Episode 38: Cardone Industries Grows in Harlingen, Texas: The Power of Trust, a Tax Exemption and a Football Rivalry
February 26, 2018
You might call Cardone Industries America’s original green manufacturer. Founded in 1970, the company specializes in remanufacturing used automobile parts – items like brake calipers, drive shafts, steering pump and camshaft synchronizers. By remanufacturing these items, the company saves raw materials, saves energy and keeps the old parts out of landfills and junkyards.
The Philadelphia-based company needed to build an enormous, new distribution center. They looked in a wide range of states and communities but settled on an area of the country where they already had major operations: the Rio Grande Valley in the city of Harlingen, Texas. At 920,000 square feet and an overall construction cost of $50 million, the recent announcement is the largest economic development project in Harlingen’s history.
We interview two key players in this episode. George Zauflik is a twenty-year veteran of the Cardone Industries. He is the Senior Vice President of Compliance and Government Relations and had primary responsibility for the site search. Raudel Garza is the CEO of the Harlingen Economic Development Corporation, a position he has held for the past five years.
Patience Fairbrother (DCI): You might call Cardone Industries America’s original green company. Since Cardone’s founding in 1970, their core product has been remanufacturing used auto parts.
Andy Levine (DCI): Things like brake calipers, drive shafts, steering pumps, camshaft synchronizers, and other items that I know nothing about.
Patience: By remanufacturing these items, the company saves raw materials, it saves energy, and it keeps the old parts out of landfills and junkyards. And that’s all good for the environment.
Andy: The Philadelphia-based company needed to build a new distribution center. They looked in a wide range of states and different communities, but they settled on an area of the country where they were already familiar, the Rio Grande Valley in the city of Harlingen, Texas.
Patience: So, welcome to episode 38 of the project, “Inside Corporate Location Decisions.” I’m Patience Fairbrother of Development Counsellors International.
Andy: And I’m Andy Levine, also with DCI and Patience’s co-host of the project. This week, we bring you the story of Cardone Industries and its decision to build a $50 million distribution facility that will cover about 920,000 square feet and employ an estimated 550 employees. It is the largest economic development project in the history of Harlingen, Texas.
Patience: Cardone already has major operations in the region. In Harlingen and neighboring Brownsville, the company has existing manufacturing facilities. And across the Mexican border, about 30 minutes away, the company has its largest plant employing over 3,000 people.
Andy: We’re going to interview two key players today. George Zauflik is a 20-year veteran of Cardone Industries, a closely held company with about 5,000 employees overall. He is a senior vice president of compliant and government relations and had primary responsibility for this specific site search. Raudel Garza is the CEO of the Harlingen Economic Development Corporation, a position he has held for the past five years. We’re going to start with Raudel on this one. So this is a company that has had a major presence in your region for years. Did you have a relationship with the company previous to this project coming on your radar screen?
Raudel (Harlingen Economic Development Corporation): Yes. Actually, I started talking to Cardone Industries almost day one when I started this position here in Harlingen. Cardone was one of the larger manufacturing companies that had a presence in Harlingen. And I made it a point to go visit with each of the companies that are out in our industrial park and just get to know them and see what their concerns are and see how we could help them and try to grow. So, five and a half years ago, we reached out to Cardone for a lot of different reasons, but mostly to build a better rapport with them, get to know what their business was all about. And then this actual distribution center opportunity came about, about a year and a half to two years ago.
Andy: How did this get on your radar?
Raudel: They reached out to us and letting us know that they had been working on some shifts in their production. We understood that they were looking at bringing more of their production from Philadelphia into Mexico into Matamoros right across the river. And we knew that they were looking at ways to streamline their processes.
Andy: Over a three year period, there certainly were fits and starts with this project.
Raudel: For them, we were the kind of community that could work with them. When they wanted to go fast, they said, “We need to go fast.” And so we did. And when they said, “We need to slow down,” we slowed down. And a lot of people sometimes don’t understand that the community itself isn’t in charge of these deals and if the community pushes too hard, sometimes they lose the deals. And so for us, we were going to be there ready for the time when Cardone was ready to make the move.
Patience: According to George Zauflik, from the start of the search process, Harlingen was a strong contender.
George Zauflik (Cardone Industries): We hired a search firm to look at some of the options. We knew we wanted to build a new one. We didn’t want to take over an old one. So, we looked at…those were some of the factors. We looked at several states on the east coast, the west coast, midwest, looking at our customer’s footprint where their distribution centers were. And it took about, probably, 18 months to 36 months to come back to what we thought in the beginning, that Harlingen was the best fit for us in the Rio Grande Valley.
Andy: If you had to select the three most important factors that led Cardone to select Harlingen, what would be on the top of your list?
George: Number one would be the relationships with Mayor Boswell, Raudel Garza, with the city and county and the economic development. They’ve been in touch with us from day one down there. And number two, positive feedback from our Harlingen employees with a selection of homes, schools, shopping. Really high marks in those areas as well. And location, the new location is basically half a mile from our existing location.
