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October 01, 2006  |   Comments (0)   |   Post a comment

Q&A: ‘Pre-Buy’ Activity Boosts School Bus Sales in 2006

Thomas Built Buses President and CEO John O’Leary says the manufacturing sector is seeing increased sales due to customers increasing their bus purchasing before the EPA’s stricter emissions standards take effect in 2007.

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How is the school bus manufacturing sector doing these days in a period of tight school district budgets, looming changes in EPA emissions standards and increasing construction costs for vehicles?

One manufacturer, Thomas Built Buses in High Point, N.C., seems to be handling the pressure well. Just how well? SBF Editor Steve Hirano recently asked John O’Leary, president and CEO of Thomas Built Buses, about his company’s performance and its responses to the many challenges facing the school transportation industry.

How is the school bus market looking for the 2006 sales year (Nov. 1, 2005, to Oct. 31, 2006) compared to the previous year?
We tabulated the industry at roughly 44,000 orders in 2006 versus roughly 40,000 in 2005, with the increase being largely driven by 2007 engine pre-buy activity offset by lower Type A volumes.

Do school districts and contractors seem to have more capital for bus procurements?
There seems to be a little more capital available in general, and with fuel costs dropping lately, there will be less pressure to convert capital to operating funds. However, the big unknown at this point is what impact we’ll see on volumes as more customers confront the EPA ‘07 price increase.

What have you seen with regard to pre-buying to avoid purchasing buses with 2007 engines?
There was an EPA ‘07 pull-forward effect of approximately 6,000 units in 2006, primarily from the contractors and several state accounts. Most districts did not have the flexibility in their funding models to purchase many, if any, extra buses in 2006. However, many private contractors and states such as North Carolina, South Carolina, Florida and Kentucky were able to do so.

How competitive is the school bus market right now? That is, are margins being eroded by competition for market share?
The school bus market is always competitive! That is a natural result of OEMs having more capacity than demand in a market with relatively flat annual volumes.

Thomas has the highest market share in the industry, which is rewarding because it is a positive reflection on how well received our Type A, C and D products are by thousands of customers. It is also a tremendous reflection on our dealers, who are the best in the industry.

However, we do not spend much time talking or thinking about market share. Our primary focus is on financial performance. It would be extremely irresponsible for me to pursue a “market share at any cost” strategy. I spent the longest two years of my life at Freightliner helping to repair the damage from that flawed strategy. It isn’t sustainable over time.

My duty to the shareholders of DaimlerChrysler is to provide a competitive return on their investment, and by doing so we ensure Thomas will be in business for another 90 years.

How is the C2 doing against your competitors’ conventionals?
Tremendously well. Our backlog on them is currently out to May 2007. We hear a lot of stories about kids wanting the “cool bus” put on their routes. Some of the early units had their problems, which we had obviously hoped to avoid. But the reality is this is the first school bus completely designed from a clean sheet of paper in many years, and on top of that we introduced an enormous amount of new technology.

An example of how good the C2 now is came from our newest dealer, who recently jumped to Thomas from a competitor. It was taking him eight to nine hours to get the competitor’s conventional ready for delivery. He was shocked to find it only took him an hour to get his new C2s ready for delivery.

How many C2s are you building each day in High Point?
We are currently building 30 C2s per day, which will rise to 36 per day by Thanksgiving and ultimately to 44 a day late in the first quarter of 2007. The plant is performing spectacularly, and it is always fun to watch a customer’s jaw drop the first time he or she walks into the plant.

Now we have a new challenge. Due to the popularity of the C2, we need to figure out a way to increase the maximum build rate above 44 while retaining today’s excellent quality. But these are good problems to have.

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