US Lube Growth (%) -1.6 -1.6 -0.7 -0.8 -0.9 -0.9 -1.1
  42. 42. © 2015The Lubrizol Corporation, all rights reserved.7 7,200 7,400 7,600 7,800 8,000 8,200 8,400 8,600 2014 2015 2016 2017 2018 2019 Lubricant Demand Base Oil Demand Project ~240 ktpa decline in base oil demand by 2019 North American Lube & Base Oil Projection Thousandtonsperannum(ktpa)
  43. 43. © 2015The Lubrizol Corporation, all rights reserved.8 Base Oil Supply / Demand
  44. 44. © 2015The Lubrizol Corporation, all rights reserved.9 Product mix continues to upgrade Base oil demand is not driven by lubricant business needs • Primary / long term drivers: • The technology paradox  Highest quality / lowest cost of production • Legislation  Clean fuels, re-refined mandates, ODI mandates • Secondary / near term drivers: • Refinery upgrading  Heavier crude slates and greater diesel optimization output • Refinery viability  Reduced crude oil demand in the Atlantic Basin • Refinery divestments  Ownership changes and differing strategic outlooks Base Oil Drivers
  45. 45. © 2015The Lubrizol Corporation, all rights reserved.10 Base Oil Capacity and Expansion • Group I base oil capacity remains dominant globally • North America remains dominant Group II producer • Group III production concentrated in Asia • All future expansions / re-fits dedicated to Group II / III Source: Arthur D. Little; 2015 ICIS Conference
  46. 46. © 2015The Lubrizol Corporation, all rights reserved.11 • Observed – Global base oil production has leveled off • Expect… – Very modest increase in sustainable capacity – Maintain 8,000 mtpa “buffer” Global Base Oil Supply / Demand 2014 2015 2016 2017 2018 2019 Nameplate Capacity (mtpa) 48,862 48,835 48,852 48,862 48,884 48,875 Sustainable Capacity 42,658 42,822 42,980 43,023 43,125 43,173 Global Lube Demand 36,385 36,367 36,419 36,479 36,533 36,586 Global Base Oil Demand 34,850 34,840 34,900 34,950 35,000 35,050 Source: SBA Consulting
  47. 47. © 2015The Lubrizol Corporation, all rights reserved.12 • Total nameplate base oil capacity virtually unchanged – Expect continued reduction in global Group I capacity – Significant introduction of Group II capacity – Slow down in Group III expansion Base Oil Group Supply 2014 2015 2016 2017 2018 2019 5-Yr Change Group I (mtpa) 21,304 17,951 15,540 14,962 13,407 12,461 (8,843) Group II 16,575 18,712 21,095 21,407 22,517 23,475 6,900 Group III 5,601 6,316 6,295 6,575 6,557 6,542 941 PAO 568 536 533 528 514 508 (60) Naphthenic 4,814 5,319 5,389 5,389 5,889 5,889 1,075 Totals 48,862 48,835 48,852 48,862 48,884 48,875 48,862
  48. 48. © 2015The Lubrizol Corporation, all rights reserved.13 North America Supply Balance Group I Group II Group III* PAO Napht’ic Total 2014 Nameplate 3,115 7,789 99 294 2,508 13,804 Sustainable† 2,617 7,010 90 290 2,207 12,214 2019 Nameplate 1,890 9,176 421 256 2,508 14,251 Sustainable† 1,588 8,258 379 250 2,207 12,682 demand overhang 8,160 4,054 demand overhang 7824 4,858 † Based on stream day factors: 84% Group I, 90% Groups II/III, 88% naphthenics * Excludes Group III imports * Excludes Group III imports 33% 60% Significant over-capacity in US/Canada without export of Group II Source: SBA Consulting
  49. 49. © 2015The Lubrizol Corporation, all rights reserved.14 New Base Oil Supply • Outcomes – Growing oversupply  Project delays / cancellations?  Probable, but most in process will proceed – ‘Technology paradox’  New capacity lower cost / higher margin than displaced capacity  Additional projects are likely in the post-2015 period – Re-refining – legislatively driven  Override supply/demand issues governing virgin base oils
  50. 50. © 2015The Lubrizol Corporation, all rights reserved.15 New Base Oil Supply (cont.) • Outcomes – Higher OEM specifications / global platforms  Increasing requirement for higher quality base oils  By 2020 large majority of on-highway automotive lubricants globally will be formulated with Group II and Group III base oils – Fuel technology pull  Market upgrade drives refining strategy
  51. 51. © 2015The Lubrizol Corporation, all rights reserved.16 Base Oil Supply / Demand The likely outcomes
  52. 52. © 2015The Lubrizol Corporation, all rights reserved.17 Group I Demand • Demand for cost effective base oils – Technical drivers for Group I still in play (MD, off-highway) – Group I not necessarily most cost effective – Group II increasingly competitive  Regional cost effectiveness  New Group II / III capacity increases downward pressure on cost • Group I production not purely cost driven – Regional / economics – Security of supply
  53. 53. © 2015The Lubrizol Corporation, all rights reserved.18 Impact of Over Supply • Group I base oil production impacted – Technology limitations  Crude oil availability– specific feedstocks required  Compatibility with fuel production optimization  Outsized impact: only 8-12% yield on crude – Low value co-products  Yields of distillate aromatic extract (DAE) and bitumen can be larger than base oil  Typically valued at High Sulfur Furnace Oil (HSFO) – Contracting market / demand for Group I quality  Latest PCMO and HDDEO are predominantly Group II / III formulated  Nearly fully displaced from North American automotive engine oils  Other regions, declining with the replacement of the on-road fleet – Victim of the ‘technology paradox’  Large cost of production disadvantage versus many higher quality Group II and Group III base oils
