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Busing Industry Analysis

Busing Industry Analysis A few large companies have focused on the multi-occupant vehicle market, specifically school bus production, in North America. There are currently three main competitors within the school bus manufacturing industry. This industry consists of the Henlys Group PLC; a British based company; Collins Industries Inc. and Navistar International (Collins and Navistar are U.S. based companies). Henlys consists of Blue Bird Corporation, Prevost Car Inc, Nova Bus and TransBus International Ltd. Collins industries operates seven vehicle companies of which Collins Bus Corporation and Mid Bus Corporation make up the School bus line. And finally, Navistar International, which also produces school buses, is divided into three principle industry segments. In October of 1999, Henlys acquired Blue Bird Corporation. This horizontal acquisition gave Henlys a competitive advantage in the North American school bus market. Currently, Blue Bird has increased its market share to over 47% making this market a core product for Henlys. Blue Bird, financially, has accounted for 59% of total corporate sales and 81% of Henlys profits. Within Blue Bird, school bus sales accounted for 83% of their total sales. Blue Bird offers three styles of small buses and three different large buses, all designed to meet customer needs. They have also teamed up with the Southwest Research Institute to develop the bus of future, the Envirobus. The joint venture was commissioned by the Department of Energy in response to increased pressure from various environmentalist groups to develop buses that are safer and are environmentally conscious. This acquisition also makes Henlys the largest company by sales in school buses in the North American Market. Besides school buses, Blue Bird also produces commercial buses and recreational vehicles. Henlys is also able to take advantage of Blue Birds extensive network of distributors. These areas complement Henlys other areas of operations, building on their core competencies. Prior to the Blue Bird acquisition, Henlys Group used the cooperative strategy of equity strategic alliance to expand its bus and coach operations outside of its boarders. With this one acquisition, the Henlys Group has achieved economy of scale and now controls 47% of the school bus market in North America. Henlys equity alliance partner profile includes; Prevost car Inc. and Nova bus a partnership with Volvo, that hold a 25% market share in the U.S. and Canada’s coach market and is the market leader in bus shells for motor homes supplying 80% of the market. Another alliance is with the Mayflower Corporation in the TransBus International Ltd., which is the forth-largest bus and coach manufacturer in Europe. As a result of the acquisition and equity alliances, the Henlys Group saw its operating profits sore 119% in 2000. Blue Bird is now the Group’s core activity and presently accounts for 81% of the operating profits and sales; Group Sales; Profit analysis Blue Bird Sales Blue Bird; 59% 81% School Bus 83% Prevost & Nova; 23% 13% Commercial Bus 10% Plaxton UK; 18% 6% Coach & motor home 7% Through Blue Bird, Prevost car and Nova bus, Henlys Group has the widest product coverage in the North America bus and coach market. Another Bus Company called Collins Industrial Corp. is a leading manufacture of ambulances, small school buses, commercial buses, and terminal trucks, which are used in the movement of trailers at large warehouses. Collins Ind. is known for their innovative ideas in the configuration and set-up of their ambulances and the sitting configuration of their small school bus products. Collins Ind. has used the acquisition strategy to enter new markets and to overcome entry barriers. The use of acquisition has also given Collins Ind. Economy of scale within the ambulance and small school bus industry. Collins introduced its first small bus in 1967 to America. Collins became the largest producer of small school buses in the United States after its acquisition of MidBus Inc. in 1998. Collins has seen increases in sale in the small bus market and has attained a backlog in their bus product lines that have increased over 193% from 1998 to 1999. This increase backlog is a result in of the market demand related to the replacement of nonconforming vehicles and the increase human desires to become more environmental friendly by reducing the emissions larger buses produce. Collins Ind. Posted increases in quarterly sales by 81% that in-turn produced a 43% increase in the diluted earnings per share. Net Income increased more than 73% during the same time period. Currently, they have been experiencing some problems. Navistar International Corp. manufactures and markets medium and heavy trucks, school buses, and mid-range diesel engines in North America. Navistar was founded in 1902 under the name International Harvester Company, which was changed in 1986. International Harvester has been an American icon known for its strong presents