FIRST TAKE
Ever-Rising School Bus Prices Require New Thought Model
WRITTEN BY RYAN GRAY |
RYAN@STNONLINE.COM T
he last several years have been good to school bus manufacturing. School districts have been catching up on deferred vehicle replacement as the U.S. economy has largely rebounded from
the Great Recession of a decade ago. It seems like only yes- terday, and truth be told, some of us still feel the effects. Any realized economic gains are now shrouded in fear amid the Trump administration’s tariffs on imported products, namely the school bus manufacturing staples of steel and aluminum. Te tariffs first announced earlier this year entered their next phase over the summer, and the effects are already being felt. While the United Auto Workers applaud the tariffs, vehicle manufactures and U.S. steel companies are voicing collective worry. USA Today reported in July that the larger automotive
industry was bracing for the end of big sales and profitability. Te likes of Ford, GM and Fiat Chrysler eye escalating production costs they say are tied to the tariffs. Teir stock prices are already reflecting this outlook. German and Japanese automakers share that concern. In the school bus world, Blue Bird Corporation
reported its third quarter financial results last month and said “significant” steel costs are already impacting the company’s strong earnings performance. Despite a more than 9-percent increase in net profit, gross profit for the year was down over $8 million from the prior year, and the company missed its revenue projections for the second consecutive quarter. President and CEO Phil Horlock announced Blue Bird has already begun implementing cost-saving measures amid “commodity headwinds” into the fourth quarter. Blue Bird is also reducing its full-year revenue guidance. During the Transportation Director Summit, held
July 13 and 14 in conjunction with the STN EXPO in Reno, Nevada, a Tomas Built Buses representative told attendees during an OEM panel discussion to prepare for higher school bus purchase prices tied to the tariffs. Parent company Daimler North America soon thereafter sent a statement to STN that indeed, steel and aluminum costs were on the rise for all U.S. vehicle production. Te company added that it is continuing to “monitor the situation closely” and it is
12 School Transportation News • SEPTEMBER 2018
“ready to take the appropriate measures.” While forecasts of passenger vehicle retail prices increasing
by up to 25 percent seem far-fetched in relation to poten- tial impact on new school bus prices, what could school districts and bus contractors be forced to pay a year from now? It’s far too early to tell, as any political fallout of the tariffs must also play out. Still, any talk of commodity price increases leads to
an unwelcomed yet time-honored conversation among school bus manufacturers and their customers at school districts and bus companies. Rising prices are certainly the cost of doing business, especially for those in the shrinking business of making things. Te Producer Price Index, which is used for measuring domestic producer output, was 6.25 percent for iron and steel in Janu- ary. June’s predicted PPI more than doubled to 13.51 percent. School bus OEMs realize that the price sensitive segment
they serve is bound to suffer high-anxiety over rising costs. But these cost increases, whether they are called a tariff or a surcharge—and the tipping point of when OEMs pass the increases on to customers—remain a fact of life. What’s also true, more often than not, is that these price increases seldom if ever roll back, once manufacturing costs abate.
Te price of everything is going up, and the outrage
over that simple truth will not change. But what can evolve is how student transporters respond. Understanding total cost of ownership is more important than ever, as is the different financing options that are available to allow school districts to stretch their dollars and introduce new buses and technology into fleets. Tere is a difference between good and bad debt. At what point does continuing to operate older school buses cost the fleet more money than purchasing new, more expensive ones—but that come equipped with the latest safety and operational equipment? Spending money smartly can often save money in the long-run. Email me your thoughts on the matter.
Ryan Gray, Editor-in-Chief
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