Coalition Seeks FTC Review of Dexos
A coalition including ILMA, Valvoline and the Automotive Oil Change Association asked the Federal Trade Commission to investigate alleged anti-competitive and deceptive practices by General Motors concerning its Dexos1 motor oil.
According to the Independent Lubricant Manufacturers Association, the coalition claimed GM’s licensing and royalty program for Dexos creates competitive distortions because the per-gallon royalty is based on an oil marketer’s overall market share, rather than actual Dexos sales. The coalition also pointed out GM is not charging the royalty on Dexos sales by the automaker’s service and parts organization to dealers. The royalty intentionally creates market distortions with the intention to harm competition, the coalition told the FTC.
The coalition claimed GM is subsidizing dealers’ purchases of Dexos with discounts and rebates. A dealer’s net cost of Dexos is at or below the cost of ILMA members to produce the product.
The group also claimed GM has engaged in deceptive practices with its marketing of Dexos, using language in its web site, owners’ manuals and in marketing materials to mislead car owners into believing use of anything other than officially licensed Dexos motor oil can damage their engines and void their warranty.
John Haraldson, senior counsel for Valvoline parent company Ashland, asserted that Valvoline has three engine oil formulations that meet GM’s Dexos specification.
“We took the formulations through an additives supplier, and submitted them to GM for licensing,” he stated. “I’m told we have letters on all three of the formulations, and I have a copy of the letter on one formulation where GM approved the product for licensing – they didn’t know it was Valvoline. We opted not to license. We know that our product does meet the Dexos specification because they offered to license it.”
Haraldson said the group takes issue with statements on the Dexos web site that claim consumers can’t trust unlicensed products and that engine oils not licensed as Dexos don’t meet performance specifications.
“We think those things are clearly lies that go well beyond the puffing and other marketing things, and whether or not we choose to do something beyond going to the FTC is in the realm of possibility,” he asserted. “We have not made decisions on that yet. I can tell you we’re not the only oil marketer who is upset about those claims.”
He said Valvoline also plans to send a letter to its franchisees and other people it does business with to ask them to send the letters in to Congress, asking them to urge the FTC to investigate, Haraldson said.
“The FTC has told us that they see issues there, and they’re trying to get their hands around it,” ILMA General Counsel Jeffrey Leiter told Lube Report.
Leiter said the coalition believed it was important to get a boost from the people that oversee the FTC. “So we went up last month and made a series of meetings with a number of offices on Capitol Hill on both the Senate and House side, with the relevant committees.”
Pat Wirth, president of Automotive Oil Change Association, said Dexos has been very detrimental to the entire automotive aftermarket industry. “There’s just unbelievable misinformation out in the marketplace,” Wirth told Lube Report. “It has been a nightmare for our members.”
She explained how the association’s quick lube members have been impacted by Dexos, when customers come in with their 2011 GM vehicles. “These are people that have been driving Chevies forever, and they just bought a new Chevy and always had conventional oil changes,” Wirth said. “Now all of a sudden they’re going to have to pay for an oil change that’s maybe $30, $50, $60 more than what they’re used to. And they think our industry is ripping them off. Even though we direct them to their owner’s manual, they think we’re just making this up.”
Wirth also claimed that many GM dealers themselves often don’t know what is going on with Dexos. “And then of course we have information showing that dealers are getting the product cheaper than what we aftermarket businesses can purchase it for, which puts us at a competitive disadvantage. The big fear is, so goes GM – and they stand to make $50 million a year if all the oil companies license this – then why aren’t the other dealers going to do this as well?”
AOCA will send its members letters which they can sign and send to their representatives in Congress. “It’s pretty obvious the intent here with this product in America is to put aftermarket businesses out of business and to bring the cars back to the dealers,” Wirth said. “The FTC needs to do their job on this. We’re not telling congressmen they need to side with us. Just get it investigated and look at the facts because they’re just so blatant.”
The coalition also includes the Automotive Aftermarket Industry Association, Service Station Dealers of America and Allied Trades, and the Tire Industry Association.
Paul Fiore, executive vice president for Service Station Dealers of America and Allied Trades, said, “It’s just another method for them to capture some share of the automotive aftermarket repair in what is obviously an inequitable fashion.”
Aaron Lowe, Automotive Aftermarket Industry Association’s vice president of government affairs, said if all the auto manufacturers were to have their own separate motor oil, it would create a lot of issues in distribution. “We’re also fearful it will drive more consumers back to the dealer, because they won’t understand they don’t have to use an actual Dexos-licensed motor oil but can use an oil that has the same specifications,” Lowe told Lube Report.
Lowe opined that GM really hasn’t demonstrated the need to have a separate, proprietary motor oil. “The current system we think has worked very well with GF-5, and all the oil companies meeting one standard,” he said. “Then consumers know if they use that oil, they’re not going to create problems for themselves. This raises the level of confusion for motorists.”
Dexos2, designed for use in passenger car diesel engines, launched in 2009 in Europe. Its gasoline-fueled counterpart, Dexos1, became available globally for GM’s 2011 model year vehicles. The Dexos specifications use performance tests from ILSAC and Europe’s ACEA, along with some proprietary GM tests.