Entry and Competition in the United States Transit Bus Manufacturing
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UMTA-MA-06-0120-82-2 ^SC-UMTA-82-39 HE 18.5 . j Entry and Competition . A37 aartment no. sportation in ~ the UU I TSC- iMass >ortation United States Transit Bus UMTA- tistration 82-39 Manufacturing Industry Office of Technical Assistance Prepared by: Office of Bus and Paratransit Transportation Systems Center Systems Energy and Environment Office October 1982 Final Report h ' NOTICE This document is disseminated under the sponsorship of the Department of Transportation in the interest of information exchange. The United States Govern- ment assumes no liability for its contents or use thereof. NOTICE The United States Government does not endorse prod- ucts or manufacturers. Trade or manufacturers names appear herein solely because they are con- sidered essential to the object of this report. 3 /^,r Technical Report Documentation Page 1 . Report No. 2. Government Accession No. 3. Recipient’s Catolog No. UMTA-MA-06-0 120-82-2 4. Title and Subtitle 4 5. Report Date Entry and Competition in the U.S. Tran1 F (Dctober 1982 Manufacturing Industry TRANSPORT 6'. f^erforming Organization Code JSC/DTS-63 JUil 196v ^ *^8. F|erforming Organization Report No. 7. Author^s) ; DqT-TSC-UMTA-82-39 Bruce J. JJeiers, Michael Rossetti ! UBR.IRY 9. Performing Orgonization Name and Address 1_0. Work Unit No. (TRAIS) , U.S. Department of Transportation UM262/R2657 Research and Special Programs Administration 11. Contract or Grant No. Transportation Systems Center Cambridge MA 02142 13. Type of Report and Period Covered 12. Sponsoring Agency Nome and Address Final Report U.S. Department of Transportation March 1981-March 1982 Urban Mass Transportation Administration Office of Bus and Paratransit Systems 14. Sponsoring Agency Code Washington DC 20590 URT-20 15. Supplementary Notes A companion report entitled "Transit Bus Manufacturers' Profiles," has been published. Report No. UMTA-MA-06-0 120- 8 2- 16. Abstract The subject document presents an analysis of the causes for a recent increase in interest by foreign and domestic companies in entering the U.S. transit bus manu- facturing industry. Since 1980 four new builders of standard and articulated transit buses have entered the U.S. industry. In addition, three major European and one Japanese company have announced an interest and have begun prototype testing in the U.S. The causes for new entry are analyzed in terms of 1) the opportunities created by the strategic decisions of the established manufacturers; 2) the impetus provided to the new entrants by developments in the industries from which the entrants are coming and 3) a variety of contributing factors including Federal and local government policies. i ! QrP," v'.gT r-V New entry is seen to have Important implications fop the^iiAasit industry because of the proliferation of new bus designs and the increase in compet:itf.on. Jurl “ i 1983 LloH-riY 17. Key Words 18. Distribution Statement Bus, Bus Manufacturing, Transit Equipment DOCUMENT IS AVAILABLE TO THE PUBLIC THROUGH THE NATIONAL TECHNICAL Transit R V 1 CE SPR 1 F 1 E INFORMATION SE , NG LD, VIRGINIA 22161 19. Security Classif. (of this report) 20. Security Classif. (of this page) 21. No. of P oges 22. Price Unclassif ied Unclassif ied 94 Form DOT F 1700.7 (8—72) Reproduction of completed page authorized PREFACE This report was prepared by the Transportation Industry Analysis Branch, Office of Energy and Environment, of the Trans- portation Systems Center (TSC) as part of the Transit Bus Manu- facturing Industry Analysis Project. This project represents one of several projects within the Bus and Paratransit Systems Program which is managed by the Urban Systems Division at TSC. The program is sponsored by the Office of Bus and Paratransit Systems, Urban Mass Transportation Administration. This report is, in essence, an analytic paper addressing the apparent trend toward entry into the U.S. transit bus market by new foreign manufacturers. A companion report. Transit Bus Manufacturer Profiles is intended as a reference work on individual companies, their products, history, facilities, and finance. FACTORS CONVERSION METRIC IV 322 CONTENTS Section Page EXECUTIVE SUMMARY ix 1 INTRODUCTION 1-1 1.1 The U.S. Transit Bus Market 1-4 1.2 The U.S. Transit Bus Manufacturing Industry.. 1-4 1.2.1 The Established Builders 1-4 1.2. 1.1 CMC Truck and Coach Division. 1-5 1.2. 1.2 The Flxible Company 1-7 1.2. 1.3 The Diesel Division, General Motors of Canada 1-7 1.2. 1.4 Flyer Industries 1-8 1.2.2 The New Entrants 1-8 1.2. 2.1 Gillig Brothers 1-8 1.2. 