FREE ESSAY ON BUSINESS INDUSTRY ANALYSIS

BUSINESS INDUSTRY ANALYSIS

Industry and Competition
Several large companies have focused on the multi-occupant vehicle market, specifically
school bus production, in North America. Competitors within the school bus manufacturing
industry consist of the Henlys Group PLC, a British based company, and two U.S. bus
companies, Collins Industries Inc. and Navistar International. Henlys consists of Blue
Bird Corporation, Prevost Car Inc., Nova Bus and TransBus International Ltd. Collins
Industries operates seven vehicle companies including Collins Bus Corporation and Mid Bus
Corporation that make up their school bus line. And finally, Navistar International,
which also produces school buses, is divided into three principal industry segments.
These segments are trucks/buses, engines, and financial services. 
In October 1999, Henlys acquired Blue Bird Corporation. This horizontal acquisition gave
Henlys a competitive advantage in the North American school bus market. Currently, Blue
Bird has increased its market share to over 47% making the bus market Henlys core
business. Blue Bird, financially, accounts for 59% of total corporate sales and 81% of
Henlys profits. Within Blue Bird, school bus sales accounted for 83% of total sales. Blue
Bird offers three styles of small buses and three different large buses, all designed to
meet customer needs. They have also teamed up with the Southwest Research Institute to
develop the bus of the future, Envirobus. The joint venture was commissioned by the
Department of Energy in response to increased pressure from various environmentalist
groups to develop buses that are safer and environmentally conscious. This acquisition
makes Henlys the largest company in sales of school buses in the North American Market.
Besides school buses, Blue Bird also produces commercial buses and recreational vehicles.
Henlys is also able to take advantage of Blue Bird's extensive network of distributors.
These areas complement Henlys other areas of operations by building on their core
competencies. Prior to the Blue Bird acquisition, Henlys Group used the cooperative
strategy of equity strategic alliance to expand its bus and coach operations outside of
its borders. With this one acquisition, the Henlys Group has achieved economy of scale
and now controls 47% of the school bus market in North America.
Henlys equity alliance partner profile includes a partnership with Volvo that jointly
owns Prevost car Inc. and Nova bus. This joint venture accounts for a 25% market share in
North America's coach market and is the market leader in bus shells for motor homes
supplying 80% of that market. Another alliance is with the Mayflower Corporation in the
TransBus International Ltd., which is the fourth-largest bus and coach manufacturer in
Europe.
As a result of the acquisition and equity alliances, the Henlys Group saw its operating
profits soar 119% in 2000. Blue Bird is now the Group's core activity and presently
accounts for 81% of the operating profits and sales.
Through Blue Bird, Prevost car and Nova bus, Henlys Group has the widest product coverage
in the North American bus and coach market.
Collins Industrial Corp. is a leading manufacturer of ambulances, small school buses,
commercial buses, and terminal trucks. Collins is known for their innovative ideas in the
configuration and set-up of their ambulances and the seating configuration of their small
school bus products. Collins has used the acquisition strategy to enter new markets and
to overcome entry barriers. The use of acquisition has also given Collins economies of
scale within the ambulance and small school bus industry.
Collins introduced its first small bus in 1967 to America and became the largest producer
of small school buses in the United States after its acquisition of MidBus Inc. in 1998.
They have seen increases in sales in the small bus market. It has attained a backlog in
their bus product lines that have increased over 193% between 1998 to 1999. This
increased backlog is a result of the market demand related to the replacement of
nonconforming vehicles and the reduction of emissions. Collins posted increases in
quarterly sales of 81% that in-turn produced a 43% increase in diluted earnings per
share. Net Income increased more than 73% during the same time period. Currently they are
experiencing problems within their supply chain.
Navistar International Corp. manufactures and markets medium and heavy trucks, school
buses, and mid-range diesel engines in North America. Navistar was founded in 1902 under
the name International Harvester Company, which was changed in 1986. International
Harvester has been an American icon known for its strong presence in the truck and
agricultural product markets.
