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LEADING EDGE

BRETT

FRASER

is the member programs specialist for the Automotive Oil Change Association (AOCA), the only trade group for the quick maintenance industry.

INFO

@AOCA.COM OR 800.230.0702

The Larger Picture

How will interest rate hikes affect mergers and acquisitions?

OVER THE LAST FEW YEARS, ACROSS MANY INDUSTRIES, the trend of mergers and acquisitions has grown. Fueled by low interest rates, financial uncertainty in the wake of pandemic responses, changes in product demand across industries, and many other factors. We have all seen this trend take place in the fast lube industry. Now we see the cost of borrowing increasing, and as one of the commonly cited driving factors of this trend, it is reasonable to question whether or not that will adversely affect future M&A activity.

Below are some relevant factors that may help you formulate an educated opinion on what will happen next and respond accordingly with your individual operation.

How will the increased cost of borrowing affect deal structure?

When money is more expensive to borrow, people want to borrow less of it. A likely scenario is that, when any acquisitions occur that require money to be borrowed, the goal will be to borrow less. Likely, a higher percentage of the purchase price will be covered by liquid capital. Cash is king! If these transactions are to continue, those who would be more likely able to continue these would be those who do have the financial means to do so. The rise in interest rates is a decelerator of acquisition activity. However, this does not mean that trend equally affects all of those looking to participate in these types of transactions. It may push some players out of the market, but that would mean less competition for those who are still able to complete these deals on the less favorable terms. It may even increase their bargaining power. This would more greatly benefit the larger corporations. The interest rate hike alone will not be the lone causal factor for an industry change in acquisition activity.

How will the increased cost of borrowing affect the timing of deals?

This change will either expedite the timing of these deals or slow it down, and that is all dependent upon the acquirer’s view on which direction the economy will head next. If there is belief that the rate increases will continue, there is an added sense of urgency to complete the deal, as the terms now are going to be more favorable than those if the transaction were completed later. As 2022 nears an end, we have already gone through six rate hikes this year as an effort to curb inflation, yet, particularly in the real estate market, we have not seen correlating price decreases. Financial service company Grant Thornton posted an article on its website, stating that 72% of 150 merger and acquisitions professionals interviewed expect the M&A activity to increase as 2022 bleeds into the early part of 2023. An increase in corporate taxes would also likely accelerate the desire for M&A activity before the rates increase.

On the flipside, if the acquirer feels that the current fed rate hikes will decrease in the future or they feel that deflationary measures will have the intended effects, they may wait to acquire until they can achieve more favorable terms. This latter scenario is not likely, as both inflation and deflation take time to make their true effects felt. So, anybody holding on until there are more favorable terms would likely be driven by the idea that more favorable terms are actually coming, either in the way of decreased M&A competition, or by a decreased interest rate. Jerome Powell, Federal Reserve chairman, has stated that it is likely that the size of rate hikes will be reduced, but that doesn’t mean that the interest rates will be reduced, merely that the size of future increases will not be as large.

External Factors

Another driver of M&A activity is the slowing of economic movement. As consumer purchasing power is decreased through inflation, economic movement becomes more stagnant. This has been exacerbated by supply chain issues, as the overall stock available for purchase has been limited. As the supply of these bottlenecked items increased, the price decreases, and potentially negates some of the inflationary effects. With increased purchasing power, those businesses that are on the edge of being for sale may no longer be in the financial situation that forces their hand.

Conclusion

This analysis listed above is not meant to give an answer, but rather to illuminate some key factors and thought processes that will help you better predict how this may affect your individual situation. There is no singular feature that will cause M&A activity to increase or decrease by itself. It will be a collection of different societal and economic forces that push it one way or another. Focusing particularly on these key driving factors will allow for a more-informed view of what may come next.

API Standards and Programs Provide Benefits and Protections to Shop Owners and Operators

BY JEFFREY HARMENING, AMERICAN PETROLEUM INSTITUTE, SENIOR PROGRAM MANAGER – EOLCS/DEF/MOM

The American Petroleum Institute (API) works across the auto industry to develop motor oil standards that meet changing lubrication demands as engine technology advances. We have been licensing engine oils for almost four decades through the Engine Oil Licensing and Certification System (EOLCS). However, there is more to EOLCS than developing and licensing engine oils. There are a number of other programs that benefit shop owners and operators by providing protection and monitoring programs.

