By Mike Imlay
Why EO Exemption Is Now More Vital Than Ever
A recent step-up in government enforcement has sent a shockwave through the aftermarket, making emissions compliance for products affecting tailpipe gasses more vital than ever. While the onus for EO certification remains on manufacturers of such products, enforcement has vast implications for all businesses in the sales chain, all the way down to jobbers and retailers. In short, noncompliance puts virtually everyone at risk.
Ensuring that their aftermarket products are emissions-compliant under state and federal laws has long been a serious issue for manufacturers. However, a recent step-up in regulatory enforcement has sent a sudden shock wave through the entire specialty-equipment industry, from manufacturer to retailer, making Executive Order (EO) exemption more vital than ever. In fact, it’s no longer hyperbole to say a business’ very survival could be at stake.
“It seems that both the California Air Resources Board (CARB) and the Environmental Protection Agency (EPA) are paying more attention now to manufacturers getting their EOs,” said Mike Spagnola, SEMA vice president of product development. “We’ve seen both manufacturers and distributors now start to receive enforcement, and we’ve seen fines of several hundred thousands of dollars being levied against both manufacturers and distributors of performance products that do not have EO numbers. The fine can be typically $2,500 per infraction and enough to hurt and even put somebody out of business for taking the risk of not certifying their products.”
While the increase in the number and size of enforcement actions is noteworthy, Spagnola underscored the expanding scope into the distribution chain as well.
“For the last two years, we’ve seen [increased] enforcement on the distributor side,” he said. “Because a distributor can carry as many as 500, 600, 700 lines of products, it can easily slip through the cracks that they’re selling products that don’t have EOs. Consequently, distributors really have to pay attention to the parts they’re selling and whether or not they’re compliant.”
SEMA members in search of compliance have a state-of-the-art resource in the new SEMA Garage emissions lab, which can aid in every phase of EO certification at significantly reduced cost. Specifically developed to meet the needs of SEMA manufacturers, the lab can handle products designed for both cars and pickups, and its staff is familiar with all the ins and outs of the sometimes-daunting certification process.
Moreover, there’s risk for every business in the sales chain.
“Certainly enforcement can go all the way down to the retail level, from any retailer selling on the Internet to a local jobber or an online distributor, so it’s incumbent on manufacturers to get their EOs and to let their distributors know which parts are for racing purposes only as opposed to those that are legal for street use,” Spagnola warned.
Tracie Nuñez, president of the Performance Warehouse Association (PWA), confirmed that this increased risk is already prompting distributors to rethink which manufacturer brands they carry. In short, companies that can’t properly demonstrate their products’ emissions compliance may soon see their most valuable distribution channels dry up.
“One of the largest problems right now is lack of knowledge on the issue,” Nuñez said. “As more distributors are audited and awareness efforts are made by PWA and SEMA, manufacturers will have to address their concerns. Several distributors have privately shared that some manufacturers just do not understand the legislation or can’t discuss how their company is complying. Distributors are concerned that the industry is in a reactive position right now and change is only happening after fines are imposed. As more distributors become aware of the requirements and regulations, they will make adjustments to their businesses and the brands they sell. Manufacturers will be forced to sell consumer direct, which eliminates a large selling channel for their lines. No distributor is going to knowingly sell a part that will result in hefty fines. Manufacturers and distributors who have been audited are unfortunately learning the hard way what parts need CARB EOs.
“Distributors are mostly confused and frustrated with manufacturers at this point. Several distributors have been audited by CARB and have been heavily fined over the last 18 months. Fines are significant and pose a real threat to any business’ financial health. While common sense might suggest that CARB would focus its audit efforts on the manufacturers first and foremost, the distributors are quickly being included in this compliance effort by CARB. Distributors are very aware that they might be next and are changing their business practices and product decisions now to protect themselves.”