in the truck and agricultural product markets. Navistar International is comprised of 8 divisions, with its truck and bus products accounting for 75% of the company’s sales and revenues. Navistar also is a leader in the development and production of a mid-range (160 to 300 horsepower) diesel engine. Its engine division contributes 21% to the total amount of Navistar’s sales and revenues. Navistar’s Bus vehicle center produces school buses and bus chassis that range in size from small capacity to full size conventional buses. This division introduced an integrated conventional school bus and provided the first school bus equipped with the “International Green Diesel Technology Engine” produced by the Navistar’s Engine Division. Navistar’s “Green Diesel” technology has been recognized with an award from Popular Science for its revolutionary camless engine design that will deliver greater durability, reduced the overall engine weight, and lower the amount emission that is produced that are harmful to the people and the environment. Navistar International has used horizontal acquisitions to achieve economy of scale and introduced many new innovative and flexible manufacturing technologies, which are helping it, achieve economy of scope. The use of flexible manufacturing will support Navistar International’s focused manufacturing approach that will provide the customer a way to custom design exactly the type of product the customer wants to buy. Navistar International uses extensive supplier partnerships to produce a strong competitive advantage by delivering a product to the customers more efficiently and effectively. This group of suppliers includes; Goodyear, Akzo Corp., Eaton Corp., and Modline Corp. Buying school buses is much like buying cars. They range from bare essentials, as required by law, to having all the bells and whistles offered by bus manufacturers. Certain aspects of bus features have come up in recent years as to whether the extra cost was worthwhile. One of these costs is LED’s, or light-emitting diodes used on stoplights, taillights and turn signals. Some believe that they are safer than the incandescent bulbs most buses currently use. Incandescent bulbs require approximately “0.2 seconds to heat up and attain full brightness” (Hirano, LEDs…p. 3). Brandon Billingsley of Heavy Duty Bus Parts in Willis, TX says, “at 60 mph, that makes a difference of about a car length, which can be critical” (Hirano, LEDs…p. 3). LED’s last longer; for example, “in 1997 Clark County School District in Las Vegas, Nev., received approximately 118 buses with LED clearance lights. So far, none of them has needed replacement” (Hirano, LEDs… pp. 2-3). However, these longer lasting bulbs come at a greater expense, about $150 more per unit when installed at the factory. But, Tom Turner of Blue Bird Body Company speculates, “as the volume goes up, the unit prices will come down” (Hirano, LEDs…p.2). Outside of bus options, fuel prices have had a substantial effect on state school bus programs. With the increased price of fuel, bus operators’ fuel allowances are not covering fuel expenses. Therefore, cuts must be made in other areas in order to keep buses running. Nationwide, there are more than 435,000 school buses carrying approximately 22,500,000 children every day. Quite often, the programs that absorb the cuts are the safety programs for bus operators. Typically bus operators are paid to attend certain safety classes. After cuts, these classes are offered on a volunteer basis meaning those who need to attend most probably will not; now the safety of millions of children are at stake. One way to try to offset higher fuel budgeting, for the long run, is to buy new, more fuel-efficient buses. New buses will also reduce costs in maintenance and labor and provide the most current safety measures. Transportation budgeting problems also makes it difficult to award drivers’ with pay increases. This contributes to the on-going shortage of bus drivers. The average hourly wage of bus drivers was $10.76 as determined by a “survey of school bus contractors published in the June/July 2000 issue” (“Annual…p. 2) of School Bus Fleet. As for school bus sales, in the United States bus sales reached its highest units sold in 1999; 42,341. This beat the previous high sales record of 40,327 units sold in 1974, according to School Bus Fleet records. Sales hit a low in 1992 with only 28,564 units being sold, but then steadily increased through 1996. Sales dropped in 1997 but jumped back up in 1998, 703 units above those sold in 1996. As illustrated, the economy plays a major role in the school bus industry. With rising prices, and state school bus funding problems, schools are not able to upgrade their fleet to newer, safer, more fuel-efficient buses. Funding also contributes to driver pay, which in turn influences the attitude of the driver, again, affecting overall safety. State governments as well as the federal government dually govern the school bus industry. The federal government’s major role is in setting standards