Richard Giromini was appointed president and CEO of Wabash National Corp. on Jan. 1, 2007, putting him in the position of navigating the trailer maker through the Great Recession.
This spring, he spoke at Forbes’ inaugural Reinventing America Summit and at the Global Truck and Trailer Leaders Summit in Melbourne, Australia. We caught up with him last month:
HDT: Let's start with a general overview of the trailer market as you see it.
Giromini: We certainly believe the current environment is favorable, with a strengthening macro environment. Fleets are becoming increasingly more comfortable with the level of demand they have, which is changing their behaviors and driving an increased interest in addressing their aging fleets. And that's one of the key drivers [of trailer demand]: the excessively aged fleets combined with the environmental compliance challenges and hours of service. We feel very good about the overall market right now.
HDT: Well, trailers, do last longer than they used do….
Giromini: Yes, we've been accused of being our own worst enemy that way, but we believe it's our responsibility to help our customers become more cost effective in operating their businesses. They are thrown so many curve balls and challenges with new regulations, as their operating costs continue to mount. One way to do that is build equipment that is more reliable, more durable, lasts longer, and requires less time having to be repaired – and more time on the highway generating revenue and profit. In the long run we believe that pays dividends for us, as customer loyalty to us increases and they want our product.
HDT: Tell us more about those environmental compliance challenges and what they mean for trailer demand.
Giromini: The first impacts, of course, were on the tractor side, with emission regulations going back to 2002, again in 2007, and 2010. More recently with the advent of CARB [California Air Resources Board] regulations in California, and $4 per gallon diesel fuel, we've seen a lot of emphasis on making equipment more fuel-efficient. One of the ways is accessorizing the trailer with side skirts. We developed the DuraPlate AeroSkirt several years ago and it's been a real nice product in providing fleets up to 6% fuel efficiency improvement – in some cases depending on length and type of haul, it can be a six-month payback. We continue to develop that technology, trying to take it to new levels and increase the fuel efficiency of the product, as well as working on trailer design to continue to provide lighter weight solutions, which also will have impact of improving fuel efficiency. Trailers today weigh about 1,000 pounds less than a similar product 10 years ago and we think there's more to come.
HDT: It's widely believed that the next round of fuel efficiency regulations for commercial trucks will incorporate trailers. What is Wabash doing in this regard?
Giromini: We continue to work on design, the aerodynamics, the weight. It's been a focus of Wabash forever. In the 29-year existence of the company, we have always led in trailer design innovation. That hasn't stopped. The focus may have shifted somewhat from features development to weight optimization and solutions that can help customers on the aerodynamic side of things.
HDT: We've seen some more rounded trailer designs in Europe. Do you think we will see them here?
Giromini: When you go back 50 years ago here, the trailers in the U.S. had more rounded designs. As cube capacity became more and more of a need, you saw a lot of those radius corners changing. And some of it is by regulation that limits what you can do in the front of a trailer with the 53-foot maximum length limit and the way it's defined. Some of it is getting regulators to understand what an aerodynamic design can do without impacting the load capacity of equipment.
I do believe there are opportunities to adjust the design of the equipment, but it's going to take collaboration with the regulators.
Wabash is a member of the Heavy Duty Fuel Efficiency Leadership Group, an alliance of leading U.S. companies involved in the trucking industry, and we work with the Environmental Protection Agency and the Department of Transportation on helping to form and develop the new proposed fuel efficiency regulations for the heavy truck and trailer market. So part of the effort is to make sure we come up with regulations that make sense that will allow the flexibility to fully optimize what we end up with. So I can get the opportunity going forward to possibly see changes in the regulations of what's allowed to be done in a trailer.
HDT: What's your forecast for trailer sales for this year and next?
