Hoglund Bus and Truck

The president of Navistar’s bus and motorcoach arm sits down with STN to discuss how the company is reacting to the economy, new and existing markets.

SCHOOL TRANSPORTATION NEWS: WHAT’S THE LASTEST NEWS FROM IC BUS?

JOHN MCKINNEY: IC Bus had a buy summer making final preparations for the emissions change coming next year. We feel that MaxxForce Advanced EGR will be the preferred emissions solution to our customers. Its simplistic nature, with compliance resting on us, not our customers, will make it the preferred choice for 2010. Additionally, we have several product enhancement programs underway. Our customers will see a new seat frame, new electrical system, and new mirrors from us later in the year, all of which we have made great progress on over the summer. And while we are striving to improve the product experience for our customers, we at the same time are focused on improving the quality of the product coming out of our plants. I feel that when we look back on this summer, IC Bus will have made great strides in improving the long-term satisfaction of our customers.

STN: WHAT ROLE DO IC BUS’ DEALERS PLAY FOR THE COMPANY?

JM: Our dealer network is one of the greatest assets, we think it is the strongest dealer network in the industry. Part of what makes IC Bus who we are in we believe in providing support to our customers from start to finish, having them “covered” if you will. Our IC Bus dealers play that role for us. They are the conduit through which we work with customers, thus vital to our continued success.

STN: HOW IS THE COMPANY DOING FINANCIALLY IN THIS DOWN ECONOMY?

JM: IC Bus is financially sound. As part of a larger organization such as Navistar, we have been able to benefit from an organization that is diversified in its business, not solely relying upon the school bus or truck market. Within IC Bus specifically, our extension into the global commercial bus business has helped us diversify our revenue streams, which in a down school bus market allows us the ability to continue to reinvest into our school bus business.

STN: HOW IS IC BUS LEVERAGING NAVISTAR’S RELATIONSHIPS THROUGHOUT THE MEDIUM- AND HEAVY-DUTY MARKETPLACE (I.E. RECENT ASSET PURCHASE AND FORMATION OF MONACO RV LLC, INTERNATIONAL MOVEMENT WITH MAHINDRA MAHINDRA, ETC.) ECONOMIES OF SCALE?

JM: Through the business and relationships Navistar has in the truck market, IC Bus is able to draw upon these not only to leverage economies of scale with suppliers but also in product development. Our inventory of available components to select from in new product development or processes allows us to more effectively control development costs. For example, take something like a headlight. With our relationships around the world, we can tap into existing componentry, versus developing it from scratch ourselves. This allows us to control costs while still brining a world class school bus to market.

STN: WHAT IS THE CURRENT VIEW FROM IC BUS OF THE STATE OF THE SCHOOL BUS INDUSTRY?

JM: We see the industry being down this year about 20 percent. With the economic downfall, school revenues are down, leading to a decrease of bus purchases. This unfortunately has been added onto an industry that had already been facing pressure. If we look back to before the economic collapse, the industry was shrinking due to revenue short falls, rising fuel prices, and parental indifference to school bus service. This decline, while important to me as an employee for a bus manufacturer, is important as well as I’m a father of school age children. I want them to be able to ride the bus to and from school, which is why groups such as the American School bus Council are so important. We will have a few months left (as of this interview), and the potential for ordering in advance of the emissions change, but the reality is that many school districts stared a new budget year July 1, and it is this fiscal year where they will feel the hit of the economy. While school districts may want to order prior to the emissions change, a lot will not have the money to do so.

STN: DO YOU SEE ANY SPECIFIC TRENDS THAT ARE FUELING YOUR CONFIDENCE FOR THE LONG-TERM STRENGTH OF SCHOOL TRANSPORTATION?

JM: What gives me confidence in the long term strength of the school bus industry is the fact that a lot of people care about it. When visiting with customers, you can see the passion they have for what they do, that they believe in the benefits of the yellow school bus. And knowing that they are supported by great organizations such as NAPT, NASDPTS, NSTA and the American School Bus Council, give me confidence that the school bus industry will not only survive, but grow and prosper.

STN: CAN YOU EXPLAIN/BREAK DOWN THE RECENT $6,000 TO $8,000 PRICE INCREASES FOR YOUR 2010 VEHICLES? HOW MUCH IS TIED TO THE NEW ADVANCED EGR ENGINE AND HOW MUCH IS TIED TO OTHER MATERIALS?