Patience: Throughout our conversations with George and Raudel, both kept returning to these themes of trust and relationships.
Raudel: A good example was we talked about a road that needed to be constructed. And when we were closing, the real estate attorneys were saying, “How do you know that they’re gonna build a road?” And he just smiled and said, “Because Raudel said so.” And I think that that company and the city really do have that in common in that we have that faith in each other to make things happen.
Andy: So trust was critical but so were cost savings, and in particular, a tax incentive called the “Freeport Tax Exemption.” Now, neither Patience or I are accountants.
Patience: In fact, we’re both pretty ignorant in this area, I’d say.
Andy: But the simple explanation is that inventory is considered personal property in Texas. A county, city or school district can opt to exempt inventory that comes in and out of a warehouse within 175 days. And that’s exactly what the Harlingen Economic Development Corporation lobbied for on Cardone’s behalf.
Raudel: And so for about two years, we were trying to get that passed, we being the city of Harlingen, our mayor, city commissioners, some other folks who are involved in economic development at the county level. We’re also trying to help our county commissioners and county judge understand the benefits of having this tax exemption. But lo and behold, they kept saying, “Well, we don’t see how that’s gonna benefit until you show us a company that can actually come in and take advantage of this.” Well, that was about the time that Cardone started kicking around the idea of a distribution center down here. So because of Cardone, the county officials realized we can do something that can benefit the company and still, at the same time in the long-term, benefit the county.
Andy: And this played pretty well with Cardone?
Raudel: Cardone was elated to hear that we were going to be a Freeport tax-exempt county as well as a city and a school district. Yes.
Andy: So here is George Zauflik’s perspective on this.
George: That was key with everything going on and with the rumors about the wall and, I think, it was the BAT tax earlier this year. We’re looking at the bigger picture. You know, the Freeport tax was key with our decision-making.
Patience: So, we’ve got trust. We’ve got a major tax exemption that will save Cardone hundreds of thousands of dollars each year, but where does a football rivalry come into this?
Andy: All right. So, we might put this in the category of relationship building. So, Cardone is headquartered in Philadelphia, the home team of the Superbowl champion, Philadelphia Eagles. And of course, one of their top rivals are the Dallas Cowboys, a team that is loved in Harlingen and the Rio Grande Valley.
Raudel: I think that we found out that the Philadelphia guys are really truly Philadelphia Eagle fans and the Texas folks are truly Cowboy fans. And even though we hate each other on the football field, we love each other outside of it. Absolutely, every game that they played each other, there’s texting back and forth across the city and states and across the country.
George: Everybody has their fun, has their teams. I know Raudel is a big Cowboys fan. He’ll get his… You know, it took us a lifetime to get the first Superbowl. So, we’re gonna enjoy it right now.
Patience: Cardone Industries announced the decision to locate their $50 million, 920,000 square foot distribution facility in early December 2017. And the new facility will employ an estimated 550 people and will begin operations in late 2018. So, we’re up to the takeaways portion of this episode. Andy, you spoke with both George and Raudel. What stood out to you in this episode?
Andy: Very strongly, a couple of things. I’m gonna start with trust. So, you know, in speaking with both George and Raudel, these two guys and the company and the community, they really were in sync operating together. You got the sense that there just was a really strong relationship that developed over a long period of time.
Patience: And certainly, this isn’t the first time we’ve heard the topic of trust and relationships come up in these kind of deals. You really need to have a solid foundation in order to have these discussions.
Andy: In almost all the expansions that we reported on thus far, it’s a strong central theme in this regard. Now, the other side of this, and we didn’t work this into the podcast terribly much, was sort of the track record in terms of talent. Cardone was very happy with the talent that they had found in Harlingen. A certain number of people have actually relocated from Philadelphia, were supposed to be down there for a period of two years to start a new facility, and then decided they liked Harlingen. So they stayed. So they felt very, very good about talent in the region. The last point is really proximity to their plant in Matamoros, Mexico. That was sort of the third element. So those three things, Patience, are things that came out really strongly in this episode.
Patience: So that is a wrap on episode 38 of the project, “Inside Corporate Location Decisions.”
Andy: Our sincere thanks to George Zauflik of Cardone Industries as well as Raudel Garza of The Harlingen Economic Development Corporation for taking the time to speak with us.
Patience: We also have to thank Kayla Thomas, also of the Harlingen EDC who made these interviews happen.
Andy: So, in the month ahead, if you are gonna be attending “The Site Selections Guild” annual conference in Cincinnati that’s taking place March 19th through 21st, we want to make sure you’re on the lookout for Patience. She’ll be there interviewing different consultants on the latest developments in site selection.
Patience: I will be the only one there with a microphone and a digital recorder. So, please come over and say hi.
Andy: The project is sponsored by DCI. We’re the leader in marketing places and have served over 450 different cities, states, regions, and countries. You can learn more about us at aboutdci.com.
Patience: We hope you will keep listening. There are many more projects to come.