APPENDIX 36
Memorandum submitted by the Society of
Motor Manufacturers and Traders Limited
SMMT's Bus and Coach Section includes most manufacturing
businesses active in the UK bus market. Our members supply chassis
and bodywork to the operators of bus services across the UK.
SMMT welcomes the opportunity to contribute
to the inquiry, on behalf of its bus and coach members. As bus
services in the UK are overwhelmingly based on buses weighing
more than 8.5 tonnes, in our submission, "bus" refers
to a vehicle of this type.
THE UK MARKET
FOR NEW
BUSES
The regulatory framework, financial aid available
to operators, the structure of ownership, and technical legislation
are key influences on the UK market for new buses. Changes to
any of these factors can have long-lasting affects. Experience
shows that purchases of new buses are often deferred until the
process driving such change is clear and complete.
Chart 1 (below) shows the pattern of UK registrations
of new buses from 1975 to 2005. Some of the factors causing these
trends are covered further in this submission.
Chart 1
NEW BUS REGISTRATIONS: UK 1975-2005
Source: SMMT
New bus registrations, so far in 2006, show
a healthy start. There has been modest year-on-year growth in
new bus registrations. However, there has been no real change
in the underlying trends; it is regulatory changes that are affecting
the timing of buying patterns. The mandatory introduction of digital
tachographs from 1 May, at short notice, meant that operators
registered bus and coaches not fitted with digital tachographs
earlier than they would otherwise have done, hence causing market
distortion. Looking forward to October 2006, the introduction
of Euro 4 emission standards for new buses will distort manufacturing
schedules to some extent, as some operators order Euro 3-standard
vehicles to avoid what they anticipate may be higher operating
and maintenance costs of the Euro 4 vehicles.
The UK bus operating sector has five major groups
and a "second tier" of another 20-30 smaller operators.
In this market changes in buying behaviour by just a few decision
makers can cause large shifts in potential demand. This can be
counteracted to some extent by the work in progress and orders
at the bodybuilders. The vast majority of buses supplied in the
UK are body-on-chassis and most of the bodybuilders are based
in the UK. This can help to spread out peaks in demand, but cannot
protect from sudden and sustained collapses. The operating industry
recognises this process and nature of the supply-chain. Operators
tend to plan orders for delivery over periods of up to two years.
The operating and commercial pressures on the supply chain are
understood by both the chassis and component suppliers and bus
service operators.
DEREGULATION—APPROACH
WITH CAUTION
SMMT does not have a firm view on the merits
of the degree of regulation or deregulation in providing commercial
bus services or lessons learnt in service provision over recent
years. Our members are more concerned that the regulatory framework
is competitive, stable, durable, while fostering innovation in
vehicle quality and use. SMMT's experience is that caution is
needed when major regulatory change is considered and implemented
as investment can suffer. Chart 1 shows that major regulatory
changes in operating structures have resulted in big reductions
in orders for new buses, introducing significant uncertainty and
causing instability in the new bus market.
The chart clearly illustrates the peaks and
troughs in the UK new bus market over the last 30 years. The 1970s
were a period of relative stability, where the policy of the day
was to accelerate the uptake of one-person-operated buses through
a New Bus Grant. The regulated regime of the day was mainly operated
by a total of around 60 operators, all in state or municipal ownership,
who purchased almost 3,000 buses a year for a total fleet of around
40,000 units. The market fell sharply between 1980 and 1984 as
this New Bus Grant was run out (having served its purpose in fleet
renewal).
Before the market could stabilise, and adjust
to the change in policy, deregulation and privatisation was another
new policy in early 1985. The operating industry reacted to this
uncertainty by postponing and minimising their investment. This
caused demand to collapse. The first priority for bus operating
companies was business survival. Vehicle replacement was postponed
especially in newly-privatised companies. However, in London,
bus operations remained regulated and in state ownership. The
prolonged market recovery in demand for larger buses (single and
double deck) was partly due to the fact that competitive tendering
and then privatisation in London were delayed until the 1990s.