Navistar International is comprised of 8 divisions, with its truck and bus products
accounting for 75% of the company's sales and revenues. Navistar also is a leader in the
development and production of a mid-range (160 to 300 horsepower) diesel engine. Its
engine division contributes 21% to the total amount of Navistar's sales and revenues.
Navistar's Bus vehicle center produces school buses and bus chassis that range in size
from small capacity to full size conventional buses. This division introduced an
integrated conventional school bus and provided the first school bus equipped with the
"International Green Diesel Technology Engine" produced by the Navistar's Engine
Division. Navistar's "Green Diesel" technology has been recognized with an award from
Popular Science for its revolutionary camless engine design that will deliver greater
durability, reduce the overall engine weight, and lower the amount of emissions that are
produced.
Navistar International has used horizontal acquisitions to achieve economies of scale and
scope through new innovative and flexible manufacturing technologies. The use of flexible
manufacturing will support Navistar International's focused manufacturing approach that
will provide the customer a way to custom design their product. Navistar International
uses extensive supplier partnerships to produce a strong competitive advantage by
delivering a product to the customers more efficiently and effectively. This group of
suppliers includes Goodyear, Akzo Corp., Eaton Corp., and Modline Corp. 
Economic Trends
Buying school buses is much like buying cars. They range from bare essentials, as
required by law, to having all the bells and whistles offered by bus manufacturers.
Certain aspects of bus features have come up in recent years as to whether the extra cost
was worthwhile. One of these costs is LED's, or light-emitting diodes used on stoplights,
taillights and turn signals. Some believe that they are safer than the incandescent bulbs
most buses currently use. LED's take less time to attain full brightness compared to the
0.2 seconds it takes an incandescent bulb. The 0.2 seconds can make a large difference
when vehicles are traveling at 60 mph. LED's also last longer. The Clark County School
District in Las Vegas, Nevada has 118 buses equipped with LED lights, received in 1997,
which have not needed to be replaced. However, these longer lasting bulbs come at a
greater expense, about $150 more per unit when installed at the factory. 
Outside of bus options, fuel prices have had a substantial effect on state school bus
programs. With the increased price of fuel, bus operators' fuel allowances are not
covering fuel expenses. Therefore, cuts must be made in other areas in order to keep
buses running. Nationwide, there are more than 435,000 school buses carrying
approximately 22,500,000 children every day. Quite often, the programs that absorb the
cuts are the safety programs for bus operators. Typically, bus operators are paid to
attend certain safety classes. After cuts, these classes are offered on a volunteer basis
meaning those who need to attend most probably will not; now the safety of millions of
children are at stake. One way to try to offset higher fuel budgeting is to buy new, more
fuel-efficient buses. New buses will also reduce costs in maintenance and labor as well
as provide the most current safety innovations. Transportation budgeting problems also
make it difficult to award drivers' with pay increases. This contributes to the on-going
shortage of bus drivers whose average hourly wage is $10.76.
School bus sales in the United States reached its highest units sold in 1999; 42,341.
According to School Bus Fleet records, this beat the previous high sales record of 40,327
units sold in 1974. Sales hit a low in 1992 with only 28,564 units being sold, but then
steadily increased through 1996. Sales dropped in 1997 but jumped back up in 1998, 703
units above those sold in 1996. 
School Bus Sales - United States and Canada 
(1999 Sales Year) 
School bus sales in 1999 were significantly higher than in the previous year for each
vehicle type. In fact, total U.S. sales in 1999 were the highest ever, according to
SCHOOL BUS FLEET records. The second-highest sales year was 1974, with 40,327 units. 
As illustrated, the economy plays a major role in the school bus industry. With rising
prices and state school bus funding problems, schools are not able to upgrade their fleet
to newer, safer, more fuel-efficient buses. Funding also contributes to driver pay, which
in turn influences the attitude of the driver, again, affecting overall safety.
Government and Political Influence
State governments as well as the federal government dually govern the school bus
industry. The federal government's major role is in setting standards for the
manufacturing of school buses. There are a total of 58 regulations governing motor
vehicle safety, 35 of which apply to school buses. Some of these include FMVSS (Federal
Motor Vehicle Safety Standard) No. 131 - School Bus Pedestrian Safety Devices, FMVSS No.