Engine Oil Licensing and Certification System

The most recognizable program from EOLCS is the voluntary licensing and certification program that authorizes engine oil marketers that meet specified requirements to use the API Engine Oil Quality Marks. API 1509 - Engine Oil Licensing and Certification System contains the latest engine oil performance standards and marketing guidelines for API Engine Oil Quality Marks. It governs how engine oil marketers certify that gasoline and diesel engine oils meet API’s stringent performance standards. The certification system provides assurance that shops, vehicle dealers and consumers are receiving the highquality motor oil they are expecting.

Aftermarket Audit Program

The API Aftermarket Audit Program (AMAP) supports the licensing and certification program through the sampling of API-licensed oils in the marketplace. Samples are tested to verify compliance with engine oil specifications and proper usage of the API Engine Oil Quality Marks. This ensures that oil marketers, distributors, shops and consumers can have confidence in the quality of API-licensed motor oils in the marketplace.

API-licensed engine oils are purchased in packages and from bulk tanks in the marketplace and tested to determine their physical, chemical, and performance properties. The results are compared to the formulations (the “Licensed Fingerprint”) submitted by the licensed oil marketer to API. Conforming oils will show test results that are consistent with the formulations on file with API and meet the API specifications claimed as well as all other EOLCS program requirements. Key elements of the program include: • To confirm the oil quality, all oil samples undergo elemental analysis and testing for required properties, which include viscosity at 100°C, hightemperature/high-shear testing, cold cranking, pumpability and volatility. • At regular intervals, the oils are also be tested for foaming properties, shear stability and oxidation, among others. • Product packages are inspected to make sure they correctly display the

API Marks, comply with licensing requirements and carry product traceability codes.

If a licensed oil does not match the physical and chemical data on file, API will work directly with the licensee to evaluate all nonconformances and take appropriate corrective action. Unresolved nonconformance issues are subject to additional enforcement actions. Actions may include termination of the license to display the API Marks and may result in a full product recall of noncomplying product from the marketplace.

Counterfeit Oils

Unfortunately, API occasionally encounters unlicensed engine oil products that falsely claim to be certified by API and may even display replicas of the API marks which are clearly intended to confuse distributors, shops, retailers and consumers. API is continually on the lookout for counterfeit products and takes these infringements very seriously.

In such a case, API works directly with the marketing organization responsible for the product and will require them to cease use of the API marks and recall these products from the marketplace. Failure by the marketer to meet API’s demands could result in additional legal action. API also hosts a public listing of Unauthorized Oils which highlights products or companies that are not licensed by API to display API Marks on their product labels. This listing is continuously updated as API works with infringing companies to remove their unauthorized products from the marketplace and alter their marketing materials accordingly.

The standards and programs established by API are continuously evaluated and updated as needed with input from OEMs, oil marketers, distributors, shop owners and other stakeholders in the industry. This helps assure shop operators that they are getting high-quality oil that will meet the needs of their customers’ engines.

If you have questions or need additional information, contact the API Engine Oil Licensing and Certification System (EOLCS) at eolcs@api.org.

A Time of Reflection and Resolution:

BY BILL BEYERLE, AUTOMOTIVE INSTALLED SALES MANAGER, CHEVRON LUBRICANTS ANGI SCHOOLCRAFT, LEAD MARKETING SPECIALIST, CHEVRON LUBRICANTS

The new year is the time when people make resolutions to improve their personal lives – to lose weight, read more books, or kick some bad habits. It’s usually a symbolic ritual – most resolutions don’t make it past January. It’s different for a business, though. It’s a time to review the past year and start making plans for 2023 based on what you’ve learned. For most businesses, it’s the end of the fiscal year, a time to tie up the books and get a clear picture of your financial performance over the preceding year. It’s also the time when your suppliers are rolling out their programs for the year ahead, so it’s important to know what’s coming and get aligned with them.

It’s no secret that the car maintenance business tends to slow down during this period. That’s just a fact. So why not take advantage of a brief lull to pause and reflect, analyze your business, and map out some goals and objectives for the coming year – things you don’t always have time for when you’re focused on day-to-day business demands. What went right this past year? What can you build upon and what would you do differently next year? Put yourself in a proactive rather than a reactive position.

