Written evidence from the Society of Motor
Manufacturers and Traders (SMMT) (BUS 06)
ABOUT SMMT
1. The Society of Motor Manufacturers and Traders
(SMMT) is the leading trade association for the UK motor industry,
providing expert advice and information to its members as well
as to external organisations. It represents companies throughout
the automotive sector ranging from vehicle manufacturers, component
and material suppliers to power train providers and design engineers.
The motor industry is a crucial sector of the UK economy, generating
a manufacturing turnover of £51 billion, contributing over
10% of the UK's total exports and supporting around 800,000 jobs.
2. SMMT welcomes the opportunity to respond to this
inquiry into bus services after the spending review and would
be pleased to provide further information on issues raised in
this submission.
SUMMARY OF
COMMENTS
3. Demand for new buses used on local services in
the UK has been in decline since towards the end of 2008. It is
expected to continue to fall until 2012 - or even later- before
stabilising. For part of that period, decline was mainly the result
of changes elsewhere in the economy, which had an impact on demand
for travel. However, those wider effects have been overtaken in
importance by three factors which are specific to the bus operating
industry and more directly influence operators' investment programmes,
these factors are:
— Changes
to the concessionary fares regime.
— Constraints
on local authority funding.
— Reduction
in Bus Service Operators Grant (BSOG).
INTRODUCTION
4. The UK market for buses used on local services
overwhelmingly uses vehicles weighing 8.5 tonnes or more. While
smaller vehicles are used in some, usually specialised circumstances,
the days of intensive urban networks provided by minibuses are
gone.
5. There are three market segments:
— Midi
buses ("midis") - single-deck vehicles weighing up to
13 tonnes, with around 30 seats.
— "Full-size"
or "heavyweight" single-deck ("single-deck")
- 13 tonnes or over, with 40+ seats.
— Double-deck.
6. Three bus manufacturers are based in the UK -
Alexander Dennis, Optare and Wrightbus. All manufacture chassis
and bodywork and all also build bodies on chassis built by other
manufacturers
7. UK bus operators are sensitive to both price and
costs. Measures such as the reduction in BSOG or changes to Local
Authority support for bus services will tend to prolong the recession
as operators will need to reduce expenditure.
FACTORS AFFECTING
THE UK BUS
MANUFACTURING INDUSTRY
8. The UK recession reflects tough economic times,
from which the bus manufacturing industry is not immune. However,
there are three measures specific to the bus industry which will
challenge bus operators over the next two to three years and influence
their buying patterns. They are:
— Changes
to the Concessionary Fares regime (a reduction of income).
— Constrained
Local Authority financing (fewer tendered routes, reductions of
school bus services, limited new initiatives, funding not ring
fenced).
— BSOG
reduction of 20% (approximately 8.6p per litre) - an effective
fuel price increase of 14% overall.
9. The most immediate effect on manufacturers would
be for operators to delay purchasing decisions that have already
been deferred or reduced in scope. It is an easy choice to delay
replacement and keep a vehicle running for another year or two
- assuming there is work for it - as the maintenance impact is
relatively low (even if maintenance costs increase with vehicle
age). If work is not available, the vehicle will be parked up,
if owned, or, if it is on lease, it will be returned when the
lease expires rather than being retained.
10. Bus services will be focussed on profitable areas
and times of the day. Urban services will be defended while rural
and small town routes will be the most likely to be given up or
reduced.
11. This does not necessarily mean that services
will reduce in direct proportion to the reduction in public finances.
Bus operators are not a homogenous group: there are smaller businesses
that can focus purely on local operation and there have been several
instances where a large operator has reduced services only for
a local operator to step up to fill the gap commercially. Nevertheless,
for the foreseeable future, the impact will be negative as the
total size of the travel market is reducing at a time when fewer
people are likely to be travelling and consumers will view their
discretionary spend with more care.
12. The recession will therefore be reinforced and
prolonged - until a new equilibrium is reached by, perhaps, 2013-14.
At that point, the next five-year Spending Review will be in advanced
planning and there will be significant speculation about the next
round of changes and what form they will take. The shadow of the
next General Election will also be apparent on the industry.
BUS SUPPLY
IN THE
UK
13. Bus manufacturing is largely a bespoke industry.
Operators' preferences in the way of interior layouts, colours,
seats, radio and ticket equipment mean there is a high degree
of customisation, most of which is seen in the bodywork.
14. Traditionally, most business in the bus sector
has been "body on chassis", with separate suppliers
for each. This has allowed UK bodybuilders to flourish at a time
when UK chassis manufacturing declined. UK sourced bodywork continues
to have a dominant share of the market.
15. However, an encouraging feature of recent years
was an increase in the supply of UK-built chassis (often with
the manufacturer becoming a "single-source" supplier
to the operator by also building the body).
