LANGHORNE, PA —
Every other week, aftermarketNews.com offers an interview with high-profile individuals in the automotive aftermarket. We give executives free rein to express their views on anything from the state of their corporations to recent legislative news to future trends in their niche markets. Here you see what matters to the newsmakers themselves.
Our latest edition of “Executive Interview” features Ken Schafer, vice president, and Henry Hippert, executive sales director, for Eastern Manufacturing.
Eastern Manufacturing is a manufacturer and supplier of catalytic converters and related emission control equipment for both original equipment manufacturers and the aftermarket. The company offers a complete line of direct-fit, universal and TRU High Performance catalytic converters, covering close to 1,000 applications. The company has earned certifications in more than 48 countries around the globe.
As Vice President of Eastern Manufacturing, Ken Schafer is responsible for the company’s day-to-day operations, including sales for large foreign and domestic customers, purchasing of raw materials and general management of the headquarters and manufacturing activities. A career employee of 34 years, Schafer is also a shareholder in the company. Since 1995, he has been managing the manufacturing plant. Prior to that, he ran Eastern’s automotive warehouse. Schafer began his career at Eastern in the company’s testing facility where he spent 15 years as an automotive technician.
Henry Hippert serves as Eastern’s executive sales director. Prior to joining the company in April of 2003, Hippert spent nearly seven years in sales and marketing for the automotive parts manufacturing and supply industry, most recently as the account manager for Johnson Matthey Catalytic Systems Division in charge of the Aftermarket and Japanese OEM accounts.
Hippert and Schafer took time out recently to chat with aftermarketNews.com about their concentrated focus on quality catalytic converters, as well as their recent expansion and global success.
Why does Eastern manufacture catalytic converters only, when all of your other competitors manufacture other exhaust products? What advantages does that give you?
KS: We devote all our time and energy solely into catalytic converters because we feel this frees us up to do what we do best, such as developing new formulas for making better catalysts. While our competitors may have many different projects on the table – a high-performance muffler or an aluminized pipe – we focus on making our catalyst the best on the market. I think we’ve done a pretty good job, because our converter performs better than anyone else’s out there.
HH: Because we are able to concentrate on one particular exhaust part, it allows us to hire employees that are experts in emissions control and catalysts, rather than just general automotive.
Eastern has been in the aftermarket business for 25 years. How has the company’s business and manufacturing philosophy changed over that time?
KS: Our philosophy has basically stayed the same. We began with a 5,000 square feet facility, remanufacturing core units and then moved to buying new units from Tri-D Industries in Ohio. But we always planned to do our own certifications and catalysts. Eventually, we started working with Johnson Matthey, a global emission control catalyst manufacturer, and built a very successful relationship developing specialized catalysts to meet the challenging aftermarket regulations around the world.
Since the late 1980s, we’ve been making our own catalytic converters, using our own block and certifications; the business has been expanded from there. We ended up buying Tri-D Industries and have recently moved into a new 115,000 square foot building that houses our corporate offices as well as our high tech manufacturing operation.
Our philosophy has never really changed. We believe that we have to continually improve our catalytic converter so it is better than anyone else’s out there. We want to do whatever it takes to get to that level. We’re certified now in 48 different countries, and we have 72 different certifications, which tells you that we constantly make our catalysts better and better.
Can you expand on the reasons for your recent growth and need to move to a larger facility? How you plan to maintain that direction over the next 3 to 5 years?
KS: We’ve always had good growth because of our product. Our growth can also be attributed to the knowledge that we have in the business. If we add up the total years of experience that we have in the automotive industry, just from our owners, it’s more than 110 years.
Our business really took off in about 1996-97, when we decided to sell to other countries that were interested in controlling their emissions. That’s what led us to expand into 48 different countries. There was a huge need for it. We filled that gap and we will continue to grow in that area, because it has not slowed down a bit. We expect to grow in other areas as well. In the next five to 10 years, there are going to be emissions regulations on various types of engines and vehicles, not just automotive.
What are some of the countries that you have expanded into and found success in?
KS: England, Mexico, Australia, Egypt and Chile.
HH: One of the biggest growth markets now, which will help with our expansion over the next three-to-five years, is China. Sales of new cars in China have been on the rise in the past couple years. The replacement parts market for those cars is also going to start growing in the next three-to-five years.
KS: We sell to China now. It’s a big plus for us that we started supplying these countries when they got into emissions. At first, they were just dabbling in it. But, as their governments decided that emissions needed to be controlled and mandated, those small orders became larger ones.
It’s nice to have a foot in the door and the correct certifications in hand when a country mandates emissions controls. Everything takes off and we are ready to begin immediate supply.
Are you involved in any of the brand protection or anti-counterfeiting measures that the industry has spearheaded in the past few years? Is this an issue for you?
KS: The Environmental Protection Agency (EPA) and California Air Resources Board (CARB) have always been looking for counterfeiters and fraud in converters. They are making an attempt and we are helping any way we can. We recently received a counterfeit converter from the Mexican government. It looked a lot like ours and we had to analyze it to be certain it did not come from one of our facilities. Our tests on the catalyst revealed the poor quality washcoat and low precious metal loading, alerting us immediately that it wasn’t our catalyst. It’s unfortunate things like this happen but the government assured us they are doing what they could to stop it.
HH: In our industry, one of the things that make it tough for counterfeiting is the sophistication of the catalyst inside the catalytic converter. A fly-by-night company can’t produce the same product we do because if it goes on to a car, it won’t pass the standard and can’t be sold.