Looking back, when were the peaks and valleys of traffic flow? Did you have the right inventory and the right staffing levels at the right times? Did you run into any supply issues? And was that because of your ordering practices or your suppliers’ product shortages? Answering these questions is important to make sure you don’t have too much or not enough product to balance with demand.

Thoroughly review your point-of-sale data. What is it telling you? Are you seeing any trends in the types of vehicles coming into your shop? Do you have the right mix of premium or synthetic oils on hand compared to conventional mineral-based products? Keeping up with changing automotive technology and consumer preferences is an ongoing challenge, and this is the right time to make any necessary adjustments in your planning for the year ahead.

Perhaps most importantly, with a year’s worth of financial records, look at your P&L and revenue drivers. Where are you making money? Where are you underperforming? What can you do to bring revenue up to where you want it? It might be time to think about adding or increasing your mix of ancillary products, whether that’s windshield wiper blades, fuel additives, or other things your customers may need. Are there other services you could provide such as emission testing or engine flushing? People don’t often think about what they need until their car is having issues, making strange noises or it’s time for an oil change.

Think about your own marketing and promotional activity and plan ahead. What worked for you over the past year? How can you more effectively and creatively direct your marketing dollars next year? Knowing your seasonal patterns from the prior year will help you figure out your marketing calendar for the year ahead. And of course, work with your suppliers so you can get in sync with their promotional programs and have the right products in stock for those events.

Unlike typical new year’s resolutions, the end of the year really is an opportunity to set realistic goals for your business based on the past years’ experience and data. Your plans have to be flexible and have a fallback position – as we’ve learned over the past few years, we need to expect the unexpected. But if you have some structure and a course of action, it’s easier to weather change and pivot than if you are simply reacting to events.

Happy holidays and best wishes for a prosperous and profitable new year.

Bill Beyerle has been with Chevron Lubricants for more than 25 years and is currently the Automotive Installed Sales Manager. You can reach him at BillBeyerle@chevron.com.

Angi Schoolcraft has been with Chevron Lubricants for more than 19 years and is currently the lead marketing specialist supporting Havoline® , Havoline xpress lube®, Chevron xpress lube® and Techron®. You can reach her at angi.schoolcraft@chevron.com

Six Tips to Help Your Customers Improve Fuel Economy

With current gas prices, enhancing real-world fuel economy is important to drivers. A car’s weight, aerodynamics, resistance, drag, and engine performance all impact gas mileage. Share these maintenance tips with your customers to help them get the most out of their wallet and their vehicle.

BY JIM CHANCEY, DIRECTOR OF AUTOMOTIVE PRODUCTS, PHILLIPS 66® LUBRICANTS

1. Choose a motor oil formulated for modern engines.

The push toward better fuel economy and decreased emissions has forced OEMs to develop more fuel-efficient, less polluting engines, which require more advanced motor oils that are specifically formulated to meet their unique challenges. • Gasoline direct injection (GDI) and turbochargers work together to enable a smaller engine to generate the same horsepower as a larger engine. • Stop-and-start technology allows an engine to turn off and on automatically when driving in traffic or high-congestion areas. • Variable compression engines enable high efficiency and high performance of smaller engines at highway speeds.

ILSAC GF-6 technology provides enhanced wear protection, prevents LSPI, improves fuel economy, and reduces carbon emissions in modern engines. Make sure the oils you pour meet the latest API & ILSAC specifications.

Learn about GF-6 and the advanced motor oils from Kendall that meet the specifi cation at KendallMotorOil.com/GF-6.

2. Perform regular maintenance

Dirty air filters, worn out spark plugs, and bad connections can all affect fuel economy. Following a vehicle’s recommended maintenance schedule will keep it running more efficiently and produce fewer greenhouse gas emissions. Give your customers the why behind any added service you recommend and explain how it could lower their gas mileage.

3. Keep tires properly inflated

A no cost approach to improved mileage, improved handling, and overall safety is simply keeping tires at the proper inflation pressure. Consider checking your customers’ inflation pressure and giving tires a quick visual inspection for free to build loyalty if you don’t already.

4. Skip the warm-up

The old adage of needing to ‘warm up the car’ before driving is a holdover from the days of carburetors and doesn’t hold true for today’s modern fuelinjected, electronically-controlled engines. Engines perform most e ciently at regular operating temperature, and the fastest way to reach that point is to drive right after starting the car. Give your customers this tip as the weather turns colder.