for the manufacturing of school buses. There are a total of 58 regulations governing motor vehicle safety, 35 apply to school buses while some were written specifically for school buses. Some of these include FMVSS (Federal Motor Vehicle Safety Standard) No. 131 - School Bus Pedestrian Safety Devices, FMVSS No. 220 - School Bus Rollover Protection and FMVSS No. 222 - School Bus Passenger Seating and Crash Protection. “Once buses are actually on the highway sate laws and regulations take over” (“Government… p. 1). Throughout the United States there are more than 500 laws, and even more regulations on state’s books governing the school bus industry. State laws and regulations tend to prevail if for no other reason than the fact that school transportation is state-funded. One law causing turmoil among state legislators is the need, or not, for seat-belt laws in large school buses (over 10,000 lbs Gross Vehicle Weight Rating). New York and New Jersey have already “enacted legislation to require the installation of lap belts on large school buses” (“The Great…p. 1). However, New Jersey is the only state that requires their use. In 1997, 16 state legislatures were faced with seat-belt bills, none of which got passed into law. Florida and Louisiana have taken on a supporting role toward seat-belt legislation by requiring that all buses be equipped with seat belts in the near future. For Florida, the deadline is January 1, 2001; while Louisiana is holding off until June 30, 2004. The timing of these regulations may be off for the fact that NHTSA (National Highway Traffic Safety Administration) is actively conducting tests to determine if a three-point seat-belt system is a better safety mechanism as opposed to the two-point lap belt. A three-point system is much like that used in passenger cars. Tests may also show that simply padding the walls inside the buses may be required or that the current use of compartmentalization is still the best passive occupant restraint system. External safety features include regulation that all “school buses are painted National School Bus Yellow” (“The Great… p. 1), and often buses are adorned with reflective tape. They are also required to have driver-activated stop arms. Social and Cultural Forces/ Human Resources and Labor Relations Collins Bus Company presented awards for Outstanding Sales Performance in 2000 to six dealers from different states in March 2001. They were A-Z Bus Sales in California, Mid-State Truck Service in Wisconsin, Soderholm Sales in Hawaii, Arcola Bus Sales in New Jersey, Western Bus Sales in Oregon, and Midwest Transit in Illinois. These are called “Circle of Excellence” awards. This is in appreciation for sales performance. Collins is located in Hutchinson, Kansas. In December 2000, they did a large plant expansion and since labor is tight in Hutchinson, Collins invested heavily in plant equipment to get productivity increases without increasing labor. A warranty is given on paint finish on their buses as long as the original owner has the bus. Blue Bird, Inc. is considered an innovator in its field. It has the leading edge on new product development in an ever-changing transportation industry. It has set standards for alternative fuels, next generation transportation power, new alloys, new product safety design, and other emerging technology. Listings of some job opportunities were listed on the web site. A Senior Planner and a Programmer/Analyst are two that were mentioned. They work a four-day workweek, forty hours Monday through Thursday. Experience in material requirement planning, E-business application, inventory reduction, vendor delivery, lean manufacturing experience and Just in Time (JIT), as well as supervisory experience are among the requirements for the Senior Planner job. The jobs offered have competitive salaries commensurate with experience and excellent fringe benefits. Navistar International is very concerned about health and safety of its employees. They have opened clinics in several of their plants. In an engine plant in Melrose Park, Illinois, the clinic gives free prostate exams. Three cases of prostate cancer were found in 1999 early enough to start immediate treatment. Long-term disability cases in their largest assembly plant in Springfield, Ohio, have made successful progress in managing these cases. One individual had been out of work for ten years and after the medical staff on site evaluated him and helped with physical therapy, weight training, diet, and behavior modification, this worker went back to work. There were a total of eleven that went back to work with this program. Navistar helps the National PTA with a safety campaign. It is called “Be Cool. Follow the Rules.” These life-saving materials are distributed to students and parents. Their main focus seems to be on their suppliers. They are involved with COMPASS. This is the COst Management PArtners Sharing Savings program. It is a cost reduction program. This is to improve relations between International Truck and Engine Company and its suppliers through