Giromini: We've said for quite some time now that 2014 will be stronger than last year. Early in the year, we estimated 5% to 7% growth for the market year over year in shipments. More recently we've seen the main forecasters in our industry, ACT and FTR, start to see the same things we're seeing, and they've made adjustments in their forecast for the year, ACT at about 7.5%, FTR being more conservative at 5.8% production level increases year over year. There may be an opportunity to see that grow even more. There seems to be strong quote activity and quote-to-order conversion. Seems like more and more folks are becoming aligned that this could be the strongest year to date of the current cycle, and for 2015 ACT projects that it could be even stronger than this year, and we tend to agree with them.
The pent-up demand for replacements is significant. The downturn during the great recession was so significant for trailer manufacturers that the average age of trailers has gotten to all-time highs. Even with recent strong demand it's barely taken a small bite out of average age. The fleets are feeling pressure under CSA regulations to assure their equipment is truly roadworthy and that's putting pressure on them to update their fleets and get a younger fleet. You've got the combined challenge of the new hours-of-service regulations that went into effect in July of last year causing productivity issues for carriers. I've heard 2 to 3% at the low end and I've heard carriers talking 14 to 20% in some cases for smaller fleets that don't have the flexibility in managing their networks. One of the ways to counter that productivity loss is through increased use of drop and hook activity, which requires additional trailers.
HDT: What equipment technology and business trends do you see in this market?
Giromini: From a technology standpoint, there's a lot of development being done with new materials. That's one way you can address the rising cost of fuel. Any improvement you can make relative to fuel efficiency, fuel economy, is welcomed by the carriers to help offset some of the rising costs they're seeing. So we continue to develop alternative materials that can be applied. It's a balance between very high cost materials that could be used, but they have to be cost-effective.
The other thing we're doing is creating equipment solutions that provide flexibility for customers so they can reduce operating costs not only for them but also for shippers. A great example of that is our DuraPlate XD-35, the only 35,000-pound floor-rated dry van. That provides a customer the ability to use one piece of equipment to haul steel coils on the inbound and appliances on the outbound. Traditionally the customer had to use two pieces of equipment to accomplish that – a flatbed and a dry van. It now can be done with a single piece of equipment.
One of the other things is broader in scope and that's the MaxClearance Overhead Door System we developed. Typically an overhead door setup has much less head clearance than a swing door setup. In our case, on a typical 53-foot dry van, we can provide up to 110 inches of clearance with an overhead door, which is equivalent to what a swing door can provide.
Additionally, our bonded sidewall trailer is now commercially available. It provides for improved aesthetics of the sidewall, you don't have any rivets, but it also eliminates the potential of leak paths through the rivets connections.
HDT: You mentioned how the recession affected the trailer industry. How did Wabash get through that?
Giromini: While it was very challenging, we looked at that time as a learning opportunity for us as a company. We learned so much from having gone through that. It really showed our organization what can be accomplished when everyone works together and buys into the mission. We improved our processes; we improved our systems; and learned a lot about ourselves through that whole process.
Next page: Wabash's strengths, room for improvement
[PAGEBREAK]HDT: Wabash net income in the first quarter was up significantly over a year ago -- $7.3 million vs. $5.7 million. To what do you attribute that gain?
Giromini: It was really everything coming together. We had gained a lot of momentum through 2012 and 2013. We've continued with that momentum into 2014. When you have a good plan, and you have good people, and have a high level of focus and you execute to the plan it all comes together. And that's what's happening for our organization. The recent acquisition of the Walker Group business was a key to the success we've had over the past couple of years. It leapfrogged us forward in our strategic plan to become a more diversified industrial manufacturer.
HDT: Speaking of Walker, how would you characterize the company's acquisition strategy? Are you looking for more or do you feel you pretty well have the market covered at this point?
Giromini: We'll continue to look at strategic opportunities to provide improved services and products for our customers. We'll continue to be good stewards of the business and be selective. We will not acquire for the sake of acquisition; we will not diversify for diversification's sake.