5. Slow down

Driving habits like speeding, rapid acceleration, and braking waste gas. It can lower gas mileage by roughly 15 to 30 percent at highway speeds and 10 to 40 percent in stop-and-go traffic. A little extra space between you and the car in front of you will reduce the need to brake and accelerate as often as traffic speeds ebb and flow. Offer a friendly reminder for customers to accelerate smoothly and, once up to speed, maintain a steady pace. Smooth acceleration, cornering, and braking also extend the life of the engine, transmission, brakes, and tires.

6. Remove roof racks, cargo boxes, and bike racks

Vehicles often have attached racks and boxes to carry things like luggage, bikes, skis, and surfboards. At highway speeds, more than 50 percent of engine power goes to overcoming aerodynamic drag. Carrying things on the roof or the tail hitch increases drag, increasing fuel use and lowering fuel economy. Encourage drivers to consider removing roof racks, cargo boxes, and bike racks from vehicles when they aren’t in used to cut down on unnecessary drag and improve mileage.

With the right motor oil and the right maintenance partner, drivers can improve fuel economy on the road. For more tips from Kendall, visit KendallMotorOil.com.

Keep Your Quick Lube Running Smoothly

Inefficiencies in the day-to-day operation of your shop can be a drag on your business. Bottlenecks in workflow can leave employees waiting around, bays empty, and vehicles unattended. Disorganized inventory can lead to mismanagement, resulting in over- or under-ordering products.

By taking control of your inventory and improving workflow, you can positively impact your bottom line. Here we’ll explore how you can do both:

3 Tips for Improving Inventory Management

• Managers should be the only ones to receive products from a vendor.

They’re the ones ultimately held accountable and therefore should be in charge. Also, a good rule of thumb is to make sure your delivery is accurate before the delivery agent leaves, and ensure you input products into your system before the end of the day. Otherwise, this can lead to inaccurate inventory counts. • When pouring oil or performing other maintenance services, scan cars into your POS system to help you track the work that’s been done.

Make sure to record top-offs in your POS system, as well, as they add up over time and can leave you with an inaccurate inventory. It’s also important that your POS is up to date and capable of tracking proper increments, like half-quart pours. • Make sure to take inventory consistently, counting faster-moving products monthly and slower-moving products quarterly.

Additionally, having someone else double check the count and perform inventory counts before or after store hours will help ensure accuracy.

5 Tips for Optimizing Workflow

• Improve in-shop communications by ensuring work funnels are optimized to complete repairs instead of causing bottlenecks or clogs. It also helps to identify communication processes that can be automated, such as lowtouch communications between the service writer and techs. • Foster a supportive and collaborative environment by listening to your team’s ideas when it comes to improving operations. Also, take notice if your teams are not working together – when that’s the case, it can be easier for problems to go unnoticed, causing delays and bringing down morale. • Empower your team to make approvals on their own. This will help speed things up and reduce frustration and even lost business. It can also free up you or your service manager to enhance your business in other areas. • Your team members aren’t just numbers on a balance sheet – they’re real people – and when you invest in their individual goals, they’ll feel engaged and motivated to do a better job. • Use metrics to gamify work and incentivize your team. A recent study1 found that gamification caused employees to feel happier and more productive at work. This friendly competition can rejuvenate your team and bring an element of excitement to their daily routine. It also gives you a chance to have fun and reward your team, and when your team feels valued, that’s when they can feel good about doing their best work.

By streamlining and improving your inventory management and workflow, you can set your business up to run more efficiently and help keep both your teams and your customers happy for the long run.

API (16, 59)

AutoCenter Sales (15) 800.874.5793

Auto Job Central (42)

Chevron (2, 40, 60) 866.354.4476

Devon Industries (48) 888.500.0353

ISI Software (68) 800.922.3099

ITW Global Brands (4, 41)

Kafko International Ltd. Oil Eater/Degreaser (19) 800.528.0334

Lucas Oil (12, 44)

Mighty Auto Parts (25, 43)

Milton Industries (8) 800.231.1525

Mobil 1 (67)

Phillips 66 / Kendall (56, 61)

RelaDyne (10, 42) 317.696.3009

Roth Industries (8) 888.266.7684

Service Pro (6, 45) 800.313.2463

Solid Start – True Brand (3, 46) 877.290.3950

Valvoline (26, 37, 62) 859.357.7303

Wrenchers (14) 800.261.7729

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