  54. 54. © 2015The Lubrizol Corporation, all rights reserved.19 Impact of Over Supply • Group II base oil impact – Cost advantage over Group I not universal  Applies mainly to lube hydrocracking operations  Derived from higher value byproducts, scale and lower opex – Some retrofit operations with Group I type costs  Same co-products, similar opex still requires lube crudes  Some retrofit capacity subject to reduced utilization or even closure  Most used in-house and to supply contract customers – Re-refined Group II has an entirely different cost structure and varies widely by location and waste oil collection area • Group III supply unbalanced in the near term – Demand increasing but not keeping up with supply – New capacity increasing at a reduced rate – Limited formulation ‘overlap’ with Group I and II  Operation at reduced levels forced
  55. 55. © 2015The Lubrizol Corporation, all rights reserved.20 Global Base Oil Pool Composition Continued migration away from Group I ….. Group I 51% Group II 28% Group III 11% PAO 1% Naphthenic 9% 2012 Group I 44% Group II 34% Group III 11% PAO 1% Naphthenic 10% 2014 Group I 26% Group II 48% Group III 13% PAO 1% Naphthenic 12% 2019 (proj) Source: SBA Consulting
  56. 56. © 2015The Lubrizol Corporation, all rights reserved.21 North American Base Oil Trends • Group I outlook – Global surplus pressure on all base oils margins in near to medium term – North America vulnerability of Group I producers limited  Structural differences from other regions – Few large players w/broad geographic separation – Low cost natural gas provides NA refiners fuel opex advantage  Access to low cost crudes; $13-24/bbl less than Brent  ExxonMobil strongly advantaged in scale, integration benefits, retrofit options, global supply network – Lubricant technical drivers already integrated – N. American market has adjusted and stabilized
  57. 57. © 2015The Lubrizol Corporation, all rights reserved.22 North American Base Oil Trends • Group II outlook – Global gains at Group I expense  Group II satisfies most Group I technical demand often with cost savings  Growing market outside of NA for non-fuel economy automotive engine oils  Gains from Group I closures/reduced utilization – North America is Group II dominant market  Further penetration not expected unless/until Group I capacity closes  Volume losses to Group III – Move towards fuel economy HDDEO – Turnover of the car parc  Greater 4 cSt Group II+ ameliorates potential losses – Most NA growth from exports to Group II deficit areas  Chevron (Pascagoula) volume targets European and SA markets – Many specifications more cost effective with Group II/III blends than all Group III
  58. 58. © 2015The Lubrizol Corporation, all rights reserved.23 North American Base Oil Trends • Group III outlook – Sustainable global capacity expected to add 15-20% by 2019  Increase from 5.6 mtpa to 6.6 mtpa  Asia and ME remain dominant supply areas  Europe improved self sufficiency with new capacity in Spain (SK/Repsol) – Global demand to continue increase – Capacity ‘overhang’ likely over the medium term  Some producers at reduced throughput but remain economically viable  No closures expected – NA to increasingly rely on imports from the Middle East and Asia  NA demand (including Mexico) forecast to grow  No significant ‘virgin’ Group III capacity on the horizon; – Some re-refiners/biolube producers targeting GpIII quality  Imports to rise with growth in demand – Could exceed 1.5 mtpa by 2017
  59. 59. © 2015The Lubrizol Corporation, all rights reserved.24 API Group Supply By Region - 2019 - 2,000 4,000 6,000 8,000 10,000 12,000 N. America S. America Europe ME & Africa Asia Pacific Group I Group II Group III milliontonsperannum
  60. 60. © 2015The Lubrizol Corporation, all rights reserved.25 Conclusions
  61. 61. © 2015The Lubrizol Corporation, all rights reserved.26 Opportunities prevail in the emerging markets and for advanced, high specification and eco lubricants • The outlook for lubricants – Lubricants are an operating cost and their demand has a strong correlation to global GDP – Based on IMF projections  Weak to modest growth in global lubricant demand – Assumes no major OECD fiscal issues  Primary growth in the emerging economies – OECD demand to continue its modest decline  Canadian and US demand continues modest rate of decline – Totaling up to ~5% for the 5 year period Conclusions
  62. 62. © 2015The Lubrizol Corporation, all rights reserved.27 Conclusions • The outlook for base oils – Little change in base oil demand; – Drivers continue to be mainly external to the lubricants business  ‘Technology paradox’ & clean fuels investment having greatest impact  Fuel refining/capacity/technology/demand sets the stage – Impact of $40/bbl crude oil – Additional global capacity expected  9 mtpa of Group II/III and naphthenics  New Group II capacity  Capacity creep - mostly Group II/III  Some Group I  Group II upgrades – By 2019, Group I is projected at ¼ of the global base oil pool, down from 51% in 2012 – Expect significant reduction of high cost capacity to close or operate at reduced levels  Predominantly Group I, but also some high cost Group II  Group III to likely operate at reduced utilization - none likely to close  North America impact minimized due to its structural advantages
  63. 63. © 2015The Lubrizol Corporation, all rights reserved.28 Conclusions – Implications for Lubes – Demand for thinner oils  Moving from GP I to II / III – Improved volatility – Improved fuel economy – Seal compatibility – Product compatibility Global increase in utilization of higher quality basestocks
  64. 64. © 2015The Lubrizol Corporation, all rights reserved. Working together, achieving great things When your company and ours combine energies, great things can happen. You bring ideas, challenges and opportunities. We’ll bring powerful additive and market expertise, unmatched testing capabilities, integrated global supply and an independent approach to help you differentiate and succeed.
