Q&A: Tight School Budgets Still Affecting Bus Manufacturers

As president and CEO of Collins Industries — parent of Collins Bus Co. and Mid Bus Inc. — Don Collins keeps a close eye on the market.

With the economy regaining its footing after a lengthy downturn, Collins says school districts are poised to return to normal bus replenishment cycles. His company, Collins says, is in a great position to capitalize on the increased volume, mainly because of investments in factory mechanization and ISO 9001 certification.

In addition to being North America’s largest producer of Type A school buses, Collins is also the world’s largest manufacturer of ambulances and the second-largest manufacturer of terminal trucks.

SBF Editor Steve Hirano spoke with Collins about his perspectives on the industry.

What are some of the key challenges facing the school bus industry?
DON COLLINS: The most critical challenge is the funding problem that many school districts are facing. I don’t think it’s a short-term problem, nor do I think there’s a short-term solution.

Because of this funding challenge, school bus manufacturers have an overcapacity to produce. That’s good for customers because it continues to keep pressure on pricing. It also helps customers because manufacturers must be more efficient and more concerned about the customers’ needs.

Meanwhile, bus manufacturers need to be at the top of their game when supplying products. From that perspective, it’s a good thing for customers, but it’s a difficult thing for manufacturers.

We also have the ongoing consolidation of contractors across the country. That probably is going to continue.

What impact do you think contractor consolidation will have?
It’s a good thing for school districts because there is still enough competition in the contractor industry that the school districts will get the efficiencies of consolidation. They also get the benefits of larger contractors having better training and service programs that allow them to serve the school districts more effectively.

However, I don’t see it as a detriment; I see it more as a natural progression of consolidation in the industry.

How are Collins Bus and Mid Bus responding to the challenges you mentioned earlier?
We’ve spent a lot of money on the mechanization of our manufacturing facilities with such advents as robotic welding, ISO 9001 certification for manufacturing standards and new body designs that allow us to be more cost-efficient. At the same time, we’re improving the quality of our products so that customers can operate our buses in the field for a longer time. Are you seeing more interest from Head Starts in procuring small school buses?
It’s still been slow because, like school districts, Head Starts are being pressured from a budgetary standpoint. They receive monies, but those monies have to fund operations and other things. When the fleets get older, it will likely become more of an issue, and we’ll see a pickup from the Head Starts in the coming years.

Are churches increasingly turning to small buses as replacements for 15-passenger vans?
We’re seeing much higher interest. That’s due to two factors. One, they are receiving pressure from insurance companies on the liability side. The other factor is that our products are not much more expensive than alternate products that they’ve been using. Plus, our products are much safer. I’ve seen a pretty strong movement from the churches to utilize certified activity buses.

{+PAGEBREAK+} Do you think the school bus market is returning to a more normal sales volume?
In regard to Type A buses, many of the fleets today have traditionally used the GM diesel, which we have not had for some time. Later this year, when the new GM diesel is available, I think there are quite a few school districts that will replenish their fleets. I think we’ll see a spike from that.

Also, as tax revenues, both at the local and state level, continue to improve, we’ll see more funds available for capital spending by school districts, and we will see volumes pick up.

I think you’re seeing two things in the school bus industry. One, we’ve seen a delay in the replenishment of fleets because products are better and they’re lasting longer. We’ve moved in the last several years from the traditional gas chassis to diesel chassis, and they last longer. Two, school district funding in this last downturn seems to be steeper and more critical than other cycles that I’ve been involved with for the past 30 years. Because of that, there’s been a prolonged stage at the bottom of the cycle, and there will probably not be as steep an incline coming out of that cycle. But we will return to those normal levels of fleet replacement, it’s just a natural progression of the cycle.

What does the company’s recent ISO 9001:2000 certification mean to your customers?
The most noticeable thing for the customers will be that which is not noticeable. The principal element of ISO 9001 certification is to generate consistent quality of manufacturing. The customer will know that the product they receive tomorrow, next month, next year or five years from now will have consistent quality. In addition, the fit and finish will be better and the appearance of the product will stand up better over time.

Are you seeing growing interest in MFSABs?
Without a doubt. I think that’s going to be a natural progression as these vans go out of service and activity buses come into service. There are some school districts that are taking a proactive stance. They are doing a natural fleet replacement each year, but the majority of school districts are waiting until they have to replace, because of funding mostly. So we’re getting close to the point where activity buses will be a normal fleet replacement item.

Have there been any changes to your sales and service network?
Wherever we can, we always try to improve distribution. But our dealer network is probably strongest in the Type A business.

Any other issues you’d like to discuss?
This doesn’t get a lot of air time, but we live in a litigious society. It seems to me that product liability should play a greater part in specifications and purchasing. Liability suits are a part of our life now. I think we will see product liability insurance gain a higher profile in the industry, which will ensure quality performance in the standards of purchasing. Since districts have to go out for competitive bids, I think we may see more bid and performance bonding.

How about the issue of meeting delivery dates? Would that be included in the performance bonding?
That would be included as well. I don’t think the delivery performance is a problem at this point in the cycle. As fleet replacement gains momentum, that’s when delivery becomes more of an issue. As the industry volumes expand, then the industry sometimes encounters idle promises for deliveries. I don’t think it’s an issue today, but in 18 to 24 months it could be.

How hard is it to ramp up production if demand increases?
It’s always been a challenge. However, that’s one of the benefits of being ISO certified as well as having a higher level of mechanization. Machines ramp up very quickly, while hiring and training people takes much longer. If you have a consistent process that’s very well defined, it’s also easier to train people and have a consistent quality than if your manufacturing procedures are not as well established.