KS: Physically, they may look the same; whether or not they perform is another matter. With the naked eye, you can’t tell the difference.
With OEM technology becoming increasingly sophisticated how do you see the aftermarket technology changing to keep up?
KS: I think you can sum it up in two words: time and money. The aftermarket is devoting a lot of time and money to developing better and better catalysts for OBD II vehicles and as new emission standards are passed, we must continue to adapt and change to meet the demand for cleaner air. We just have to constantly work at the technology. Very simply, we have to put a lot of money into it. The certifications are anywhere from $30,000 to $80,000 each. The time spent just to do one certification can take months. If it fails, you go back to the drawing board. Normally, what we do is take one of our converters that we know is going to work really well. We know it’s not going to fail, so we don’t end up going back to step one again. We may choose to make changes in the future and retest the converter to reduce costs as new technology becomes available. It’s all just a function of time and money.
As newer clean air regulations come into effect for the OEMs, how will Eastern have to change its product line to conform with new regulations?
KS: We have to work really closely with our catalyst supplier. They have all the sophisticated tools and equipment necessary to get us the best catalyst washcoat and precious metal loading. We purchase catalysts from the same companies that supply the OEM market. Although the precious metal loading may vary between the OEM and aftermarket, we do gain the benefit of our catalyst supplier’s experience and high tech manufacturing operations. They take that same knowledge and technology and move it over to our aftermarket division and make us more competitive with a much better product.
Also, the big market right now is for a high-volume, low-profit universal type of converter. As newer vehicles are introduced, they are becoming more and more complicated, with many different configurations for the catalytic converter. The shops just can’t insert a universal converter; it takes too much time. So, they are moving more and more to the direct fit converter, a higher end product that’s specifically built to fit a particular type of car and engine.
Based on the complexities of some of today’s cars, I see the industry getting farther away from universals and going to the direct fit converter.
We work on new converter applications every day. Our R&D department is constantly researching new applications and certifications, trying to keep us ahead of the industry. We may have between three and five new applications being worked on each day, and depending on the complexity, we may add a few new units per week.
How big is your R&D department and how does the product development process work?
KS: We have three people devoted to the R&D department, who physically make the units, but there is a whole process involved before it even gets to the R&D people. New designs have to go through our tech people to narrow down all the different parts – whether we have to have them made or sourced and whether the unit is even worth building. A potential product will go through probably 10 to 20 people before it actually gets to the R&D department.
Aftermarket leaders are always looking for new products to fuel growth. What has Eastern done to keep new product going?
We do a lot of shows to find out what the demands are in the marketplace. We are also members of the Manufacturers Emission Control Association (MECA). This group meets about four times a year. CARB and EPA people attend. It’s a big roundtable discussion and all kinds of questions are thrown out. It’s really nice because the EPA and CARB tell us what they want, the manufacturers explain what it would take to meet those needs and we get all the firsthand knowledge before it goes out to the public.
One of the big things right now is diesel. Diesel engines really don’t have any kind of certification or mandate for catalytic converters. Diesel is a big opportunity. We manufacture a diesel converter for pretty much everything, from a one-liter engine up to 12-liter engine, for giant trucks or even a stationary unit like a generator or other off-the-road units. That’s a decent market right now, and it is growing quickly. Diesel is a big frontier for us, but the biggest frontier, which hasn’t started yet, is the small engine market – lawn mowers, jet skis, things other than automotive.
You mentioned that Eastern has more than 72 emission control certifications all over the world; can you elaborate on why you need such a broad range of certifications?
KS: We’ve wondered about that ourselves, because they are very costly. What happens is, as new technology comes out, things change. When I go to, say, Egypt, the government wants some kind of a certification, so now we have to certify in Egypt. We may be able to use an existing unit, or we may have to change it depending on what type of gas they are using in the region.
Our last certification was an upgrade in Mexico. I took the converters that we are using here in the States and certified them down there. They performed so well, it blew the doors off everyone down there. If a new country accepts our CARB or EPA certification, we’re ready to go, but every country wants to add a little bit of their own regulations to it.
HH: A lot of countries want to be able to say that they have their own regulations. They also want to make sure that the manufacturers that are selling in their country are selling reputable product. They want to have their own certifications in their own countries and also for specific engine and weight classes as well. In the U.S. for example, you might have different sizes of catalytic converters that work on different applications. Each time you change something it means a new certification.
KS: I go over to Europe and they want every different engine family certified differently. Then I go over to Spain and do a number of certifications for whatever new cars are coming out.
Considering the high cost associated with emissions certifications and tooling, do you see much competition coming from foreign companies? How valuable is the Made in USA positioning?
KS: It is costly, and, if you are a prime supplier like Eastern, the competition is right here in the U.S. There are only a few companies that are able to compete for the market. If you’re too small, then you won’t have the facilities to run to Spain and get new testing done.
Even though all these other countries want to have their own certifications, they see the “Made in the USA” tag and it is still an icon for them. If the EPA and CARB have approved it, it’s a good unit. The U.S. was the first to mandate emissions in 1975 and it has snowballed from there. Now, when all these other countries come on board they are starting at step-one, and we have almost 30 years experience. Our converters have improved drastically over the last 30 years, and they will improve even more as we go on. The benefit for these other countries is that they don’t have to go through all the baby steps that we did. They can go right to what they know works, by looking at our certifications. What the U.S. does, they know is going to work. They eliminate all the costly steps that we have taken.
It’s good. If all these countries get together and clean up their air, it benefits us all.
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