  65. 65. © 2015 The Lubrizol Corporation, all rights reserved.© 2015 The Lubrizol Corporation, all rights reserved. Driveline Drivers and Trends: North America Lubrizol Future Directions – Toronto Ontario April 23, 2015
  66. 66. © 2015 The Lubrizol Corporation, all rights reserved.2 Agenda • Scope: – Automotive gear oils – Automatic transmission fluids • Market drivers • Hardware trend • Lubricant requirements and trends • Lubricant development and validation for efficiency
  67. 67. © 2015 The Lubrizol Corporation, all rights reserved.3 Market Drivers and Hardware Trends
  68. 68. © 2015 The Lubrizol Corporation, all rights reserved.4 Driveline Lubricant Drivers Fuel Economy Emission regulations Global Environmental / Chemical regulations Durability / Uptime Global Availability / Supply reliability Performance /Safety Extended “filled-for-life” Drain interval
  69. 69. © 2015 The Lubrizol Corporation, all rights reserved.5 Driveline Hardware Trends • Increased transmission design options: – Automatic and manual: 6 to 9 (10) speed – CVT (Continuously Variable Transmission): belt, chain – DCT (Dual Clutch Transmission): dry, wet – Automated manual • Greater use of AWD / FWD, limited slip devices • Electrification: – Hybrids – eDrive • Diversified materials and surface finish: – Friction materials – Synchronizer materials – Seals • Increased power density / reduced oil sump: – Higher operating temperature
  70. 70. © 2015 The Lubrizol Corporation, all rights reserved.6 Market Trends of ATF * Copyright “ZF Friedrichshafen AG” Unprecedented era in automatic transmission design options Fuel Efficiency Drives New Transmission Design 2002 6-Speed Conventional (AT) Mid 1990’s Belt & Chain Drive (CVT) 1940’s - Present Conventional (AT) 2004 Dual Clutch Transmission (DCT) 2007 ZF 8-Speed Conventional (AT)* 2011-2014 9 (10) Speed Conventional (AT)* • Moving towards automation (no longer a simple question of manual vs. automatic) • Resulted in fragmented market in both hardware and lubricants • Higher lubricant technical investment – Test development – Fluid development • Pace of change are increasing / development cycle are shortened
  71. 71. © 2015 The Lubrizol Corporation, all rights reserved.7 New Transmission Designs are Growing Share of Global Production
  72. 72. © 2015 The Lubrizol Corporation, all rights reserved.8 North American Light Vehicle Transmission Forecast Observations: • Conventional stepped automatic will remain the transmission of choice with speeds increasing from 6 to 8 and even higher • Loss of share from ATs to CVTs, thanks to significant push from Honda and Nissan • DCTs may not grow as much as expected due to reduced momentum at Ford, though potential for growth from imports “e.g. VW Group” Source: IHS January 2014 7.4% 71.3% 18.5% 2.7% 2020 NA Production Forecast MT AT CVT DCT 8.7% 78.3% 9.6% 3.5% 2013 Production MT AT CVT DCT
  73. 73. © 2015 The Lubrizol Corporation, all rights reserved.9 Asian and US Brands Dominate North American Sales • Chrysler classed as North America even though now officially ‘FCA’ • Subaru parent company is Fuji Heavy • North American sales exclude Mexico Total vehicles: 18,350,875 ~ 80% AT type transmission Parent Origin Market Share North America 45% Asia 46% Europe 9% Passenger Car and Light Truck Sales 2014 Source: IHS January 2015
  74. 74. © 2015 The Lubrizol Corporation, all rights reserved.10 North America Vehicle Parc 2013 Brand Origin % of market North America 59% Asia 34% Europe 7% Source: Polk 2013 Passenger Car and Light Truck Sales 2014 • Total vehicles 249,418,837 • Average vehicle age 11.4 year
  75. 75. © 2015 The Lubrizol Corporation, all rights reserved.11 European DCT Production • North America there are an estimated 2M DCT vehicles • DCT’s are split 50 / 50 wet / dry clutch • Dry DCTs are exclusive to Ford
  76. 76. © 2015 The Lubrizol Corporation, all rights reserved.12 North American Wet DCT Production Data Including imports total wet DCT vehicle population in NA is estimated to be ~1 million vehicles* *Lubrizol 2013 ** IHS 2013 **
