Everyone knows the price of oil has skyrocketed. But that doesn’t mean it’s fat city for everyone in the industry. Just ask Costa Mesa-based 76 Lubricants, a division of Tosco Corp. “Our costs on raw materials are up 45%,” said Garry Rooney, president of 76 Lubricants. “We’ve been able to pass on only half of that to the marketplace. It’s a business that doesn’t have huge margins anyway. You still can go out and buy a quart of oil for the same price as 20 years ago.” The result has been tough times for 76 Lubricants. The division recently laid off one-fourth of its workforce, reducing it to 156 full-time employees, 45 of them in Costa Mesa. It recently shut down its refining facility in Richmond. At least Rooney can claim 76 Lubricants is profitable on an estimated $250 million in sales last year. Rivals such as Pennzoil-Quaker State Co. have struggled with profitability over the past year. “We earned money in 1999,not very much,” Rooney said. “I don’t think many of our competitors can say that. In the first four months this year, we got ourselves in a position where we were not making money. But with the restructuring we’ve put into place, we are again.” Still, Rooney said the company is under pressure. It gets less revenue for its product than it did 10 years ago. That’s due to better products lasting longer, he said. But along with suppliers increasing their prices, “The earnings in this business are not what anybody wants,” Rooney said. 76 Lubricants has taken other steps to redefine itself. It installed a new computer system last year and redesigned its office to give it a more high-tech feel and to promote communication among employees. “We felt we needed to get ourselves in a position to be more competitive, ride out this downturn,and a key was to stay profitable. To do that, we had to change the way we did our business,” he said. “We wanted to take 25% out of our cost structure. It took us awhile to work our way on how to get there.” Besides fierce competition keeping retail prices down, another reason profits are being squeezed at 76 Lubricants and others is consolidation in the oil industry, according to Rooney. Exxon Mobil Corp. created by the mammoth merger of Exxon and Mobil, now controls three-quarters of the world’s base stock of oils, which lubricant companies use to make their products, he said. “Any time you get one company controlling 75% of a commodity-type product, they have tremendous leverage,” he said. “We’re seeing it. They’re driving up prices. The industry’s being squeezed.” But for Rooney, the industry’s current state could yield opportunity. He said he’s looking to buy competitors. “I’ve contacted some companies that I think would be good acquisitions,” he said. “They’re not yet ready to give up on this business. I think they will.” 76 Lubricants’ parent, Old Greenwich, Conn.-based Tosco, “is constantly buying stuff,” Rooney said. Just eight years ago, Tosco was a one-refinery company with 900 employees and $1.2 billion in annual revenue. Since then, it acquired Circle K Corp. in 1996 and 76 Products Co. in 1997. This year, it’s bought three refineries, including one in Ireland.
Nowadays, Tosco is the nation’s largest independent refiner, capable of selling 6 billion gallons of fuel annually. It’s also the nation’s largest operator of convenience stores. Tosco now counts more than 6,500 gas and convenience stores operating under the names BP, Exxon, 76 and Circle K. It has 24,000 employees, most of whom work at the convenience stores. For the quarter ending June 30, revenue was $5.6 billion with earnings of $147.5 million. 76 Lubricants previously was part of 76 Products Co., a division of El Segundo-based Unocal Corp. In the mid-1990s, 76 Products was being prepared for a spin-off, and Larry Higby was brought in as its head. Higby moved the company from El Segundo to Costa Mesa. But the spin-off didn’t materialize, and Higby negotiated the sale to Tosco for $2.1 billion. Higby went on to become the president and chief operating officer of Costa Mesa-based Apria Health Care Group. Rooney has been working for 76 Lubricants for 24 years. He was in its marketing department and spearheaded efforts such as placing billboards on its trucks. “Why not take advantage of rolling billboards?” he said.
Rooney eventually ran 76 Lubricants, changing his title from executive vice president to president after Tosco bought it. Lubricants World, a trade industry publication, named Rooney as one of its “movers and shakers” back in 1998. In 1999, 76 Lubricants sales increased 18% to 65 million gallons of automotive and commercial motor oils, industrial oils, gear oils and greases. Rooney said the company’s been grabbing market share and now has about a 4% stake, placing it at No. 5 behind Pennzoil, Exxon Mobil, Texaco-Shell and Valvoline. Rooney said 76 Lubricants’ sales are growing about 10% a year, mostly by expanding into the Northeast.
76 Lubricants buys what’s known in the trade as base stock, which can come from competitors including Exxon Mobil. 76 Lubricants refines the oil at one of its three facilities (Los Angeles, Portland, Ore., and Savannah, Ga.). It also has five other companies that make products for it. The division then sells lubricants to 350 distributors and to retail stores. It has customers in more than 70 nations. It doesn’t sell to big retailers like Kmart Corp. or Wal-Mart Stores Inc., because the big volumes and low prices at those stores would hurt the company’s other distributors and smaller auto shops, Rooney said. Oil for passenger cars is about 25% of sales, while 50% is products for heavy-duty trucks. Another 25% is for heavy industry.
76 Lubricants has 700 products, of which 200 at any one time are in the market. Rooney said the products have short life spans, and the company’s been known to change upwards of 50 at a time. Some oil experts contend there really is not much difference in the oils produced for consumer vehicles. Rooney agreed that any major brand oil meets government qualifications so it can run vehicles. “But they’re all different,” he argued. “We all use different additive systems. We all have different expectations of our oils. They do different things. Some are formulated to handle dirt or soot or cold weather. Some to meet the classifications or to exceed them.”
Oil has substantially changed from what it was five years ago because automakers have built engines that have changed,they run hotter, don’t leak oil and are more fuel efficient, he said. “When cars leaked oil, you were always putting fresh oil in. So that oil can get old very fast. It’s under a lot of stress,” he said. “There’s a lot of dirt. The demands on oil are much greater than five years ago.” 76 Lubricants’ marketing department oversees a $5 million to $7 million annual budget that can be leveraged to $14 million with funds from its distributors. Most of that goes into print media. 76 Lubricants recently switched ad agencies, going with Bulldog Drummond in San Diego. With all the changes, could 76 Lubricants itself be an attractive acquisition or possibly a spin-off prospect again? Rooney said there are no such plans now. “We’re in the acquisition mode,” he said. “We’re trying to find someone to buy. This brand’s been in lubricants for 110 years. It’s my intent to keep it for another 110 years.”
