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Select Committee on Trade and Industry Appendices to the Minutes of Evidence


APPENDIX 11

Memorandum submitted by Dennis

TransBus International FORMATION OF TRANSBUS

  TransBus is a new company being formed through the merger of the British based bus and coach businesses of Mayflower Corporation plc (Alexander and Dennis) and Henlys Group plc (Plaxton). The new company will be 70 per cent owned by Mayflower and 30 per cent owned by Henlys. TransBus strategy is to grow revenues and profits through the supply of bodies, chassis and complete buses to meet customer requirements.

RATIONALE FOR THE JOINT VENTURE

  The rationale for the joint venture is to enable TransBus to compete with the large European bus and coach manufacturers, such as Evobus (Mercedes), IrisBus (Renault and Iveco) and Volvo. Both Mayflower and Henlys are also keen to protect this vital sector of the UK automotive industry, a sector now unquestionably under threat. The merger partners between them employ 3,500 people in the UK and support another 6,500 jobs indirectly. Volvo by comparison recently terminated assembly operations in the UK and moved manufacture to Poland.

  The last three years have witnessed a period of intense consolidation activity in the European bus and coach sector. The largest players are the subsidiaries of the global Automotive OEMs with access to substantial financial and engineering resources. Through a series of mergers, joint ventures and alliances they are seeking to dominate the European market. The top four bus and coach manufacturers' share of the market in Europe has increased to 70 per cent with MAN's recently announced acquisition of Neoplan. The benefits of such activity include economies of scale and scope in manufacturing and product development, service and after-market support and breadth of product range.


  Source: Autobus magazine (Italy) July 2000

  While the UK players have a reputation for developing innovative products their ability to exploit a deregulating European market is under threat. They are increasingly unable to match the range of products offered by their major competitors and demanded by bus and coach operators, or to invest in innovative environmentally friendly technologies for their products.

  TransBus will not use its presence in the body and chassis businesses to reduce choice, for example by refusing to provide bus and coach bodies or chassis for use with other manufacturers' bodies and chassis. Indeed since acquiring Dennis in 1998 Mayflower has expanded chassis sales to third parties and continued to body other suppliers' chassis. TransBus generates one-half of its body sales revenues (around £110 million per annum) from sales of bodies on third party chassis.

  By combining their businesses to form TransBus, Henlys and Mayflower will be better placed to manufacture the bus and coach body and chassis combinations necessary to compete effectively in Europe. This includes: separate bus and coach bodies; separate bus and coach chassis; and integrated buses and coaches. This enlarged range is vital to secure TransBus' future and to expand into new markets in Europe, which neither Henlys nor Mayflower is able to exploit individually. Key areas of integration will involve product development, design and engineering purchasing, finance, parts and customer service.

THE CURRENT UK MARKET—AN OPEN AND COMPETITIVE ENVIRONMENT

  Continental European bus and coach manufacturers face very low barriers to enter the UK market. At present, 15 manufacturers supply the market, of which 12 are foreign owned. Many of these already have considerable sales in the UK and are well placed to build on their market knowledge and extensive sales networks for commercial vehicles and trucks.

  Demand for buses and coaches in the UK after a period of strong growth is now expected to decline across all sectors. The top five operators have now achieved average ages in line with government targets and ridership growth is stagnant. They—and all other major UK operators—have therefore indicated their intention to reduce spend on vehicle replacement levels. The current peak of orders in the double deck sector, which reflects the requirement of London operators to upgrade their fleets, is expected to be complete by mid 2001. If Henlys and Mayflower continue to operate as a separate entities, without the synergies of this merger, the prognosis for both businesses is grim in terms of competitiveness, investment and jobs.

  With 90 per cent of coach chassis and 71 per cent of coach bodies supplied to the UK by foreign manufacturers in 1999, there is already significant penetration by European manufacturers in the home market. Recent supply of integrated Citaro buses by Evobus to First Group has added to earlier supplies of coaches for National Express. There have been recent announcements of technical co-operation in the UK involving Optare and IrisBus, and Wrights with Scania, Volvo and DAF.

