LDN - Business

Massachusetts hand-dryer maker gets helping hand from U.S.-China trade war

[December 11, 2019] By Timothy Aeppel

EAST LONGMEADOW, Mass. (Reuters) - The U.S.-China trade war is creating something William Gagnon once thought impossible - a 100% American-made bathroom hand dryer.

Gagnon’s family-owned company, Excel Dryer Inc, sells about $40 million worth of dryers a year that mostly go into public bathrooms, including at airports and casinos as well as at Starbucks Corp <SBUX.O> and Walmart Inc <WMT.N> stores across the United States.

The Western Massachusetts company uses parts made in the United States at its 50-employee factory, except for the motors and electronic controllers at their core. They long sought a domestic supplier for those items, but nobody could beat China's low prices. Until now.

One challenge for manufacturers who want to produce Made in USA products is that their supply chains, especially for things like electronics and motors, have migrated overseas in search of cheaper alternatives - something the Trump administration vowed to address with tariffs.

But pulling supply chains back to the United States is proving hard to do. Many U.S. factories, including the Apple Inc <AAPL.O> plant in Texas that President Donald Trump recently toured, have instead scrambled to obtain tariff exemptions for key imported parts. Other producers are simply shifting to buying key parts from other low-cost producers in Asia, sidestepping the tariffs.

Excel's new motors are a rare example of a tariff success.

Within a few months, Excel will roll out its first all-American dryers, said Gagnon, with motors and controllers built by a company in Tennessee.

"We’d actually be willing to pay a little more for U.S.-made,” but due to the tariffs and the reduced cost of shipping from a domestic factory, the parts will end up costing less, he said, pointing to a prototype of a motor and controller on the table in front of him.

Tariffs implemented by the Trump administration pushed up the cost of Excel’s Chinese parts by 25% last year and, like many small companies, Excel lacked the resources to invest in seeking an exemption in Washington. Instead, the company viewed it as an opportunity. It was already working on upgrading its motor designs, making changes that among other things will quadruple the life of the machines.

Average retail prices for Excel's dryers range from $400 to $700 per unit. The global hand dyer business is surprisingly competitive, with the U.S. market still dominated by paper towels.

This is one reason a sign above Excel's office door bears the slogan "Time to Throw in the Towel."

AMERICAN DRYERS HEADED FOR BRITAIN

The United States imported $11.5 million worth of hand dryers in 2018, the vast majority from China, according to U.S. Census Bureau data. As tariffs have kicked in, U.S. imports of hand dryers from China have edged down - declining nearly 9% since 2016 - while imports from Spain and Japan have increased.

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Excel Dryer vice president of marketing and key accounts, Bill Gagnon, works at the factory in East Longmeadow, Massachusetts, U.S., October 25, 2019. REUTERS/Tim Aeppel

“We hope that more customers will be like this - once they see the total cost involved,” said Adam Finch, director of engineering at the Fairview, Tennessee, factory that will produce the new motor. Finch’s plant is part of the Scott Fetzer Co, which is owned by Berkshire Hathaway <BRKa.N>.

Finch said many customers come to him because they want a small number of motors made - which is easier to do at a domestic plant - or if they are developing a new device that will be offshored to save money once it is perfected. In the case of Excel, the work will flow the other way: the Tennessee factory is in the process of moving tooling from China to the United States as it gears up production for Excel.

Gagnon’s father, a former executive with the Hasbro Inc <HAS.O> toy company, bought the dryer company in 1997, when it was a tiny operation with just $2 million in yearly sales. The company’s roots go back to 1963, when hand dryers were a relatively new technology. The company keeps a bulky cast iron hand dryer from the 1950s in its conference room as an oddity.

Sales took off in 2001, said Gagnon, after his father introduced a new design that could dry hands in just 10 to 15 seconds. Older designs took longer to dry hands, which had long hampered sales.

In an ironic twist, the first all-American dryers will be for export. The company has to offer dryers designed for different electrical systems and the first ones will ship early next year with 220-volt motors. Most will go to Britain. Gagnon said the next step is to develop a 110-volt version for use in domestic machines.

Gagnon noted that the tariffs have weighed heavily on his company's main competitor, World Dryer, owned by Zurn Industries LLC, a subsidiary of Rexnord Corp <RXN.N>, which imports finished machines. "They’ve had to raise prices," he said, "while we’re about to introduce machines that have new features—at the same price."

World Dryer declined to comment on how tariffs have impacted its U.S. sales or production plans.

(Reporting by Timothy Aeppel in East Longmeadow, Mass.,; Editing by Matthew Lewis)

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