220 - School Bus Rollover Protection and FMVSS No. 222 - School Bus Passenger Seating and
Crash Protection. State laws and regulations govern buses on the highway. Throughout the
United States there are more than 500 laws, and even more regulations on state's books
governing the school bus industry. State laws and regulations tend to prevail if for no
other reason than the fact that school transportation is state-funded.
A proposed law being debated by state legislators is the need, or not, for seat belt laws
in large school buses (over 10,000 lbs Gross Vehicle Weight Rating). New York and New
Jersey have passed legislation requiring the installation of lap belts on large school
buses. However, New Jersey is the only state that requires their use. In 1997, 16 state
legislatures were faced with seat-belt bills, none of which were passed into law. Florida
and Louisiana have taken on a supporting role toward seat-belt legislation by requiring
that all buses be equipped with seat belts in the near future. For Florida, the deadline
was January 1, 2001, while Louisiana is holding off until June 30, 2004. The timing of
these regulations may be off for the fact that NHTSA (National Highway Traffic Safety
Administration) is actively conducting tests to determine if a three-point seat-belt
system is a better safety mechanism as opposed to the two-point lap belt. A three-point
system is much like that used in passenger cars. Tests may also show that simply padding
the walls inside the buses may be required or that the current use of
compartmentalization is still the best passive occupant restraint system. External safety
features include the regulation that all school buses be painted National School Bus
Yellow. Buses are often adorned with reflective tape as well. They are also required to
have driver-activated stop arms.
Social and Cultural Forces/ Human Resources and Labor Relations
Collins Bus Company presented awards for Outstanding Sales Performance in 2000 to six
dealers from different states in March 2001. They were A-Z Bus Sales in California,
Mid-State Truck Service in Wisconsin, Soderholm Sales in Hawaii, Arcola Bus Sales in New
Jersey, Western Bus Sales in Oregon, and Midwest Transit in Illinois. These are called
"Circle of Excellence" awards. This is in appreciation for sales performance. 
Collins is located in Hutchinson, Kansas. In December 2000, they did a large plant
expansion and since labor is tight in Hutchinson, Collins invested heavily in plant
equipment to get productivity increases without increasing labor. 
A warranty is given on paint finish on their buses as long as the original owner has the
bus. 
Blue Bird, Inc. is considered an innovator in its field. It has the leading edge on new
product development in an ever-changing transportation industry. It has set standards for
alternative fuels, next generation transportation power, new alloys, new product safety
design, and other emerging technology.
Job opportunities were listed on Blue Bird's web site. A Senior Planner and a
Programmer/Analyst are two that were mentioned. They work a four-day workweek, forty
hours Monday through Thursday. Experience in material requirement planning, E-business
application, inventory reduction, vendor delivery, lean manufacturing experience and Just
in Time (JIT), as well as supervisory experience are among the requirements for the
Senior Planner job. The jobs offered have competitive salaries commensurate with
experience and excellent fringe benefits. 
Navistar International is very concerned about the health and safety of its employees.
They have opened clinics in several of their plants. In an engine plant in Melrose Park,
Illinois, the clinic gives free prostate exams. Three cases of prostate cancer were found
in 1999 early enough to start immediate treatment. In their largest assembly plant in
Springfield, Ohio, they have made successful progress in managing long term disability
cases. The medical staff through physical therapy, weight training, diet, and behavior
modification helped one individual who had been out of work for ten years, to return to
work. There were a total of eleven that went back to work with this program. 
Navistar helps the National PTA with a safety campaign. It is called "Be Cool. Follow the
Rules." These life-saving materials are distributed to students and parents. 
Their main focus seems to be on their suppliers. They are involved with COMPASS. This is
the COst Management PArtners Sharing Savings program. This program is used to reduce cost
and improve relations between International Truck and Engine Company and its suppliers
through mutual trust. Some of the rules and guidelines are shared savings (default
50/50), $5,000 credit for elimination of part numbers, focus on "bottom line" savings,
etc. International expects suppliers to continue to improve their product, processes,
service, and on-time delivery with zero defects. 