The unstable economic climate in the late 1980s and early 1990s
also contributed to a sudden reverse in demand.
Deregulation did not prove to be a barrier to
innovation in bus design and technology. It accelerated the development
of smaller buses that could be used where larger buses might be
able to go. Smaller buses, which operate more frequently, were
seen as a valuable tool in competition rival operators. Starting
with van-derived buses with 16-20 seats, operators progressed
to larger midibuses (25 to 40 seats). This growth trend in midibuses
is also shown in chart 1.
The most significant post-deregulation innovation
in the industry was the response to the development of the Disability
Discrimination Act 1995 (DDA). Due to active participation with
the Department for Transport (DfT) in the development of bus accessibility
standards, the Accessible Bus was widely adopted for new vehicle
purchases before the Act came into force. The Act required buses
to be fully accessible to disabled people, including wheelchair
users, with all single deck buses having to comply with the requirements
by 2015 and all double deck vehicles by 2017. An important consideration
in the success of the Accessible Bus, despite the higher price
of the new low floor technology, was the commercial advantage
for the bus operator. The improved accessibility has benefited
all types of users such as those with small children through to
people with very restricted mobility. The potential market was
therefore much wider than might have been thought.
Alongside the influence of the DDA and the development
of new emissions legislation, the whole "quality" of
bus design made great advances with regard to the quality of materials
used, the installation of air-conditioning systems, the passenger
comfort and appearance of vehicles. A competitive environment
gave potential rewards to innovative operators, who could expand
their customer base with a higher quality vehicle.
Other innovations such as the use of natural-gas
fuelled buses, experiments with electric buses, hybrid drivelines,
and infrastructure developments such as Guided Busways, have all
occurred in the deregulated operating environment. The recent
introduction of the Streetcar project in York also underlines
the new thinking that results when operators and local authorities
can work together on transport plans.
LONDON—LOCAL,
NOT NATIONAL
Chart 2
FULL SIZE BUS REGISTRATIONS: UK 1975-2005
Source: SMMT
There is much to be said in favour of the London
"model"—namely, one of competitive tendering for
bus routes in a planned network. Most European cities that have
applied "deregulation" have followed the same route
as London and, indeed, there was a great deal of lobbying in favour
of the tendering model at the time of the 1985 Transport Act.
It was seen as a means of promoting high vehicle standards and
of rewarding operators who invested in new vehicles, although
the reality in the rest of the country as it turned out was not
as negative as was initially feared.
London has achieved the significant goal of
all buses being wheelchair accessible, and to a minimum of Euro
2 emissions standards, at a much faster rate than the rest of
the country. Chart 2 reflects this in the way that demand for
double deck buses surged in the late 1990s, then more recently
fell back. Though double-deckers are not confined to London by
any means, the accelerated demand from London certainly boosted
registration volumes nationally (demand has now fallen back towards
basic replacement levels, or slightly below, looking across the
country as a whole). The Congestion Charge certainly contributed
to the recent peak as the absolute number of buses in London increased
alongside the introduction of the charge.
This development was positive news for bus manufacturers
and bodybuilders. On the other hand, high demand for double-deckers
coincided with a slow down in demand for single-deckers—for
two main reasons, limited bodybuilding capacity and limited capital
spend by bus operators. The supply chain has also become more
cautious in its investments so capacity is now more concentrated
and carefully managed. We believe that the bus operators also
have competing demands and limits on their capital expenditure.
New deliveries in one part of the country may entail the postponement
or delay of other plans and deliveries.
The London bus market cannot be viewed in isolation
because it interacts with the rest of the country in important
ways. First, most of the operating companies belong to national
undertakings that operate buses, trams and even trains—so
there is competition for capital. Second, vehicle designs must
be spread over as many applications as possible and it is noticeable
that unique bus designs for London have not been promoted by the
cautious manufacturers. Even so, London buses have some features
in their layout that are unique to London, which can affect later
use of the vehicles in other locations. Third, the rapid displacement
of the London fleet with new vehicles was very much assisted by
the cascading of relatively new buses into other parts of the
country (which were still suffering from older fleets as the result
of the collapse in demand in the 1980s).