Know the Law
Due to frequent misunderstanding of the regulations, not to mention the hefty consequences for failing to comply with them, both SEMA and PWA have made member education a major priority. To summarize, it is illegal under both California and federal law to sell products that could impact emissions on street vehicles. As stated at the CARB website, parts or modifications shown not to increase vehicle emissions may be granted exemption to emissions-control system anti-tampering laws. This exemption is called an Executive Order (EO) and allows the modification to be installed on specific emissions-controlled vehicles. Every EO part or modification receives an assigned number that can be verified by smog-check stations, BAR referee stations, or by CARB and the EPA. To further clarify the regulations, SEMA’s awareness program emphasizes the following points:
- Emissions compliance applies to almost all performance and engine products. Generally, any product that affects airflow into or out of the engine, impacts the containment or delivery of fuel, or affects the functionality of an emissions-control system or device requires an EO from CARB for that product to be legal for street use. This includes but is not limited to intake systems, exhaust components, tuning products, turbos and superchargers.
- The notion of “49-state legal” isn’t really a thing. A common misconception is that a product is 49-state legal as long as you don’t sell it in California. This is not the case. The Federal Clean Air Act prevents the modification of vehicles with products that impact emissions unless the product is certified, just like in California. In order for an engine-related product to be legal anywhere in the U.S., it must complete a demonstration of emissions compliance. Currently, the only recognized process is the CARB EO program.
- The CARB EO process provides coverage for all 50 states. California has a process that allows aftermarket manufacturers to certify their products. CARB will issue an EO for products that have gone through an application and testing process. The CARB EO is recognized by the EPA as demonstrating emissions compliance and provides coverage for all 50 states.
- Both CARB and EPA have the ability to enforce. Both government entities that oversee air quality (CARB and EPA) have the ability to administer fines against manufacturers, sellers, installers and users of products that do not comply with the clean-air laws.
Because the CARB EO process is all-inclusive, SEMA recommends that manufacturing members follow it to ensure that their products are legal to sell anywhere within the United States.
“They don’t have to follow it to demonstrate compliance to the EPA, but other methods of demonstrating compliance are much more arduous,” explained Peter Treydte, SEMA compliance center manager. “This is really the best, most cost-effective way to go. At SEMA, we are not aware of any member having done it any other way to date.”
The growing need for emissions compliance has long been on SEMA’s radar, with the association increasingly attempting to raise awareness of the issue among members in numerous venues and formats, including an education seminar on the topic at the recent SEMA Show. Featuring representatives from CARB and the EPA, the seminar was heavily attended, underscoring the importance of the issue to the industry.
Nuñez agreed with Spagnola that increased CARB and EPA enforcement are making “due diligence” the watchwords of every industry segment—and especially influencing the business practices of warehouse distributors. Still, the onus rests squarely on manufacturers to get their EOs in order.
“Manufacturers will need to quickly address their parts compliance and better communicate what parts are legal to sell to keep selling through distribution,” Nuñez asserted. “Distributors have to educate themselves on this issue today. Some steps every distributor should be taking are to ‘lock out’ part numbers that do not have EOs so they don’t mistakenly buy or sell them. [They should also] request updates on EOs from manufacturers and question parts they say don’t require one, contact a lawyer to discuss selling disclaimers and assess compliance risk, and actively market and share the CARB EO information with their customers. Audits are expensive and time consuming; distributors need to act now.”
Nuñez said it is important to remember that everyone associated with selling parts, even in a broader sense, is at risk.
“The vehicle code section provides ‘that no person shall install, sell, offer to sell, or advertise…unless exempted by the CARB,’” she said. “As manufacturers and distributors make changes to be in CARB compliance, it will reduce the risk to jobbers and retailers. While the complexity and available [government] manpower to conduct audits may be limited, the risk is still there and should not be ignored.”
Assisting SEMA Manufacturers
Fortunately, for SEMA-member manufacturers and businesses, the trade association has been eyeing this brewing storm for some time and has been busy putting multiple initiatives into place to help raise both industry awareness and actual compliance.
“Obviously, because we have so many manufacturers that develop performance products that affect drivetrain—somewhere in the neighborhood of 500 members or more—we recognize that they could quickly be in a lot of trouble without proper EOs,” said Spagnola.