The 2009 picture was (percentages can be added together
to indicate overall body share):
| Segment | % UK Body
| % UK Body
and Chassis |
| Double deck | 33% | 41%
|
| Midibus | 17% | 78%
|
| Single deck | 65% | 8%
|
BUS REGISTRATIONS
IN RECENT
YEARS
16. In general, the bespoke nature of the manufacturing industry
means that the time between order, delivery and vehicle registration
can be extended. Until the start of the recession, lead times
sometimes extended to more than 12 months, although the recession
has reduced this slightly. This means that registrations also
tend to lag behind orders and that any change, even a step change,
in customer confidence takes longer to become visible than it
does in, for instance, the car market.
17. Over the past decade, bus demand has varied with confidence
in the economy. However, the trend since the middle of 2009 has
been sharply downwards, as measured by rolling 12-month registration
figures:
| Double deck: | minus 41% |
| Midibuses | minus 38% |
| Single deck | minus 58% |
In summary:
— In
the case of midis, the current market level is the lowest on record
since this kind of vehicle was developed 20 years ago.
— Single
deck buses are now at their lowest point since 2003.
— Double
deck buses constitute a more noticeably cyclical sector. After
a long period of recovery (post-deregulation in 1986 through to
2003), the market fell back to a low point in 2007 (an annual
rate of 609 registrations) before recovering to a peak of 1499
units in mid 2009. Transport for London (TfL) has been a major
influence on recent patterns as numbers of new double-deckers
required have varied under its continuous tendering programme.
LEARNING LESSONS
18. The last major changes, on this kind of scale,
took place in the 1980s. The removal of purchase support for new
buses and the implementation of deregulation and privatisation
saw the bus market fall from 3000 units to 236 in seven years
(92% reduction) and it took the market 11 years to recover.
19. Since 1980, 26 bus factories have closed in the
UK. Though this has happened for a variety of reasons, including
business rationalisation and international manufacturing decisions,
uncertainties in demand played a major part.
HOW BIG
"SHOULD" THE
MARKET BE?
20. In principle, buses are designed for an economic
operating life of approximately 15 years. It is quite feasible
to extend it, but maintenance costs tend to rise with age. Other
factors such as emissions legislation (Low Emission Zones) and
accessibility (Disability Discrimination Act 1995) can change
the potential for extending vehicle use.
21. The main local bus fleet in the UK is around
40,000 units, which would imply annual replacement of 2,600 to
2,700 units to maintain the average age of the fleet at around
15 years. This has been approximately achieved over the last 15
years in terms of the number of buses (though there have been
changes to the mix of vehicle sizes). However, the total for 2010
is expected to be 1,950 and 2011-12 will see continued falls,
so with much smaller volumes the fleet age will rise.
22. This is at a time of increased pressure on air
quality; the latest standard (Euro V) was only introduced in 2009
and the next is due in 2014. Similarly, deadlines for 100% use
of wheelchair-accessible buses apply from 2015; fewer deliveries
now will put at risk the meeting of that deadline across the UK
as a whole. (Though many fleets have already met the goal, there
are still fleets which are, relatively, a long way off meeting
the deadlines.)
23. There is a limited market for second-hand buses
(generally for vehicles coming out of London at the end of leases
and contracts, as TfL replaces vehicles at between seven and 12
years old). This market is already slowing. Fleet disposals brought
on by the three measures will depress the market further and reduce
the value of vehicles in operators' accounts.
EXPORTS
24. The three manufacturers mentioned in paragraph
six are all investing in export drives to offset the reduction
in UK demand. In addition to the "traditional" markets
of Hong Kong and Singapore, they have found steadily growing business
in the United States and Canada and are increasing their efforts
to sell across Europe and elsewhere. Nonetheless, a strong home
market remains a fundamental need.
25. The Irish Republic, which has long been an export
market for UK bus builders, provides an object lesson in the potential
volatility of export markets. It is not possible to separate urban
buses from coaches in the Republic's statistics but the overall
impact of tits recession is clear - from a peak of 469 registrations
in 2007, the market has fallen by 90% to an estimated 47 units
in 2010. (The fall is 86% from the average market of the past
decade.)
26. The major bus fleets in the Republic have cut
fleet sizes by either selling older buses or mothballing more
recent vehicles. Mothballing means the market is likely to remain
low even when the recession eases. Many of the sold vehicles were
built by UK manufacturers, and are finding homes in the UK, depressing
values in the used vehicle market even further.
REDUNDANCIES
27. Though the lead times between order and delivery
have become shorter, they are still long enough to give warning
of impending trouble. Hence all three UK manufacturers took action
in 2009, and again in 2010, to reduce headcount by programmes
of redundancies and releasing temporary staff.
INNOVATION AND
SUPPORT
28. Early uptake of innovation in the form of hybrid
buses was essentially driven by TfL, able to bear the additional
costs of the new technology. Latent interest outside London was
only tapped by the grants available from the two Green Bus Funds
in England (and a similar scheme in Scotland), which have seen
UK manufacturers supplying most of the demand in the form of their
own chassis/body combinations or by supplying the bodywork for
others' chassis.
29. However, the continued development of such products
will become more difficult in the near future if demand for "traditional"
products continues to fall and funds for investment reduce. Should
that become the case, the particular demands of the TfL market
will again become the main drivers of innovation.
December 2010
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