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December 01, 2005  |   Comments (0)   |   Post a comment

Q&A: School Bus Manufacturers Beset by Higher Costs

The rising cost of raw materials — and the impending introduction of 2007-compliant engines — is driving up prices for school buses, says John O'Leary, president of Thomas Built Buses. Profitability is the greatest challenge.

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Thomas Built Buses President John O'Leary (left) poses with racing legend Richard Petty, who made a special appearance at the Thomas exhibit during the National Association for Pupil Transportation's trade show in Austin in November.

Thomas Built Buses President John O'Leary (left) poses with racing legend Richard Petty, who made a special appearance at the Thomas exhibit during the National Association for Pupil Transportation's trade show in Austin in November.

From its headquarters in High Point, N.C., Thomas Built Buses has an excellent perch to view the changing landscape of the school bus industry. The landscape, however, is dotted with challenges, for manufacturers, suppliers and end-users.

Among the greatest challenges for manufacturers and suppliers is the rising cost of raw materials, sparked by the increasing global demand for supplies such as steel, plywood and copper.

John O’Leary, president of Thomas, wrestles with these challenges daily as he oversees the company’s product line of Type A, C and D school buses.

The newest offering — the C2 conventional bus — has been in production for approximately a year, coming out of a $40 million manufacturing facility in High Point. O’Leary says there are about 3,000 C2s on the road. He expects orders to increase this spring and is prepared to ramp up production accordingly.

O’Leary believes profitability is the greatest challenge for school bus manufacturers. He recently spoke with SCHOOL BUS FLEET Editor Steve Hirano about this issue and others.

SBF: How does the school bus market look for the 2006-07 school year?
John O’Leary: We think it will be flat compared to 2005. However, there could be some pre-buying of school buses in 2006 because of the stricter engine emissions standards set to go into effect in 2007. The 2007 engines will be more expensive, so we suspect that some customers — primarily contractors, who have more control over their funding — will try to pre-buy 2006 buses. School districts will be less likely to do that.

Are costs associated with raw materials still rising?
Some of that is still rippling through. The majority of it has hit us in the past six months. Steel is still significantly higher than it was 18 months ago, and some petroleum-related products such as rubber and plastic are higher. If you were to compare a bus you ordered today versus one that you ordered a year or 15 months ago, you’re probably looking at a 5 or 6 percent increase in price. It has definitely gone up.

Are these price increases obvious to the customer?
Nowadays, you see more sophisticated purchasing going on across the board, not just by the big corporate contractors but also at the school districts. You have more intelligence about what’s going on, with the sharing of information through the Internet and people talking. They see the increase and don’t like it. Nor do I when I get increases passed along through my suppliers, but it’s a fact of life. We’re living it every day, and other bus manufacturers are, too.

How is the high cost of fuel affecting your factory operations?
We have an inbound freight rate that we attach to every part that comes in here, and that has gone up significantly over the past six months. The freight companies that ship parts to us are definitely passing their increased costs on to us.

On another topic, are you still fine-tuning the design of the C2?
The good news is that because we put a lot of focus-group attention on it, we don’t have any major revisions that have to be made. Like with any product, however, you have what sounds good on the design board versus what actually gets into production. You make those changes. At this point, it’s not so much design changes as it is option availability. When we first rolled out the C2, we knew we had to have 70 percent of the market covered with options. So what we’re trying to do is flesh that out and offer the same options on the C2 that you can get on the FS-65.

Are you planning any changes to your transit-style products — the HDX and EF — such as creating a stronger design link to the C2?
The HDX has a family resemblance to the C2. One of the thoughts behind the design of the C2 was to make it look like the HDX. There are shared design characteristics. The EF is not in that league, and we’re definitely working on some styling changes to make its appearance more like the C2 and HDX.

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