Their customers can expect quality products and services at the lowest total cost, new
programs to exceed their expectations, and improvement in their supply base capability
and performance. They provide their employees with an environment in which they can do
well. 
By meeting or exceeding International's expectations, a company can become a potential
diversified supplier. They try to reach a minimum of five percent spending goal with
minority businesses, women-owned businesses, and small businesses. International feels
that since population demographics are gradually changing they need to work with minority
and women-owned companies. This offers more earning power for diverse consumers and
increased sales for corporations. 
Financial Resources and Markets
The bus industry requires substantial set-up and entry costs. Due to these high costs the
general entry strategy is through acquisition. All three of the highlighted companies
have gained entry into this market with this strategy. Current trends indicated that this
market has growth potential. This is due to several factors: 
1. Environmental concerns
2. Guaranteed funding through Federal/State and local governments
3. New technology developments
4. New laws pertaining to safety
Those firms already established will have a leading edge in this market. There is intense
competition for the contracts to supply buses across the country. The need to replace
older models will ensure continued growth.
As mentioned earlier, Henlys is a newcomer to the North American bus market. Their
acquisition of Blue Bird gave them a lion's share of the current market. It has also been
the company's saving grace. Blue Birds profits have given Henlys a substantial advantage
over Navistar and Collins. 
Navistar's engine division accounts for over 32% of total revenue, up 8% from last year.
The engine division is becoming a major core competency for Navistar and may eventually
support the truck division. This emphasis on the engine division is part of a current
strategy to dominate the diesel engine sector, which has a major impact on the bus
industry.
Collins current sales have decreased by 15%. This is mainly due to decreases in the bus
and ambulance divisions. The main factor contributing to this decline was a decrease in
winter orders and chassis shortages due to plant shutdowns at both Ford and GM. This also
led to an increase in cost of sales of 89% versus 85% for the same period in 2000.
The following chart shows current industry standards for various ratios:
FINANCIAL STRENGTH PROFITABILITY RATIOS (%)
Quick Ratio 1.16 Net profit margin 2.59
Current Ratio 1.58 Gross Margin 19.12
Total Debt to Equity 4.37 Operating Margin 4.21
MANAGEMENT EFFECTIVENESS (%) EFFICIENCY 
Return on Assets 1.93 Asset Turnover 0.75
Return on Investment 3.9 Inventory Turnover 12.6
Return on Equity 13.61 Receivable Turnover 2.38
Both Navistar and Collins currently fall below the industry averages. Henlys is doing
well in the Financial Strength and Profitability ratios, however, due to a poor showing
in their other divisions they do not quite meet the other industry standards.
Technology and Scientific Developments
In the bus industry, technology plays a major role in helping companies compete with one
another to develop new products for an ever-changing market. Today we rely on buses to
transport children back and forth to school and to provide mass transit in metropolitan
areas. Diesel Technology is what makes this all possible. Over ninety-five percent of our
nation's full-sized transit buses are powered by diesel fuel. Approximately sixty percent
of the students in the U. S. travel to and from school on diesel powered buses. Buses
account for only six percent of passenger miles but are a service to twenty-seven percent
of our nations total passengers. In this industry, technology is one of the three major
core competencies with the other two being price and quality. The development of a bus
with new features that make it more efficient while at the same time being more
environmentally friendly will be the ideal product for this market and will have a
strategic competitive advantage in this industry.
Recently in the state of California there have been growing concerns of how diesel fuel
is effecting the environment. This concern has led to state legislation to either heavily
restrict or ban the use of diesel fuel completely. They believe that diesel use pollutes
the air and destroys the environment. Only through the use of technology can a company
develop a more environmentally sound product, that will ease concerns and at the same
time maintain a high quality and efficient product. The first company to develop this
product will have a clear advantage over the rest of the industry. Navistar International
has developed Green Diesel Technology as a new way to be more efficient while reducing
harmful emissions that pollute the environment. Green Diesel Technology utilizes the
benefits of a catalyzed particulate filter and low-sulfur fuel in combination with an
exclusive International engine performance design that significantly lowers the emission
output and odor of diesel-powered buses. It virtually eliminates gaseous hydrocarbons and
reduces particulates fifty percent below levels achieved by natural gas engines at a cost
far below that of a natural gas vehicle. Navistar International announced in May 2000
that they expect it to be available by the middle of 2001 to customers in California and
in any other locations where diesel fuel with sufficiently reduced sulfur content is
available.