  77. 77. © 2015 The Lubrizol Corporation, all rights reserved.13 There is a growing market for a multi-vehicle CVTF in North America • CVTs have been in the North American market for many years • CVT production in North America is forecast to double between 2013 and 2020 Continuously Variable Transmissions Manufacturer CVT Start Year Honda 1996 General Motors 2002 Volkswagen/Audi 2002 Nissan 2003 Mitsubishi 2003 Ford 2005 Chrysler/Dodge 2007 Subaru 2010 Source: Motor Information Services: ChekChart
  78. 78. © 2015 The Lubrizol Corporation, all rights reserved.14 CVT Specifications Vehicle / CVT Fluid CVT Type Audi/VW (TL 52180; G 052 180; G 052 516) Chain Ford (CFT30/WSS-M2C933-A/Motorcraft XT-7-QCFT, MERCON C) Chain Subaru (i-CVTF, Lineartronic CVTF, K0425Y0710, CV-30) Chain BMW 8322 0 136 376 / 8322 0 429 154 (EZL 799A) Belt Daihatsu Amix CVTF-DC, Daihatsu Amix CVTF-DFE* Belt Dodge / Jeep (NS-2, CVTF+4/MOPAR CVT 4) Belt Ford (CVT23) Belt GM/Saturn (DEX-CVT, CVTF I-Green2*) Belt Honda (HMMF, HCF-2) Belt Hyundai / Kia (SP-CVT 1) Belt Mazda CVTF 3320 Belt Mercedes Benz CVT28/MB-Approval 236.20 Belt Mini Cooper (EZL 799A/ ZF CVT V1) Belt Mitsubishi DiaQueen (CVTF-J1, CVTF-J4*) Belt Nissan (NS-1, NS-2, NS-3*) Belt Punch (EZL 799A) Belt Shell Green 1V Belt Subaru e-CVTF Belt Suzuki (CVTF 3320, TC, NS-2, CVTF Green 1, CVTF Green 2*) Belt Toyota/Lexus (TC, FE*) Belt • Hybrid CVTs usually use an ‘E-CVT’, this is not a traditional CVT • It uses a wet start clutch and does not have a belt / chain • OEMs (Toyota, Ford, Honda) usually recommend their low viscosity ATF in these applications * Low viscosity
  79. 79. © 2015 The Lubrizol Corporation, all rights reserved.15 North American Light Vehicle AWD 4.85% 95.15% 2001 AWD are projected to continue to grow 11.92% 88.08% 2006 24.95% 75.05% 2011 FWD/ RWD AWD Source: CSM Automotive, 2012
  80. 80. © 2015 The Lubrizol Corporation, all rights reserved.16 FWD continue to grow market share 54.68% 45.32% 2001 North American Production FWD vs. RWD 57.06% 42.94% 2006 67.28% 32.72% 2011 Source: CSM Automotive, 2012 RWD FWD
  81. 81. © 2015 The Lubrizol Corporation, all rights reserved.17 Growth in Class 5 and 8, Class 4 shrunk considerably Heavy Duty 10 Year Sales Trend Class 4 12% Class 5 9% Class 6 16% Class 7 20% Class 8 43% 2003 Class 4 3% Class 5 17% Class 6 13% Class 7 14% Class 8 53% 2013 Source: ATA Trends 2014, pg. 30
  82. 82. © 2015 The Lubrizol Corporation, all rights reserved.18 Ford 13.6% Freightliner 34.0% Hino 2.3% International 15.4% Isuzu 3.5% Kenworth 9.3% Mack 5.0% Mitsubishi Fuso 0.6% Peterbilt 9.1% UD Trucks 0.1% Volvo Truck 6.3% Western Star 0.9% By Brand Heavy Duty Truck Sales Source: ATA Trends 2014, pg. 32
  83. 83. © 2015 The Lubrizol Corporation, all rights reserved.19 Daimler 38.2% Navistar 14.4% PACCAR 27.4% Volvo 20.0% By OEM Freightliner 36.6% International 14.4% Kenworth 14.0% Peterbilt 13.4% Mack 8.8% Volvo Truck 11.2% Western Star 1.6% By Brand Class 8 Commercial Vehicle OEM Market Share Source: ATA Trends 2014, pg. 31
  84. 84. © 2015 The Lubrizol Corporation, all rights reserved.20 Commercial Vehicle Transmission Market Share 47% 35% 5% 13% Class 4-8 Truck Transmission Market Share 2010 Allison Eaton OEM Other Source: Frost & Sullivan
  85. 85. © 2015 The Lubrizol Corporation, all rights reserved.21 Commercial Vehicle Axle Market Share 39% 37% 24% Class 6-8 Truck Axle Market Share 2011 Dana Meritor Other Source: 2008 | Frost & Sullivan’s Strategic Analysis of the North American Class 6-8 Truck OE Ride Systems Markets
  86. 86. © 2015 The Lubrizol Corporation, all rights reserved.22 Driveline Lubricant Trend
  87. 87. © 2015 The Lubrizol Corporation, all rights reserved.23 Driveline Market Trend - Lubricant • Extended drain interval • Average vehicle age increasing • Lower viscosity for efficiency • Improved durability – Better wear protection – Better thermal / oxidative stability – Improved anti-shudder performance • Friction performance – Application specific – ATF, CVT, DCT, MT, LS, AWD • Increasing use of group II, III, and synthetic – Additive compatibility – Seal compatibility • Dedicated driveline fluids - complexity – ATF; CVTF; DCTF; MTF; Axle fluids
  88. 88. © 2015 The Lubrizol Corporation, all rights reserved.24 North American Gear Oil Market 69% 15% 16% Commercial Gear Oil by Country United States Canada Mexico 91% 9% Conventional vs. Synthetic Conventional Synthetic 58% 28% 5% 9% Commercial Gear Oil by Viscosity 80W-90 85W-140 Other Conventional Synthetic 68% 32% Commercial Vs. Consumer Commercial Consumer Source: Kline LubesNet Database 2013