2. Crown Coach 1-11 1.2. 2. Neoplan 1-12 1.2. 2. 4 M.A.N 1-13 1.2.3 The Potential Entrants 1-13 1.2. 3.1 Hino 1-14 1.2. 3. Renault 1-14 1.2. 3. Scania 1-16 1.2. 3.4 Volvo 1-17 1.3 The Problem 1-17 2 THE EXPLANATION. 2-1 2.1 Opportunity 2-1 2.1.1 Product Strategy 2-2 2.1.2 Production Strategy..... 2-6 2 . 2 Impetus 2-7 2.2.1 School Bus Manufacturers 2-9 2.2.2 Intercity Bus Manufacturers 2-10 2.2.3 International Truck and Bus Manufacturers 2-13 2. 2. 3.1 Globalization 2-15 2.2. 3. The Manufacturers 2-20 2.3 Contributing Factors 2-25 V CONTENTS (Continued) Section Page 2.3.1 Energy Crisis Rhetoric 2-26 2.3.2' Dissatisfaction with the ADBs 2-28 2.3.3 UMTA Programs 2-31 2.3.4 Procurement Practices 2-33 2.3.5 Buy America 2-39 2.3.6 State and Local Assistance 2-41 3 TRENDS AND IMPLICATIONS 3-1 3.1 The Short-Term Competitive Situation 3-1 3.2 Long-Term Trends 3-5 3.2.1 Opportunity 3-5 3.2.2 Impetus 3-7 3.2.3 Contributing Factors 3-7 3.2.4 Responses of the Established Manufacturers 3-9 3.2.5 Competitive Directions of the New Entrant s 3-10 3.2.6 Summary 3-11 3.3 Implications... 3-12 APPENDIX A - ASSOCIATED STATISTICS A-1 APPENDIX B - CHRONOLOGY OF IMPORTANT EVENTS IN THE HISTORY OF THE BUS INDUSTRY (1895-1981) B-1 VI i 43 LIST OF ILLUSTRATIONS Figure Page 1-1 U.S. Transit Bus Market. 1-3 LIST OF TABLES 1- Table2- Page 1-1 ESTABLISHED TRANSIT BUS MANUFACTURERS 1-6 1-2 FOUR NEW MANUFACTURERS 1-9 1-3 NEW MANUFACTURERS PRODUCTION CAPACITY AND 1981 ACTUAL PRODUCTION 1-10 4 CURRENT ACTIVITY BY POTENTIAL NEW ENTRANTS 1-15 1 SPECIALIZATION AND NEW ENTRANTS 2-3 2-2-2 COMPARATIVE PLANT SCALE, INVESTMENT, AND WAGES 3- (1981) 2-8 2-3 SCHOOL BUS BUILDERS AND ACTIVITY 2-11 2-4 INTERCITY BUS BUILDERS EXPANSION 2-12 2-5 NORTH AMERICAN INTERCITY BUS ACTIVITIES 2-14 2-6 INTERNATIONAL STANCE OF SELECTED COMPANIES 2-21 2-7 CANADIAN MANUFACTURERS’ U.S. TRANSIT BUS DELIVERIES, 1978-1981 2-29 2-8 COMMON PROCUREMENT PROCEDURES AFFECTING MANUFACTURERS - FEDERAL GRANT FINANCING AND PROCUREMENT 2-34 9 "BUY AMERICA" RULE 2-40 1 IMPACT OF NEW ENTRIES ON PRODUCTION AND CAPACITY.... 3-3 A-1 TRANSIT BUS PRODUCTION STATISTICS A-2 A- 2 NEW BUSES DELIVERED TO PUBLIC OPERATORS A- A- 3 UMTA GRANT COMMITMENTS FOR BUSES A- vi i /vi i . , EXECUTIVE SUMMARY This study develops an explanation for the emerging interest in the U .S. transit bus manufacturing industry which , since 1980, has seen two new producers of standard -si ze transit buses and two new producers of articulated buses ent er the market The ration- ale for this industry activity appears to fo cus on three elements 1) opportunity 2) impetus 3) contributing factors The opportunity the new entrants may be attempt ing to ex- ploit was created by policies of product specialization and high plant investment pursued by the long-established builders. Throughout the 1970s, culminating with the introduction of their advanced design buses, CMC and Flxible tended toward specializa- - tion in a single product niche premium, s tandard - s i ze , urban, transit buses. In the process, they chose not to produce other vehicles such as intercity, medium-size, and articulated buses. Other firms exploited the opportunity represented by the unmet demand for these product types to come into the bus manufacturing industry With the introduction of the advanced design buses (ADBs) CMC and Flxible adopted manufacturing strategies centered on rel- atively large-scale, heavily automated facilities, in part to offset the disadvantage of highly-paid workforces. This, too, created an opportunity for a new manufacturer. The new manufac- turer could be cost competitive with a smaller scale, less auto- mated facility by using less highly-paid labor. The new entrants come from industries where there is a strong impetus to seek new opportunities or to diversify. School bus manufacturers, facing a sharply declining market, are one example. Of the four new builders of standard or articulated transit buses, two were primarily school bus builders. School bus builders have also become very active as builders of medium transit buses. IX Foreign truck and bus builders are also represented among the actual and potential entrants. This group m.ay be the most important for the long-term future at the transit bus industry. The interna- tional truck industry (including many bus builders) is undergoing a process of globalization. It is commonly believed that only multi- national truck builders operating worldwide will survive into the next century. Consequently, major foreign truck builders are scramb- ling to establish a foothold in the U.S., the largest national mar- ket for trucks in the world.