Wabash National Corp. Business Information, Profile, and History

History of Wabash National Corp.

Wabash National Corporation--one of the largest manufacturers of semi-trailers in the world--designs, manufactures, and markets standard and customized truck trailers, including dry freight vans, refrigerated trailers, and bimodal (road and rail) trailers, as well as parts and related equipment. The company also manufactures fiberglass-reinforced plastic and aluminum plate trailers, as well as RoadRailer, a patented type of trailer which can be quickly and inexpensively attached to a train car. Constant innovation to meet customer needs, worker training and motivation programs, flexible manufacturing schedules, and partnerships with leading transportation companies fueled Wabash's rise. In the early 1990s, the company's primary customers were truckload carriers, less-than-truckload carriers, leasing companies, private fleets, railroads, and package carriers. A subsidiary, Wabash National Finance Corp., provided leasing and financing to customers. In 1995, Wabash recorded more than $500 million in annual revenue and employed about 3,400 people. Inc. magazine named Wabash co-founder and Chief Executive Officer Donald J. (Jerry) Ehrlich its 1992 Entrepreneur of the Year. In 1993, Forbes included Wabash on its list of America's top 200 small companies. The next year, Wabash shipped more truck trailers than any other American manufacturer, according to Southern Motor Cargo Magazine.

Wabash was co-founded in April 1985 by Jerry Ehrlich, formerly the president of Monon Corp., an Indiana-based trailer manufacturer. Two years earlier, corporate raider Victor Posner had acquired Monon's parent company, Evans Products Co., and had proceeded to sell off its assets to pay debt. As Monon declined, Ehrlich repeatedly offered to buy the company but to no avail. Thus, Ehrlich and two fellow ex-Monon Corp. executives, Ronald J. Klimara and William M. Hoover, started their own company. They were soon joined by 14 other former Monon employees.

Ehrlich and his associates established their company in Lafayette, Indiana, about 30 miles south of Monon Corp. and approximately 65 miles northwest of Indianapolis. In need of manufacturing facilities, Wabash initially leased a 450,000 square-foot abandoned factory then used by local farmers to store corn. The executives' experience and contacts helped Wabash acquire its start-up capital: $2 million in equity from Washington D.C. investors Steven and Mitchell Rales, a $3 million industrial revenue bond, and a $5 million line of credit from a local bank. Wabash's first trailer was reportedly built on two sawhorses and was finished in August 1985. Its first customer was Sears, Roebuck & Co., a former customer of Monon, which ordered ten trailers from Wabash.

With Ehrlich as Wabash's president, and Hoover and Klimara as vice-presidents of sales and finance, respectively, Wabash began to grow rapidly. Its client list soon expanded to include Heartland Express Inc., Schneider National Inc., and Dart Transit Co. In 1986, the company generated sales of $70 million from more than 15,000 trailers. That year the company also purchased a more suitable factory in the same area for about $2.5 million. Ehrlich later noted that lower interest rates, down considerably from their levels in the late 1970s and early 1980s, helped the company buy more equipment.

Ehrlich attributed a great part of the company's early success to its focus on expanding product lines. In an interview for the Lafayette Courier and Journal, he cited Wabash's "ability to design specialized semitrailers for several industries," noting that this ability minimized risk by allowing the company to rely less on one industry and one segment of the economy.

Product innovation in response to industry needs, in fact, became a distinguishing factor at Wabash. Until the mid-1980s, trailer sides were commonly built of long, overlapping sheets of aluminum-covered plywood about 1.5 inches in thickness. Standard pallets, upon which shipping loads were placed, were 44 inches wide, and two pallets could thus travel side by side, lengthwise, on the 99 inch-wide trailer floor. However, under this system, a rip in the trailer side more than two feet long would threaten the trailer's structural soundness, and 11 inches of interior width space alongside the pallets was wasted. When trucking firm Dart Transit Co. called for a more efficient use of space and materials, Wabash responded with the aluminum plate trailer.