  89. 89. © 2015 The Lubrizol Corporation, all rights reserved.25 Driven by end-user needs for rationalization Unlicensed ATFs Dominate Service Fill Market Source: Estimated by Lubrizol 2014
  90. 90. © 2015 The Lubrizol Corporation, all rights reserved.26 Increased Operating Temperatures Lower Oil Level’s Increased Power Density Improved Aerodynamics Reduced Air Flow and Cooling Noise Shielding Changes in Equipment Design Equipment Design Change Increases Operating Temperature Desired lubricants: • Better thermal stability • Reduce break-in temperature • Reduce operating temperature
  91. 91. © 2015 The Lubrizol Corporation, all rights reserved.27 Extended Drain Intervals – Gear Oils 0 100 200 300 400 500 600 ZF Volvo Scania Renault MAN Iveco Eaton Daimler DAF Drain interval, 000’s of km 1990 / 1995 2008 OEMs are extending oil drain intervals - a worldwide fact: • Passenger vehicles manual transition and axle are filled-for-life • Commercial vehicle manual transmissions and axles require oil drain intervals • Driving force is extended warranty in competitive market • Use of mineral base oils will move to Group III or synthetic Increasing lubricant durability Increasing oil drain intervals
  92. 92. © 2015 The Lubrizol Corporation, all rights reserved.28 ‘Fill-for-Life’ Increasingly Common for ATF 2014 Rank Make / Model Year Recommend Inspect Interval Miles Recommended Change Miles 1 Ford F-Series (F150 data) 2014 15,000 150,000 2 Chevrolet Silverado 2014* 97,500 3 Dodge Ram Pickup 2014 Every 10,000 miles (8HP)* 60,000 (non 8HP) 4 Toyota Camry 2014* 30,000; 60,000; 90,000; and 120,000 5 Honda Accord 2014*** 15,000 30,000; 60,000; 90,000; and 120,000 6 Toyota Corolla/Matrix 2014* 30,000; 60,000; 90,000; 120,000; 150,000 (CVT) 7 Nissan Altima 2014* Every 10,000 miles to 150,000 miles (CVT) 8 Honda CR-V 2014* 120,000 9 Ford Fusion (4 cyl) 150,000 10 Ford Escape 150,000 * Source: AllData ** 60,000 miles for Cube, Murano, Altima, Altima Coupe, Maxima, Rogue, Sentra, and Versa CVT fluid. Automatic transmission fluid for 370Z is maintenance free. *** Recent Honda models use an in-dash system- Honda does not publish maintenance intervals for these. This information is from www.driverside.com Sales data source: goodcarbadcar.net Top Selling Models 2014
  93. 93. © 2015 The Lubrizol Corporation, all rights reserved.29 New hardware design requires dedicated axle and MT fluid technology Gear Oil Technology Evolution Manual transmission fluid 1960 SAE 90 Sulfur Phosphorus API GL-5 1991 SAE 80W-90 1995 SAE 75W-90 2012 SAE 75W-85 Mineral Based Axle Lubes Wide Span Multi Grade Fuel Efficient Dedicated Axle Fluids 1960 SAE 90 Sulfur Phosphorus API GL-4 1991 SAE 80W-90 1995 SAE 75W-80 2009 SAE 75W-80 Total Driveline Fluid Dedicated MTF Gen I Dedicated MTF Gen II Axle fluid KV@100C: 13.5-18.5 cSt 11.0-13.5 cSt KV@100C: 13.5-18.5 cSt 13.5-18.5 cSt 11.0-13.5 cSt 11.0-13.5 cSt <7cSt Dedicated MTF PC
  94. 94. © 2015 The Lubrizol Corporation, all rights reserved.30 OEMs are increasingly using lower viscosity fluids to realize further efficiency improvement Fuel Efficiency Drives Fluid Viscosity Lower Automotive Gear Oils * Source Lubrizol Conventional 7.0-8.0 cSt Low Viscosity 5.5-6.2 cSt Ultra-low viscosity 4.5cSt Automatic Transmission Fluids ATF+4, T-IV, Dex III / Merc, LT 71141, MERCON® V, Z1, SP-III, LA2634, Matic-J, N402, G 052 162, etc. DEXRON® -VI, MERCON® LV, MERCON® SP, WS, DW-1, Matic-S, SP-IV, M-1375.4, G 055 005, etc. MB 236.15 SAE 140 SAE 90 SAE 80 SAE 75W140 SAE 75W90 SAE75W90 FuelConsumption SAE 75W85 SAE75W80 SAE 75W80 SAE75W, 5-7cSt Axle MTF Emerging market, moving to lower viscosity Leading global OEM, pushing for super low viscosity Lower viscosity
  95. 95. © 2015 The Lubrizol Corporation, all rights reserved.31 Balancing Demands • OEMs and end users are demanding improved fuel economy – Reduce vehicle operating costs – Reduced legislative penalties – Reduce environmental impact • Hardware design/materials now more complex • However, component durability is essential A balanced approach is needed Fuel Economy without Compromise Durability
