Bus Services after the Spending Review - Transport Committee Contents


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 deck33%41%
Midibus17%78%
Single deck65%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%
Midibusesminus 38%
Single deckminus 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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Prepared 11 August 2011