The current London model offers five year contracts
with the expectation that a vehicle might be used for two contracts
before leaving London. However, there is growing pressure to replace
vehicles after only five years, which cannot occur indefinitely.
The rest of the fleet in the country is now much newer and the
potential for used London buses in other UK towns and cities is
much diminished. To scrap vehicles at five years old, when they
are designed with an operating life of at least 15 years, is a
very difficult commercial decision to justify. According to size
a bus is an asset intended to be depreciated over a 12-15 years'
life. Capital and financing costs would jump significantly if
the accepted depreciation method suddenly changed so dramatically.
There is much speculation at the moment about
the potential for new bus technology for the 2012 Olympic Games
under the objective of a "carbon-neutral" Games. A sudden
surge in demand for hybrid drivelines or even fuel cell buses
would be a very challenging goal to meet, especially if there
was no long-term plan for their use post-Games. However, London's
bus thinking has certainly been innovative. It has accelerated
the development of new ideas, from hybrids to fuel cells in buses,
and much valuable work has been done on measuring emissions and
finding ways of reducing tailpipe emissions.
FUTURE OF
THE BUS
Three key urban issues are congestion, air quality
and social inclusion/economic mobility. The bus offers a major
contribution to addressing these issues with relatively little
investment and much flexibility. Bus routes can be varied quickly
as city environments change; the example of the 2012 Olympic Games
is a good application. At the same time, the bus system can be
used in inter-modal networks to feed travellers into other modes
such as rail and the car, for example, with park and ride schemes.
Moreover, developing the bus system does not foreclose the option
of moving to light rail in the future where such systems are needed
and commercially viable.
Buses as a means of mass transport in urban
areas are also effective in addressing climate change and local
air quality concerns. As the average bus in the London rush hour
carries the same number of passengers as over 30 cars, the all-round
potential benefits of buses are clear[28].
The scope for innovation in bus use is independent
of deregulation or re-regulation. The real issue is how to manage
and blend the various modes of transport so that buses can play
a full integrated part in meeting urban environmental challenges.
The Transport Act 1985, and the subsequent mindset of the Office
of Fair Trading, which both see co-operation between bus operators
as anti-competitive, are serious hindrances to achieving this.
Revisiting and redefining the scope for collaboration could be
an effective spur to more innovation in bus use.
Bus manufacturing, in the UK and elsewhere,
is innovative and competitive. Manufacturers and suppliers with
business interests in the sector are addressing environmental
pressures and changing transport patterns. Technological advances,
such as alternative fuels, and hybrid drivelines are making real
contributions to fuel efficiency and emissions. Modern bus designs
and passenger information systems are also making journeys more
comfortable. The upheaval of a change of regulatory framework
could threaten this progress as investment plans may be unsettled
with the risk of demand collapsing.
BUS SERVICE
OPERATORS GRANT
(BSOG)
Although it is not mentioned in your Committee's
questions, we would like to comment on the recent announcement
that the DfT is to review the BSOG. While it is recognised that
BSOG does not necessarily encourage the use of, for instance,
hybrid vehicles, its availability is important to the continuation
of many bus services outside London. It also has the merit of
being administratively easy to administer in its present form.
We believe that any fundamental change to BSOG would have an adverse
effect on the smaller operators, whose purchases of used buses
are an essential part of the overall market.
SMMT once again stresses the importance of the
bus and the sensitivity of the bus market; and welcomes this opportunity
to comment. If you have any specific questions we would be happy
to discuss the points raised in more detail and if you require
further information or clarification please do not hesitate to
contact us.
5 June 2006
28 Transport for London, London Travel Report 2005,
www.tfl.gov.uk/tfl/pdfdocs/ltr/london-travel-report-2005.pdf Table
1.4.2 (page 8). Back
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