To help address the misinformation and confusion that often surround emissions regulations, the association has sought to clarify the issues for members in numerous forums and venues, including a timely seminar entitled “The SEMA Way to Emissions-Legal Compliance” at the 2015 SEMA Show in Las Vegas.
“It was well attended,” said Spagnola. “We had about 150 manufacturers and distributors there. We also had representatives from both the EPA and CARB, and we were able to clear up a lot of questions as to what the laws are. Certainly everybody who was there understood that it’s illegal to sell products without an EO number, both in California and federally. It was really good to have EPA and CARB there so that attendees could learn what’s going on and what the law is from the horse’s mouth.”
Performance Warehouse Association President Tracie Nuñez said that the recent spate of enforcement has many warehouse distributors rethinking how they do business with parts makers. Noncompliant manufacturers may soon see their distribution channels dry up as WDs seek to protect themselves against carrying “risky” brands and, consequently, getting slapped with hefty, business-crippling fines.
However, members seeking actual regulatory conformity have found their greatest, most hands-on ally in the newly-opened SEMA Garage and its Emissions Compliance Center, located at the association’s headquarters in Diamond Bar, California. Its approximately 3,500-sq.-ft. lab features a control booth, an emissions test lane outfitted with a two-wheel-drive chassis dynamometer, and all the state-of-the-art equipment necessary to simulate road and driving conditions for everything from a 2,000-lb. sports car to an 8,000-lb. pickup.
The lab is capable of all the required EO tests for gas vehicles, including drive traces for cold starts, city start-and-stop driving, suburban and highway driving, and hill climbs, while taking precise hydrocarbon, nitrogen oxide and carbon monoxide levels for each. Spagnola said that a lot of research went into the Garage’s EO confirmation programs to ensure that they meet SEMA-member needs.
“In talking with members, we found that there were a few issues,” he explained. “First, the cost of doing EOs was very expensive for them, so when we put the Garage together, we made sure that our pricing is very competitive at a SEMA-member rate. We also found that it was hard for them to get lab time because most of the labs are backed up, and some of those labs have big contracts with OEs and other manufacturers. For an aftermarket supplier to get in was sometimes tough, so we wanted to make sure that our lab was dedicated to the aftermarket and SEMA members.”
Treydte said that about half of the tests since the Garage’s opening have been for people who are new to the process.
“Not only is the lab available for people who are familiar with the EO process but also for those who have not been making use of it,” he said. “We can help from beginning to end in achieving an EO—all the way from initiating the application process, through communicating with CARB, completing the required testing in the emissions lab, and then again communicating with CARB on the issuing of the EO. For SEMA members, the only costs associated with the process are for testing. There are no costs associated with assistance on the application. And on the testing, we can offer significant discounts for SEMA members so that their initiation into the process doesn’t have to be such an obstacle.”
And while some companies may fear opening a Pandora’s box by calling attention to their multiple product lines as they try to catch up with compliance, Treydte noted that this has yet to be a problem.
“The enforcement activity that we’ve seen has not been related to people getting involved in the process and therefore being ‘discovered,’” he explained. “Rather, it’s been for blatant infraction, and particularly for products that are more egregious in nature. But we know that CARB will eventually be paying more attention to more benign types of products as well.”
Nuñez pointed out that while the EO process may seem daunting, the bottom line is that compliance will pay greater dividends to manufacturers in an increasingly scrutinized marketplace. Consequently, she urged SEMA-member companies to make use of their new SEMA Garage for long-term gains.
“Manufacturers who have addressed their obligation will absolutely have a competitive advantage with distributors,” she emphasized. “One of the major drawbacks for manufacturers complying has been the limited facilities and cost associated with obtaining the proper exemptions. The SEMA Garage’s emissions lab will provide more timely turnarounds and cost savings to manufacturers who need to comply. Distributors are also becoming more aware of what parts have EOs assigned. This awareness will prompt them to selectively choose items that have EOs assigned. It is important to note that quality data from manufacturers on their CARB EOs will help boost their sales as other manufacturers continue to ignore the law or have to catch up.”
Accessing the SEMA Emissions Lab
To learn more about the SEMA Garage and the emissions exemption process, email Peter Treydte at email@example.com.