By George Gill
General Motors has switched the licensing fee on its Dexos
global engine oil specification from a royalty on every gallon of Dexos sold to
a flat annual fee based on an oil company’s market share, a GM official
confirmed to Lube Report.
Originally, licensees were to have paid a $1,000 annual fee
for each product, plus a royalty of 36 cents on every gallon of Dexos they
Eric R. Johnson of General Motors Powertrain, North America,
said his company made the change to a flat annual fee in response to feedback
from oil marketers.
“Oil companies have indicated that a flat fee helps
dramatically reduce the logistics that would be needed to comply with the required
reporting under the per-gallon fee structure,” Johnson told Lube Report. “Oil
companies have indicated that this gives them the freedom to tailor a Dexos
rollout program that fits within their individual marketing and manufacturing
plan. It also frees the oil company to match production with demand, on a manufacturing
plant-by-plant or region-by-region basis. We agree with the oil companies that
this is a more user friendly process.”
None of the oil majors contacted by Lube Report about the Dexos
fee change had replied by deadline yesterday. As of press time, GM officials
had not provided Lube Report with more detail on how the flat fee is
According to industry sources familiar with Dexos, GM will
calculate the flat fee by using the total passenger car motor oil market in
gallons, GM’s market share percentage and the oil marketer’s market share
percentage. GM uses those three numbers to calculate the potential number of
gallons of an oil marketers’ PCMO – everything, not just Dexos – that could end
up in GM vehicles. The automaker does this individually for each region,
sources indicate, though an oil marketer has to buy a global license.
GM then charges a per-gallon fee on the resulting number,
Sources suggested GM considers the fee a “flat” one in that
GM looks at market shares today, and then calculates what an oil marketer’s fee
will be over the next four years.
Previously, GM’s Eric Johnson said the royalties were needed
because a number of engine sequence tests are soon going to need replacing, as
they become obsolete or the hardware becomes unavailable. He noted that GM’s
costs for engine test development will be huge, and the company needs to
prepare for that.
The Dexos licensing fees are far beyond what the lubricants
industry is used to paying to the American Petroleum Institute. Currently,
licensees pay a flat fee of $1,250 per company ($250 more for non-API members),
and an annual royalty of $0.002 per gallon for volumes exceeding 1 million gallons a
year. The fee entitles the qualifying oil to show API’s donut and/or starburst trademarks.
In a November 2009 letter to GM, Independent Lubricant
Manufacturers Association officials stated their opposition to the royalty
system. “ILMA firmly believes that GM’s substantial per-gallon royalty charge
is a barrier to entry for independent lubricant manufacturers and poses serious
In the letter, ILMA pointed out that because there are four Dexos
viscosity grades, the basic annual licensing fee paid to GM would be $4,000 per
company. “Accordingly, ILMA questions why GM’s royalty is and needs to be
approximately 240 percent higher than API’s royalty (not including the first 1
million gallons without a royalty under the API license).”
ILMA General Counsel Jeffrey Leiter yesterday said it’s
unclear whether GM’s fee change addresses those concerns, especially the vast
difference compared to API’s system. “When looking at API’s license fee, the
way that’s set up is such that we think it’s very fair in terms of minimizing
any entry barriers you might have,” he told Lube Report.
Leiter said ILMA remains concerned about whether GM dealers
will have the same royalty fees included in their purchase price of Dexos oil. “I’ve
been led to believe by some industry folks I’ve talked to that GM does not
intend to pass the royalty or licensing fee through to the dealers,” he
continued, “which would give them a competitive advantage over quick lubes and
other places where folks could buy product. ILMA members would be selling to
the quick lubes and people like that, so that becomes the other concern we’d
still have and would want to see addressed.”
ILMA has been approached by organizations other than API and
quick-lube groups about concerns over Dexos, according to Leiter. “We still haven’t
been able to come to any sort of agreement with these other groups about a
particular strategy to approach GM on addressing all these concerns.”
The Center for Quality Assurance, part of the Midland,
Mich.-based Savant Group, serves as program administrator for Dexos licensing.
Dexos 2, designed for use in passenger car diesel engines, launched last year
in Europe. The company plans to make its gasoline-fueled counterpart, Dexos 1,
available globally for its 2011 model year vehicles.
Dexos uses performance tests from ILSAC and Europe’s ACEA,
plus some proprietary GM tests.
Some formulators who have reviewed the Dexos specification
say they can only achieve it through heavy use of API Group III or
polyalphaolefin base oils, due to its low Noack volatility limits. GM’s Johnson
has said the specification is designed around GM’s performance needs, and not
to exclude other base oils.