Manufacturer crosses over from auto parts to caskets

There’s no doubt in Tony Colson’s mind that some of the first units off the line at Genesis Casket in Indianapolis will be destined for competitors’ shops in Batesville, Aurora and Pittsburgh, Pa.

If executives at the big three casket makers are anything like the rest of their industry, they can’t wait to pull apart this newcomer, which is backed by a multinational automotive supplier and led by a death industry veteran.

Colson

Colson spent 17 years climbing the ranks in sales and marketing at Hillenbrand Industries’ Batesville Casket before leaving in 2004 for executive posts at other companies. Most recently he was CEO of a burial-vault company, Wilbert Funeral Services in Chicago.

As CEO of Genesis, the 51-year-old Colson, an Indianapolis native and Indiana University graduate, will try to take a share in a $1.3 billion industry dominated by Hillenbrand, which claims about half of all sales. Privately held Aurora Casket Co. and Matthews International in Pittsburgh split another 30 percent of the market.

Word spread quickly in the funeral industry when Gestamp North America tapped Colson for its unusual enterprise.

“There was a lot of buzz that Tony would leave his job to go to a startup,” said Clint Fendley, a stock analyst who follows Hillenbrand at Davenport & Co. in Richmond, Va.

Most startup casket makers are regional players specializing in custom design. Genesis is being launched with a $17 million investment in a leased manufacturing, distribution and headquarters facility on Franklin Road at East 30th Street.

Gestamp Automocion, the Spanish parent company, makes metal components for the auto industry, employing 18,000 people worldwide with 2010 sales of $4.4 billion. Gestamp has also branched into steel racks for solar arrays and towers for wind turbines.

Why caskets?

“They saw an opportunity to deploy their technology into an industry that hasn’t seen much innovation in 60 years,” Colson said.

Citing competitive concerns, Colson declined to discuss details of the Genesis manufacturing process, other than to say that it will borrow from the automotive industry. Genesis will make only metal caskets, which are about 70 percent of all caskets sold.

Using the same high grade of steel stamped into fenders and other parts of car exteriors, a single line will spit out multiple models. The process is highly automated but still requires hand welding and finish work, Colson said. Full production is expected to start in August.

Genesis expects to produce about 30,000 caskets in its first full year of production, Colson said.

The company chose Indianapolis because it’s a distribution hub, and the 241,000-square-foot building combined manufacturing, distribution and office space. (The building was occupied by pneumatics maker SMC Corp. until the company was lured to Noblesville in 2007.)

About 150 positions will be filled initially, but the work force is expected to grow to about 300 over five years.

Also for competitive reasons, Colson declined to disclose starting wages. He did say future casket workers can expect to take their jobs very seriously.

“You have one shot at getting a funeral correct,” Colson said. “It’s more than a product.”

Disruptive force

It’s tempting to compare Genesis to Honda of the 1980s as it takes aim at legacy manufacturers. But there’s a reason other companies aren’t scrambling to follow Genesis into casket making—Americans increasingly choose cremation over burial.

“That’s why everybody’s scratching their heads about why you would be trying to start a new company in a declining market,” Fendley said.

About 2.5 million people die each year in the United States, and about 40 percent of them are cremated. Although baby boomers are entering that will-drafting stage of their lives, no one can be certain the demographic trend will be enough to counter cremation, Fendley said.

The Cremation Association of North America predicts deaths will rise 24 percent by 2025 to 3.1 million. At the same time, the trade group thinks burials will decrease 20 percent.

Hillenbrand and other casket-makers disagree with the trade group’s forecasted cremation rate, Fendley said, but their own outlooks are not encouraging. In its 2010 annual report, Hillenbrand said it expects “a modest, but steady decline in the demand for burial caskets for the foreseeable future.”

Last year, Hillenbrand acquired a subsidiary in a completely separate business, industrial machinery maker K-Tron International Inc., headquartered in Pitman, N.J.

“They’re moving their capital over to other areas because they’ve seen very clearly what probably the long-term trend is on just casket sales,” Fendley said.

The analyst isn’t the only one doubting Genesis.

“I would not personally want to be in the casket business,” said Ernie Heffner, owner of 12 funeral homes around York, Pa.

Partly because of cremation, the funeral business has evolved from centering on casket sales to personalized service, said Heffner, a frequent lecturer in the industry.

“We don’t make much of a margin on caskets,” he said. “It’s almost an accommodation item, and it’s not relevant to 41 percent of the families we serve.”

But Genesis has a different take on the demographic trend. By 2040, Colson said, the number of annual deaths is expected to exceed 4.6 million. Even if the cremation rate is 60 percent by that time, that leaves 1.8 million burials.

Asked about conventional wisdom in the industry, Colson said, “There’s rhetoric, and there’s reality.”

Traditional path

Anyone can buy a casket online or at a superstore, yet Genesis’ path into the market will be through the hushed funeral homes Colson has come to know so well.

Because Hillenbrand and the others have a grip on the national chains, Genesis is targeting the 17,000 independent funeral homes scattered across the country.

Colson seems cut out for the job. “I understand the funeral business,” Colson said. “I understand the service they’re providing, the importance of it. My mission is to help them.”

Fendley isn’t ready to declare Genesis a threat to the established leaders, mainly because it doesn’t yet have a national distribution network.

Distribution is so key to the industry, it’s the reason Chinese imports don’t have a significant market share, Fendley said. “These are not Fortune 500 companies that can buy a huge truckload of caskets and store them on the back lot,” he said of funeral homes.

Genesis may start out with a short reach, but the deep pockets of its parent company could change that situation fairly quickly, said Bob Horn, retired founder of funeral-home chain Keystone North America.

Just as there are always family-owned funeral homes looking for a buyout, Horn thinks there is a similar opportunity for Genesis to acquire regional casket makers.

“I do think there’s a play for them,” he said.

Horn, who lives near Tampa, Fla., said he was as puzzled as anyone else by the launch of Genesis. Gestamp may bring manufacturing efficiencies and a lower price point, but he believes its real advantage is financial resources.

“I’ve got to believe that’s pretty smart money coming into the U.S., and coming into our industry,” Horn said.•