We want to assure that the decisions we make are sound decisions that fit our long-term strategy for the company and that they are truly strategic acquisitions, meaning we're not like private equity who acquire with intention to dispose of the asset three, four or five years later. When we look to acquire it’s critical that it provides long-term benefit as part of the company, and that's how we viewed the Walker Group acquisition. It met all the criteria we had established to improve our business for the long term. We're excited that they're part of the family.
HDT: Where do you believe Wabash really excels? What are its biggest strengths?
Giromini: Clearly we excel in innovation and continuous improvement and they really go hand in hand. No one else can claim the history of innovative leadership Wabash National has delivered, going back to aluminum plate trailers. Even something as simple as the ID/Auxiliary stop light system that improves safety for trailers and for people following. Innovation is truly a part of our being.
HDT: What areas do you feel the company could improve in?
Giromini: Every organization can improve and certainly we're no exception. The recession of 2008-2009 was very challenging. Coming out of it was equally challenging, as we were faced with quickly having to ramp up to support growing demand. And we didn't do as good a job for our customers during that time as we would have liked to. … As a result, inconsistency in the quality of the products we were producing led to some disappointment among some customers. We worked through that and as our workforce gained efficiency, we now have processes in place to avoid that in the future. One thing we know in this industry is we'll be up and down, and you have to be good through the ups and good through the downs.
HDT: You recently were part of a panel at the Forbes Reinventing America Summit called "Made in America: Inside the Next Manufacturing Revolution," on how to get manufacturing really going again in the U.S. What were some of your insights and suggestions on this topic?
Giromini: From my perspective, innovation is clearly the lead. The U.S. has always prided itself on being leaders in innovation. That continues to be key for us here.
I think education is an area that we certainly need to continue the increased focus that recently has been occurring. And it’s not just on the national level that gets all the press; it's on the local level. We in our local communities can do so much more to engage with local leaders and educators to help guide them to provide the type of training and education that is so needed to address the skills gap that many manufacturers will tell you is growing more serious.
Here in the Lafayette, Ind., community, Wabash National has partnered in support of the Read to Succeed initiative that's been in place now for three years. Volunteers from businesses and individuals around the community volunteer to go into the classroom and work with children who need additional attention and support. They read to those children and have those children read back to them.
HDT: Will we ever see manufacturing in this country as big as it once was?
Giromini: That's difficult to say. We're currently being provided the best opportunity in years, and that's the increased availability of lower cost energy. It can't be stated strongly enough how much benefit that will have since, for so many manufacturers, as raw materials and components depend on energy as the input. This is going to help make U.S. manufacturing more cost competitive on a global level.
I'm very bullish on the future of manufacturing here in the U.S., and we saw and heard some of that at the Forbes conference.
HDT: I understand at another recent event you talked about what it takes for a company like Wabash to lead in a global economy. What are those keys?
Giromini: I really think it comes down to the four Ps: people, product, performance and passion. First and foremost you have to engage – you’re your workforce, suppliers, community, and environment. You have to be involved, you have to make it known that they matter. And assure an environment of trust, respect and integrity.
The second is you have to diversify, make sure your business is not overly dependent on a narrow range of products. One-trick ponies only get by for a while. When times are good, just about everybody's successful. When times are bad, only those who have recognized the challenge you can face during downturns can truly be successful.
Differentiate. Assure that each of your products differentiates itself in the market it serves. Innovate and innovate some more.
Support your customer. Understand his business and his needs. Always give him your very best. Quality first and quantity second. You have to make sure doing business with you is the very best experience for that customer. If your customer is successful, likely you will be too.
Be prepared. You have to know your market, study the trends, you have to anticipate, and you have to have a backup plan.
Finally and most important is passion. You have to have passion for what you do. So many times, folks will say that they really don't enjoy what they do, and they're the ones that don't succeed.
Richard Giromini joined Wabash National in 2002 as senior vice president and COO. He has a BS in mechanical and industrial engineering.