JM: With each emissions change, bus and engine manufacturers have incurred costs to comply with the strict emissions standards set by the EPA. While I can’t break down the cost between engine and vehicle, with stricter emissions controls comes research and development costs to meet the standards. Navistar’s engine group has spent millions of dollars on R&D to be able to develop and hone MaxxForce Advanced EGR. While we understand our customers have a difficult time absorbing any price increase, we fell they will appreciate the benefits.

STN: WHAT IS THE IC BUS VISION OVER THE NEXT SIX MONTHS, YEAR FOR WEATHERING THE CURRENT ECONOMIC CONDITIONS? ARE THERE LONGER RANGE GOALS?

JM: Our plan to weather the economic storm is simple; we have to stay committed to executing on our strategy. First, we have to deliver 2010 EPA compliant engines using MaxxForce Advanced EGR. We are on track, but it is important that we stay focused to ensure we deliver engines and buses that perform as our customers demand. Second, we have to continue to work to control bus costs. Keeping the pressure on now will only benefit our customers when the economy begins to turn around and commodity prices trend upward again. Finally, we need to deliver on the product programs that we have designed to improve our customers’ experience with our buses. New seat frames, new electrical harnesses and mirrors, along with longer ranging programs, designed to improve the operational experience our customers have with our buses.

STN: HOW BIG OF A ROLE DO YOU SEE PRE-BUYS AHEAD OF THE 2010 ENGINE REQUIREMENTS PLAYING INTO PURCHASING DECISIONS THIS YEAR?

JM: We feel the impact of a pre-buy will be small. Many customers would like to, but simply do not have the funding to do so. Some will be the recipients of grants, which will allow them to advance their school bus buys. But the federal dollars to do so were stretched pretty thin. A lot of customers looking for federal assistance with their purchase did not receive funding.

STN: COMMODITY PRICES HAVE BEEN ON A YO-YO FOR THE PAST YEAR. WHAT IS IC BUS DOING IN RESPONSE TO THESE COSTS FROM A MANUFACTURING STANDPOINT? IS THERE ANYTHING IC BUS IS DOING TO HELP ALLEVIATE SOME FINANCIAL STRAIN ON CUSTOMERS?

JM: From the manufacturing side, we are continually looking to control costs. Commonly through improving our manufacturing efficiencies or through supplier selection and negotiation, but also through product enhancement. For example, with our redesigned seat frame, we are able to eliminate about 60 percent of our welds, which will dramatically improve the durability, reducing the back-end costs for both IC Bus and our customers.  For our customers on the sales side, we are able to offer budget constrained school districts financing options, which allows them to manage their available budget to get them the buses they need. We have several options available and can work within a number of parameters.

STN: HOW DOES IC VIEW THE RECENT BANKRUPTCIES OF CHRYSLER AND GM AFFECTING ITS BUSINESS, EITHER DIRECTLY OR INDIRECTLY? ITS SUPPLIERS?

JM: The difficulties within the automotive industry do impact school bus OEMs, as we use a lot of the same suppliers. At IC Bus, our purchasing division has been working to ensure our supply base is strong, and in areas where there may be some concern, find new suppliers that can meet our supplier and product standards, as well as help control costs. IC Bus has several hundred suppliers, which with the economic turbulence, we have seen some unable to continue to support us. But as some of the suppliers have dropped off, other, new, stronger, suppliers have taken their place.

STN: RECENTLY, IT WAS ANNOUNCED THAT NAVISTAR WOULD RECEIVE A $39 MILLION FEDERAL GRANT TO COMMERCIALIZE ELECTRIC VEHICLE TRUCK TECHNOLOGY. WHAT IS THE EFFECT OF THIS MONEY ON IC BUS?

JM: The $39 million grant from the Department of Energy will be focused on developing all delivery trucks. While IC Bus may be able to indirectly benefit from the technology development in energy storage and use, the delivery vehicles will be a different class vehicle than used in the school bus industry. I am excited about the opportunity presented for IC Bus through a grant awarded in April 2009 for $10 million to develop the next generation plug in hybrid school bus. Which this grant, we will be able to electrify accessories on the bus and turn the engine off, allowing the school bus to run in an all electric mode for a short time, drastically improving fuel economy and reducing emission output.

STN: THANK YOU.

From School Transportation News Magazine, November 2009 issue.