The Henly's Corporation makes its buses through their Nova Bus subsidiary. Nova is
currently trying to develop new technology called the Hybrid-Electric Drive Transit Bus.
This bus will have two rotary CNG engines as an auxiliary pipe fiber-optic vehicle
management system, and an independent semi-suspension. This bus will be energy efficient
as well as environmentally safe. Nova has also developed the world's first commercial
hythane-fuelled prototype. Two are currently being tested on regular routes to determine
what maintenance problems exist, how efficient is the fuel, and whether or not this type
of fuel pollutes the air. Due to the different combustion characteristics of hydrogen,
the use of hythane results in a forty-three percent reduction in nitrogen oxide emissions
compared to natural gas emissions. Hythane fuelled engines are four times cleaner than
standard clean diesel engines. With new technological developments like these, the bus
industry will be changing at a rapid pace and only those companies who can adjust quickly
to change will survive. Current and future technological breakthroughs will create a bus
that is cleaner, more efficient, and safer for the environment and its passengers.
Strategic Option
Due to the current environmental climate, Navistar International is best situated to make
an effective strategic move. Navistar uses the SBU form of the Multidivisional corporate
structure by dividing operations within three industry segments: truck, engine and
financial. By operating separate divisions they are able to concentrate more effectively
within the unit itself. The development of their diesel engine division through joint
ventures with Ford, Siemens Diesel Systems Technology LLC and the acquisition of Maxion
International Motors in South America, Navistar is positioned to take a strategic lead in
the development and implementation of clean air technology for diesel engines.
Navistar made the following moves in order to gain this strategic advantage over Henlys
and Collins Industries. In March 1999, Navistar finalized a joint venture with Brazil's
largest diesel engine producer and a joint venture with Siemens Automotive was also
finalized. This venture will launch the development of "next generation" diesel engines.
In April of the same year, they started construction on a new facility in Alabama that
will produce these new engines. June 1999, Navistar demonstrated its Green Diesel
Technology in response to the EPA's new proposed emissions standards. In December 1999,
Navistar announced the expansion of its school bus operations, which includes the
production of a new integrated bus model and the opening of a new facility in Oklahoma.
April 2000, Navistar introduced its new camless diesel engine which analysts see as the
answer to the change in emissions standards while still improving performance. In May
2000, The Green Diesel Technology demonstrated in 1999 is now available on current bus
models. This engine technology provides power and economic value while providing clean
air benefits once thought possible only with alternative fuels. July 2000, Navistar
Internationals operating company, International Truck and Engine Corporation, announced
that it is placing its engine group into its own subsidiary. This will allow the Engine
section of Navistar to develop its growing role in overall operations. Three months later
International Engine Corporation initiated a joint venture with Siemens Automotive Corp,
called Siemens Diesel Systems Technology LLC. In January 2001, Navistar completed the
acquisition of their former joint venture partner, Maxion International Motors. And most
recently, Navistar announced a joint venture with Ford Motor Company to build commercial
trucks. This venture is also expected to lead to further applications to the small truck
market, diesel engine production.
Over the past year and a half Navistar has made its engine division a core product that
will support and move its truck/bus division into the future. The current emphasis on
environmentally friendly products has made it important for companies to develop the
technology that will meet this need. Navistar has been the leader in developing engines
and clean air technology that will still meet the needs of all its customers. Although
Henlys currently has a large part of the bus market, the environmental and safety issues
will play a significant role in whether or not they will maintain their 47% share of the
market. Navistar is well positioned to meet these strategic challenges and if they
continue on their current path they will make major gains within the market.