CUSTOMER CONSOLIDATION

  The consolidation of bus operators in the UK is well known. The larger operators are now internationally active in rail, air and road transport. Their size gives them the purchasing power to attract new entrants. Stagecoach have already indicated their intention to source vehicles from the former eastern bloc countries (see attached photograph). The merger will not undermine this control of the procurement process. Operators will continue to require competitive supply of chassis and bodies separately or complete buses as they wish. They have the financial muscle, the overall business strength and a range of sourcing options to maintain competition in the areas where TransBus will have the highest market share.

THE FUTURE

  The greater scale of TransBus, in comparison to either Henlys or Mayflower on their own, will give the company the opportunity to mount a strong challenge to its major European rivals—to build a successful, forward-looking business focused on long-term growth. The parties are committed to preserving and building upon this a last remaining successful sector of the UK vehicles industry, which achieves export sales in excess of £100 million. However their future as independents is in serious jeopardy.

  The combined workforce of Henlys and Mayflower is 3,500 with significant centres of excellence in Scotland, Northern Ireland, Yorkshire and Surrey. The bulk of these jobs should be secure, in the short term if the merger goes ahead.

  However their long-term future is dependent on the creation of TransBus. Without the synergies and marketing benefits offered by the merger both companies will struggle to maintain their competitive edge against the big players in Europe. In fact the current decline in the UK market represents a greater threat to job security. The creation of TransBus will provide the opportunity to minimise the impact of reduced demand and to grow the business by maximising opportunities in export markets. This is particularly the case in Europe where deregulation of the transport sector successfully introduced in the UK is now accelerating. This explains why many key customers support the merger as they are looking to TransBus to support them in this process.

  On a wider front, there can be little doubt that in the short term the entire bus and coach sector in the UK faces a period of uncertainty on the jobs front. If there are any job losses as a result of this or the merger they will be addressed in a planned way and in full co-operation with employeee representatives. The existing employment and pension rights of Henlys and Mayflower staff will be protected during the integration process. It should be emphasised however that the objective of TransBus is, in the first instance, to protect the UK bus and coach manufacturing sector, and thereafter to grow the business.

  Trade union reaction to the planned merger has been one of realism. Representatives are aware of the threats facing the sector in the UK. They are also anxious about what the future may hold for their members. John Rowse, National Secretary of the Transport and General Workers Union wrote to Mayflower, "On face value, we would welcome such a development (the merger) as strengthening the United Kingdom coach and bus manufacturing industry, however, I would appreciate an opportunity to discuss these issues with you."

  Henlys and Mayflower are supplied by over 600 mostly UK based businesses, supporting around 6,500 jobs. Many are SMEs largely dependent on Henlys and Mayflower. The formation of TransBus will reduce the growing uncertainty amongst these suppliers, by creating a new company with stronger, long-term prospects for growth.

  With the industry on the verge of the crucial autumn tendering process for next year's contracts, it is all the more important that the regulatory process is brought to a swift conclusion, before irrecoverable harm is caused to the businesses by uncertainty.

SUMMARY

  The future of an independent and thriving British based bus and coach manufacturing sector is dependent on the success of this proposed merger. The UK market is open and competitive with low barriers to entry to the global automotive OEMs who represent the bulk of the competition. The customer base enjoys real purchasing power and can look after itself. The parties believe therefore that this is an area where a referral would be inappropriate and unnecessary.

20 October 2000

EUROPEAN BUS MAJORS—GLOBAL OEM OWNERSHIP & MARKET SHARES IN KEY MARKETS

Manufacturer
Home Markets
Germany
UK
France
Italy
Benelux
Scandinavia
Spain
EvoBus
Germany
56
4
20
16
15
7
20
IrisBus
France/Italy
2
1
57
47
  
  
25
Volvo
Scandinavia
2
18
3
5
11
48
13
VW/Scania
Scandinavia
1
7
6
6
3
29
19
MAN/Neoplan
Germany
34
6
8
8
3
5
16
TransBus
UK
  
44
  
  
2
  
1
Total Major Suppliers
  
95
80
94
82
33
89
90


  Source: Autobus.





 
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