mutual trust. Some of the rules and guidelines are shared savings (default 50/50), $5,000 credit for elimination of part numbers, focus on “bottom line” savings, etc. International expects suppliers to continue to improve their product, process, or service, have on-time delivery and zero defects. Their customers can expect quality products and services at the lowest total cost, new programs to exceed their expectations, and improvement in their supply base capability and performance. They provide their employees with and environment that they can do well in. By meeting or exceeding International’s expectations, a company can become a potential diversified supplier. Their requirements are to be a U.S. citizen and meet the definition of a minority, women-owned, or small business. They try to reach a minimum of five percent spending goal with minority businesses and women-owned businesses. International feels that since population demographics are gradually changing they have work with minority and women-owned companies. This offers more earning power for diverse consumers and increased sales for corporations. Technology and Scientific Developments In the bus industry, technology plays an major role in helping companies like these compete with one another to develop new products for an ever--changing market. Today we rely on our buses to transport our children back and forth to school and to move about to handle our everyday duties. Diesel Technology is what makes this all possible. Over ninety-five percent of our nation’s full-sized transit buses are powered by diesel fuel. Approximately sixty percent of the students in the U. S. travel to and from school on diesel powered buses. Buses account for only six percent of passenger miles but are a service to twenty-seven percent of our nations total passengers. In this industry technology is one of the three major core competencies with the other two being price and quality. The development of a bus that has new features that make it more efficient while at the same time being more environmentally friendly will be the ideal product for this market and will have a clear cut edge in this industry. Recently in the state of California there have been growing concerns of how diesel fuel is effecting the environment. It has been such a large concern that the state legislature is trying to either heavily restrict or ban the use of diesel fuel completely. They believe that diesel use pollutes the air and destroys the environment. Only through the use of technology can a company develop a more air friendly product that will ease their concerns and at the same time maintain a high quality and efficient product. The first company to develop this product will have a clear advantage over the rest of the industry. Navistar International has developed new technology they call Green Diesel Technology as a new way to be more efficient while eliminating those harmful emissions that pollute the environment. Green Diesel Technology utilizes the benefits a catalyzed particulate filter and low-sulfur fuel in combination with an exclusive International engine performance design that significantly lowers the emission output and odor of diesel-powered buses. It virtually eliminates gaseous hydrocarbons and reduces particulates fifty percent below levels achieved by natural gas engines at a cost far below that of a natural gas vehicle. Navistar International has announced back in May of 2000 that they expect it to be available by the middle of 2001 to customers in California and in any other location where diesel fuel with sufficiently reduced sulfur content is available. The Henly’s Corporation makes its buses through on of its subsidiaries called Nova Bus. Nova is currently trying to develop new technology called the Hybrid-Electric Drive Transit Bus. This bus will have two rotary CNG engines as an auxiliary pipe fiber-optic vehicle management system, and an independent semi-suspension. This bus will be energy efficient as well as environmentally safe. Nova has also developed the world’s first commercial hythane-fuelled prototype. Two are currently being tested on regular routes to determine what maintenance problems exist, how efficient is the fuel, and whether or not this type of fuel pollutes the air. Due to the different combustion characteristics of hydrogen, the use of hythane results in a forty-three percent reduction in nitrogen oxide emissions compared to natural gas emissions. Hythane fuelled engines are four times cleaner than standard clean diesel engines. With new technological developments like these, the bus industry will be changing at a rapid pace and only those companies who can adjust quickly to change will survive. In the future we think it is safe to say that we can expect to see a slew of products that will advertise how clean, how efficient, and how safe for the environment their bus lines are, and with all the technological break-throughs that occur everyday we hope they are right. Bibliography:

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