Wabash's design consisted of a series of side-by-side, four-foot-wide aluminum panels, joined to aluminum posts on the outside of the trailer. The walls were half an inch wide, making the interior of the trailer 101 inches wide, which allowed a company to load one pallet the long way and one the wide way, resulting in only one inch of wasted space. The walls were flexible, deflecting instead of bending if the truck were to hit a wall. And even if one panel did rip, it could be easily replaced. The new design thus reduced maintenance costs and also reduced water damage to freight. In fact, Rod Ehrlich, Jerry's brother and the company's head of engineering, later reported that water damage claims with the new design were onefifteenth the number encountered by Wabash competitors. Wabash patented the design, and, as competitors were either unable or unwilling to invest in the design, Wabash captured 90 percent of the aluminum plate trailer market by 1992.

Another of Wabash's best-known products was RoadRailer, a trailer design for which Wabash acquired the rights to build and market in 1991. The RoadRailer trailer could be attached to the back of semis or locomotives and could thus ride across highways on trailer tires, as a typical semi-trailer would, or across railroad track via the trailer's air suspension system, which would lift its back and raise it onto a set of railroad wheels for attachment to other train cars. Moreover, RoadRailer could be transferred between railroads and highways wherever the two met, unlike other intermodal trailers, which required special equipment or loading facilities to make the transfer.

As customers began buying RoadRailer, Wabash introduced modified versions for new purposes, including a smaller RoadRailer, a refrigerated Roadrailer, and also the AutoRailer, a trailer that could fully enclose up to six autos for transport. With AutoRailer, an automaker or shipper could drive three vehicles onto a rack in the trailer, placing them end to end. When an electric system then raised the rack to the top level and locked it, three more cars could be driven in under the top level. With AutoRailer's air-ride suspension, autos did not have to be tied to racks, but could be locked into place with a nylon belt wrapped over one tire. The AutoRailer was then shut, and the cars were ready for shipment to dealers via railroad or highway. Since cars were not tied to racks and were totally enclosed from the factory until their final destination, damage to the vehicles was minimized. When the vehicles arrived at their final destination, moreover, dealers could simply drive the cars out of AutoRailer.

To meet customer needs, Wabash also developed many other unique trailers. One such trailer contained a deep well which could hold large sheets of glass. A retractable floor could cover the well, allowing conventional cargo to be transported on another leg of the trip. Another new model used a new "axleless" suspension system, based on technology used by Walt Disney Co. to haul laundry at Disney World. Each wheel was individually suspended, allowing the trailer floor to drop just above pavement level. A third trailer used smaller tires, lowering the trailer floor about ten inches for loading cargo. The trailer included a pneumatic lift to raise it ten inches so it could be loaded at conventional loading docks as well.

In addition to product innovation, Wabash's rapid growth was attributed to marketing strategy. Wabash decided early on that it would identify and target fast-growing firms within key sectors of the worldwide transportation economy; by seeking to understand what drove each company's productivity and then engineering products to improve this productivity, the company would bring in key customers.

To produce customized products, Wabash engaged a flexible, but cost-efficient manufacturing system, which included extensive use of computer systems. In fact, through the mid-1990s, almost all of the company's products were designed on computer systems, which could directly transfer design information to computers on the factory floor. The company's computer-controlled machine tools could then change the shape of parts with just 15 seconds of startup time, instead of the 30 minutes required to make the change manually. This allowed the company to create custom parts, while keeping costs low. It also let Wabash quickly make parts only when needed, avoiding storage and material costs created by extra inventory.

In order to generate still higher profit margins, Wabash also sought to work more closely with its customers. Commenting on the gains to be had from meeting customer needs, Ehrlich told Inc. in 1992 that he hoped to "get to the point where we're producing 100% proprietary products and we're the single source of supply in 100% of the cases." In order to achieve such high percentages, Wabash focused on being willing and able to design products to meet specific needs as well as on forging good customer relations, since customers had to be willing to share sensitive information about their business and allow Wabash to check its products on the road. Praising Wabash's efforts, Heartland Express President Russ Gerdin told Inc. in December 1992 that when he took his specific needs to other manufacturers, they often told him, " 'It can't be done.' Wabash says, 'Let's see what we can do'."