  96. 96. © 2015 The Lubrizol Corporation, all rights reserved.32 • OEMs and end users are demanding improved fuel economy – Reduce vehicle operating costs – Reduced legislative penalties – Reduce environmental impact • Hardware design/materials now more complex • However, component durability is essential Maximize Fuel Economy Hardware Durability A balanced approach is needed Fuel Economy without Compromise Durability Balancing Demands
  97. 97. © 2015 The Lubrizol Corporation, all rights reserved.33 Fluids need to be tailored for hardware / OEM to achieve optimum performance Unique Fluid Performance for AT, CVT and DCT Stepped Automatic Transmission Continuously Variable Transmission Dual Clutch Transmission • Stable shift clutch friction across multiple materials • Strong anti-shudder torque converter durability • Emphasis on anti-wear with increased gear ratios along with lower viscosity • Pump efficiency and reduced aeration with lower viscosity • High metal to metal friction • Strong antifoam performance • Shear stable viscosity modifier • Strong anti-wear for belt/chain • Strong anti-wear for gear wear • Strong anti-shudder durability • Synchronizer friction stability
  98. 98. © 2015 The Lubrizol Corporation, all rights reserved.34 How to balance the needs continue to be a challenge Market Trends of Driveline Lubricants Hardware diversification requires the use of dedicated fluid which leads to complexity and fragmentation in driveline lubricant market End Users and oil marketers are looking for simplified product lines to meet a wide range of OEM AT applications and for supply reliability, BCP, and cost management
  99. 99. © 2015 The Lubrizol Corporation, all rights reserved.35 Driveline Lubricant Development Durability and Efficiency
  100. 100. © 2015 The Lubrizol Corporation, all rights reserved.36 Durability Testing and Validation Component Level Evaluation (Non- Standard) • Wheel hub testing • Stationary axle testing • Gear durability • Bearing wear and life Laboratory Simulation Testing • Baker grade simulation • Full transmission and axle durability Vehicle Testing • Chassis dyno testing • Davis Dam / Baker Grade, etc. • Field testing Standard Testing • Lab testing • Industry ASTM/ L- bench tests • Friction test
  101. 101. © 2015 The Lubrizol Corporation, all rights reserved.37 Efficiency Testing and Validation Laboratory Simulation Testing • Axle and transmission efficiency • Baker grade simulation • AT spin loss Vehicle Testing • Chassis dyno testing • Baker grade • Vehicle mpg validation Laboratory Testing • Viscometric • Reological • Tribological • Thermal testing (viscosity•speed) load Coefficientoffriction Log (Viscosity) tempera ture VM o C
  102. 102. © 2015 The Lubrizol Corporation, all rights reserved.38 Testing Strategies for Gear Oil Development Fundamental Fluid Properties Viscosity Viscosity Index (VI) Low Temperature Behavior Traction Film Thickness under Pressure (Optical EHD) Shear Stability (KRL) Dyno Performance Electric Driven Engine-Fired Staged FTP-75/NEDC Sim Road Course Sim Staged High Torque Durability Simulation Material Compatibility Bearing Durability Thermal Stability Ultimate Proof-of- Performance: Field Testing EfficiencyDurability
  103. 103. © 2015 The Lubrizol Corporation, all rights reserved.39 Additive system, performance polymers and quality base oil work together Lubrizol Commercial Vehicle Efficiency Test Rig Axle Efficiency @ 60° C
  104. 104. © 2015 The Lubrizol Corporation, all rights reserved.40 0.00 0.02 0.04 0.06 0.08 0.10 -2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 IronConcentration(%) Test Duration (h) New Additive Development for Improved Durability More durable tribofilm for AW 2 and 3 Antiwear 1 Antiwear 3 Antiwear 2
  105. 105. © 2015 The Lubrizol Corporation, all rights reserved.41 Specially designed viscosity modifier can significantly reduce operating temperature VM – Operating Temperature Performance SAE 75W90 Viscosity modifier system 1 SAE 75W90 Viscosity modifier system 2
  106. 106. © 2015 The Lubrizol Corporation, all rights reserved.42 New viscosity modifier is designed to have better cleanliness than PAO100 VM – Oxidative Stability Meridian® PAO100
