Having joined the company in 2003, Henry Hippert has been a major contributor to the dramatic and consistent growth Eastern Catalytic has demonstrated over the past several years. In today’s interview, Hippert brings us up to speed on recent expansion efforts taking place at Eastern thanks to the company’s continued growth and success, and also gives us an update on state-by-state CARB regulations.
Last time we spoke, roughly a year ago, the company had just expanded in Langhorne, Pa., with the addition of a new 103,000-square-foot finished goods inventory and shipping center. Tell us about the efficiencies and improvements the company has experienced as a result of this expansion.
Yes, the expansion is about 90 percent complete. Assembly of the final racking for our catalytic converters that have been granted an Executive Order (EO) from the California Air Resource Board (CARB) will be an ongoing process as we continue to add additional SKUs. The strategy for using the new building and extra production capacity has worked out perfectly and according to plan. The smooth product flow from production, through final QC, packaging, racking, to the daily FedEx trailers docked at one of 14 bays, gives our shipping team a good system to easily meet customer demands. We are now shipping all single-piece, drop-ship orders within one day and all large stock orders are going out in five business days at 100 percent!
Two years ago, I was dealing with a dilemma as sales director because I was literally turning away new business in order to satisfy our existing customers. Our production capacity was close to 100 percent utilization, yet our R&D people were continually adding more new direct fit parts. We had our hands full just fulfilling our promises. Now, we are on the complete opposite end, and things are great. We are open for new distributors who are looking to add highly profitable product lines to their mix. On top of that, we were able to pass on our efficiencies to our customers through our recent price reduction and have dropped the price on many A selling parts an average of 7 percent.
With the expansion and increased business, what is the pace like today for Eastern Catalytic, and what are your expectations for the next several years?
We continue to grow our core business of direct fit aftermarket converters but have also been expanding our horizons with many new small engine converter/muffler assemblies for generators as well as being awarded a new OE contract for a complete exhaust system. Over the next several years, we see some changes coming to the U.S. aftermarket for catalytic converters as more and more states either adopt CA regulations or drive the EPA to develop new regulations that are more in line with increased OE emissions legislation.
This change to emissions requirements has already been announced and passed into law in New York and Maine. These states now require that aftermarket replacements used on registered vehicles must be catalytic converters that have been granted an EO from CARB. Now, this does not mean that 100 percent of the New York vehicle population will need the new CA converters. Shops will need to check both the model year and emission type to determine what can legally be installed. To help clarify the situation, we are providing a complete explanation on our website. While the work we have put in to get EOs for the needed parts, as well as producing correct applications and cataloging them, has been a daunting task, we now have a great product line to satisfy not only the needs of shops in New York and Maine, but also to really boost our sales in California.
To ensure we are ready to meet the market demands for the Jan. 1, 2014, enforcement date in New York, we have committed a significant amount of finances and have also created what is, in essence, a CARB committee. This committee is comprised of a dedicated team of experts from Eastern and is being managed by Christopher Schafer, third generation of the owners of Eastern.
Do you have plans for any additional expansions?
We continue to look at many opportunities to either vertically integrate and bring some processes in-house through expansion or look for acquisitions within the industry. While our focus is currently on adding applications to both our EPA and CARB product lines, there is still plenty of growth available in overseas markets and OE Tier 1 and 2 supply. We can only hope to outgrow our current facilities again.
Eastern Catalytic has played a leadership role in the industry with respect to technology and regulations. Bring us up to speed on the states that now require the use of CARB-compliant catalytic converters and where you see this trend heading.
As I noted earlier, so far New York and Maine have elected to follow CARB regulations for converter replacement. But we expect other states to adopt similar regulations. Currently, 14 other states require CARB compliant emissions systems on new cars only. It is expected that by the 2017 or 2018 model year that all states will harmonize with CARB regulations under the new LEV III program. Conceivably, it will only be a matter of time before they extend their enforcement to the replacement market.
Tell us a bit about your customer base. We understand that you recently were awarded some new OE business.
Yes, we have a contract for a complete exhaust system. While we have been supplying OE manufacturers in Egypt, China and Ecuador for many years, this new contract will be our first as a Tier 1 supplier in the U.S. The company, Elio Motors, and its new vehicle, the Elio, are revolutionary in the automobile manufacturing segment. They have developed a three-wheeled vehicle that will be capable of 84 mpg and is expected to cost only $6,800. There is huge interest in the vehicle, which is currently on a nationwide tour to build brand awareness and create excitement for next summer’s first model year launch. We are very excited to be a part of this and it will really elevate our company to a new level. It’s a great new experience to be involved in the R&D process from the ground up and assisting in developing technology that will be used on the next big thing in transportation. We also continue to supply OE contacts outside the US, and we are targeting some growth in that segment as well.
While Eastern is based in, and manufactures its products in the U.S., you have a strong export business as well, as you mentioned. How many countries do you now export to, and how important is this segment of the business to your overall success?
The export business continues to be a huge part of our business. We work with many manufacturers around the globe that assist in the distribution of the final product, and we estimate that our customer base is spread out through about 58 different countries. As emissions legislation in those countries continues to become more stringent and similar to the U.S., we are continually developing new product to meet the requirements.
The catalytic converter is such a technology-driven product, and we are fortunate to be on the forefront of its development and evolution. And the investment that Eastern makes year after year is what keeps us on top of such a specialized industry.