Some of Wabash's key "partners" during this time included Heartland, Federal Express, Swift Transportation, Triple Crown Services (a railroad/highway shipper owned by Conrail and Norfolk Southern) and Schneider National, one of the largest truckload carriers in the United States. In fact, Schneider National became Wabash's biggest customer, accounting for more than one-sixth of its sales from 1992 through 1994. Schneider allowed Wabash to monitor the performance of its trailers, and a top Schneider executive occasionally visited Wabash employees to stress how important they were to Schneider's success.

Schneider, along with other trucking companies and railroads, began moving toward intermodal shipping in the early 1990s. Intermodal shipping involved shipping products over railroads for part of the trip and over highways for the remainder of the trip. Railroads could haul goods long distances more cheaply than could trucking companies, who hauled them more quickly and more flexibly over short distances. With the RoadRailer trailer, Wabash had positioned itself well to benefit from the shift toward intermodal shipping.

Finally, Wabash considered its worker training programs as imperative to its success. Under the programs, a coordinator assigned to one of several workgroups taught new employees the handful of jobs in that area, such as installing trailer roofs. Workers were allowed to shift between workgroups every year, thus widening the scope of their experience. They also went through quality training, based on the principles of W. Edwards Deming.

Wabash offered its employees interest-free loans so that they could purchase computers with the same hardware and software the company used. Moreover, the company offered voluntary classes, on employees' time, about such subjects as finance, quality, problem solving, team building, and manufacturing. In the early 1990s, around nine of every ten employees attended such classes, and top students qualified for a thorough, two-year program taught by professors at Purdue University. By 1992, more than 100 employees had graduated from the program.

Employees who attended finance courses could better understand the financial figures that Ehrlich posted each month on the side of a trailer. Such numbers were important to workers, who shared ten percent of the company's pre-tax profits. Wabash also tied its matching of employees' 401(k) retirement plans to its pre-tax profits. As long as Wabash made money, it matched 30 percent of employee contributions. Wabash would then increase that number by one percent for every .25 percent increase in pre-tax profit above five percent on sales. Thus, if the company made a seven percent pre-tax return on sales, it would match 38 percent of employees' contributions. Employees met several times with a 401(k) consultant and could have their families join meetings. They could also sign up for a personal finance class taught by a local accountant. With its work force thus encouraged to learn about Wabash's 401(k) plan, its participation rate was much higher than the national average in the mid-1990s. The number of employees at Wabash grew steadily, rising to approximately 3,400 by 1995.

As Wabash's product line expanded, so did its manufacturing facilities, which were enlarged to include 12 buildings and 917,000 square feet. Wabash bought a second manufacturing facility in Lafayette in 1994, moving into a vacant General Foods building. In 1995, Wabash opened its new plant in Lafayette with 500,000 square feet of manufacturing space, tripling its capacity from just two years earlier. And Wabash would need the capacity, since its backlog of orders more than doubled in 1994, reaching $1 billion by the year's end.

Wabash also grew by licensing overseas companies to produce its products. In 1992, the company signed its first agreement to allow RoadRailer production outside the United States, covering Australia. By the end of 1994, Wabash had entered into licensing agreements with six firms in 19 countries, including China, India, and Taiwan. In return for the right to use RoadRailer technology, those companies agreed to pay Wabash royalties based on sales.

Wabash's sales and net profits grew quickly during its first decade. In 1990, the company had more than $170 million in sales and a pretax income of nearly $5 million. The company raised more than $39 million by offering stock to the public in November 1991. Wabash issued additional shares of stock to the public in 1993 and 1994 to raise money for its manufacturing operations and to create its subsidiary, Chicago-based Wabash National Finance Corp., formed to allow customers to finance the purchases of Wabash trailers. By 1994, its third year of operations, WNFC contributed eight percent of Wabash's earnings.

Principal Subsidiaries: Wabash National Finance Corp.