  107. 107. © 2015 The Lubrizol Corporation, all rights reserved.43 Friction Modification is Specific for Each Application AT CVT DCT MT Axle – Limited Slip All-Wheel Drive Components Shifting Clutches and Torque Converter Clutch Belt/ Chain and Pulley Torque Converter Clutch or Launch Clutch Wet Start (Launch Clutch) Synchron- izers Synchron- izers Limited Slip Device Some examples: • Transfer case • Torque Vectoring • Coupling Materials Composite (Paper) material-on- steel Friction Steel on Steel Composite (Paper) material-on- steel Friction Composite (Paper) material-on- steel Friction Molybden- um, carbon fiber, bronze Molybden- um, carbon fiber, sintered bronze Composite (Variety) material- on-steel Friction Variety – depends on specific component Performance Stable clutch friction across multiple materials as well as strong anti-shudder durability Stable friction between the belt or chain and the pulley Stable clutch friction across multiple materials Stable clutch friction across multiple materials as well as strong anti-shudder durability Smooth gear engage- ment, low wear rate Smooth gear engage- ment, low wear rate Stable friction, low NVH, Friction durability Depends on the component Low viscosity – low drag torque on disconnect system (e.g. coupling)
  108. 108. © 2015 The Lubrizol Corporation, all rights reserved.44 Summary • Moving to automated manual or automatic transmission • Increasing use of “filled-for-life” lubricants • Fuel efficiency drives hardware design changes: – More options: CVT, DCT, etc. – AT: more speed: 6 to 8 to 9 (10) speed • Market fragmentation in both hardware and lubricants • Driveline lubricants are moving to lower viscosity • Need stronger additives / chemistry / formulation to provide protection at lower viscosity • Friction plays a key role in delivering shift quality and driver experience • Friction modification is application specific • Increasing investment in testing and fluid development for tailored performance
  109. 109. © 2015 The Lubrizol Corporation, all rights reserved. Working together, achieving great things When your company and ours combine energies, great things can happen. You bring ideas, challenges and opportunities. We’ll bring powerful additive and market expertise, unmatched testing capabilities, integrated global supply and an independent approach to help you differentiate and succeed.
  110. 110. © 2015 The Lubrizol Corporation, all rights reserved.© 2015 The Lubrizol Corporation, all rights reserved. The Move to Lower Viscosity Engine Oils Lessons from Social Science April 23, 2015 Lubrizol Future Directions – Toronto, Ontario
  111. 111. © 2015 The Lubrizol Corporation, all rights reserved.2 Agenda • New Engine Oil Categories: – GF-6 – PC-11 • Recent Engine Oil Viscosity Changes • The Social Science of Adoption and Diffusion Viscosity changes – understanding and predicting
  112. 112. © 2015 The Lubrizol Corporation, all rights reserved.3 Lubricant is one piece of the puzzle that can help bridge the gap • 54.5 mpg is the new goal • The lubricant industry must do its part to help meet this goal CAFE Changes – Driving GF-6 C. Richardson. SAE Fuels and Lubricants Open Forum, April 16, 2013.
  113. 113. © 2015 The Lubrizol Corporation, all rights reserved.4 Lubricants enables next generation hardware and fuel economy • Direct contributor to CAFE improvements • Enables the use of GDI / TDGI GF-6A Performance Comparison
  114. 114. © 2015 The Lubrizol Corporation, all rights reserved.5 GF-6 is a major upgrade on fuel economy ILSAC Fuel Economy (FE) Evolution Over Time *Except GF-6B (xW-16) FE Improvement FE Durability
  115. 115. © 2015 The Lubrizol Corporation, all rights reserved.6 Era of Efficiency Driving to PC-11 FuelEconomy2016
  116. 116. © 2015 The Lubrizol Corporation, all rights reserved.7 • New category (1/1/2016) split by HTHS: – High HTHS – Backwards compatible to replace CJ-4 – Low HTHS – Fuel Economy grade for new engines • Key drivers: – Fuel efficiency and green house gas emissions – Bio-diesel fuel – Oil foaming concerns – Higher engine operating temperatures – Oil shear down The fragmentation of the US market continues and grows What Is PC-11?
  117. 117. © 2015 The Lubrizol Corporation, all rights reserved.8 New Viscosity Grades High HTHS Low HTHS 15W-40 10W-40 5W-40 10W-30 10W-30 5W-30 5W-30 High HTHS Low HTHS 15W-40 10W-40 5W-40 10W-30 10W-30 5W-30 5W-30 High HTHS 15W-40 10W-40 5W-40 10W-30 PC-11 UniversalPC-11 DieselCJ-4CI-4 Plus High HTHS 15W-40 • More viscosity grade choices for marketers • Universal oil phosphorus waiver not available for PC-11: – Forces reformulation – Challenging in T13 and wear tests • Creates market fragmentation
  118. 118. © 2015 The Lubrizol Corporation, all rights reserved.9 European On Highway HD Market 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2004 2005 2006 2007 2008 2009 2010 2011 5W-20 5W-30 10W-30 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2008 2009 2010 2011 2012 2013 2014 2015 5W-30 10W-30 10W-40 15W-40 20W-50 US PCMO Market Viscosity changes follow a pattern Recent Engine Oil Viscosity Changes
  119. 119. © 2015 The Lubrizol Corporation, all rights reserved.10 North American HD Market Viscosity Changes 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2010 2013 2016 0W-40 5W-30 5W-40 10W-30 15W-40 MarketShare North American HD market changing
  120. 120. © 2015 The Lubrizol Corporation, all rights reserved.11 Learnings From Behavioral Science • Prediction adoption rates of new technology, is not new: – Clothes dryers – Diesel locomotives – VCRs – Cell phones • What can this work teach us about engine oil changes: – Timing of market changes – Who to target with new products A greater understanding of the market advances your business
  121. 121. © 2015 The Lubrizol Corporation, all rights reserved.12 Key Behavioral Research Findings – Rogers Everett Rogers' Diffusion of Innovations: • Relative advantage – How big of a change is it? • Compatibility – Does it work with my existing systems? • Complexity – Is it difficult to implement? • Trial-ability – Can I give it a try? • Observability – Can I see the benefit? Does it apply to engine oils?
  122. 122. © 2015 The Lubrizol Corporation, all rights reserved.13 HD Engine Oil Example 2010 2.5% Innovators 13.5% Early Adopters 34% Early Majority 34% Late Majority 16% Lagards 10W-30
  123. 123. © 2015 The Lubrizol Corporation, all rights reserved.14 2016 2.5% Innovators 13.5% Early Adopters 34% Early Majority 34% Late Majority 16% Lagards 10W-30 5W-30 HD Engine Oil Example
  124. 124. © 2015 The Lubrizol Corporation, all rights reserved.15 2020 2.5% Innovators 13.5% Early Adopters 34% Early Majority 34% Late Majority 16% Lagards 10W-30 5W-30 HD Engine Oil Example
  125. 125. © 2015 The Lubrizol Corporation, all rights reserved.16 0 5 10 15 20 25 0 5 10 15 New adopters Imitators Innovators Key Behavioral Research Findings – Bass Frank Bass "A new product growth model for consumer durables" in 1969 • p the “coefficient of innovation” • Q the “the coefficient of imitation” Building mathematical models to predict markets First-time Use Year -
  126. 126. © 2015 The Lubrizol Corporation, all rights reserved.17 2010 2016 2020 10W-30 10W-30 10W-30 5W-305W-30 HD Engine Oil Example
  127. 127. © 2015 The Lubrizol Corporation, all rights reserved.18 Malcolm Gladwell “The Tipping Point” • The law of the few – connectors: – Who can help spread your message? – “Connected” people with wide-spread connections – Influencers  6 Degrees from Kevin Bacon • The stickiness factor: – How infectious is your message? – How memorable is your message?  Sesame Street and Blues Clues • The power of context: – Catch your audience at the right time and in the right mood  The Good Samaritan What are your messages? Key Behavioral Research Findings – Gladwell
  128. 128. © 2015 The Lubrizol Corporation, all rights reserved.19 Implications for Engine Oil Marketers Overall business strategy implications • Know your markets and your position in them: – Whether you are an industry leader, fast follower, or general marketer, you need to understand where a market currently stands and where it is going. • Level of diffusion depends on product: – 5W-30 – Innovators – 10W-30 – Early majority?
  129. 129. © 2015 The Lubrizol Corporation, all rights reserved.20 Implications for Engine Oil Marketers – Part 2 Product marketing and sales implications If you are marketing products early in the adoption process, consider: • Where are you in the process – Innovators, early adopters, majority, laggards • Rogers – Relative advantage, compatibility, complexity, trial-ability, observability • Bass – Innovation, imitation • Gladwell – Connectors, stickiness, context
  130. 130. © 2015 The Lubrizol Corporation, all rights reserved. Working together, achieving great things When your company and ours combine energies, great things can happen. You bring ideas, challenges and opportunities. We’ll bring powerful additive and market expertise, unmatched testing capabilities, integrated global supply and an independent approach to help you differentiate and succeed.

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