By Dave Millhouser

During the past three decades, many offshore motorcoach builders have found the U.S. bus market irresistibly attractive . . . for a variety of reasons.

Some companies seek the recognition that comes with selling in the U.S.

Others seem swayed by the general perception that U.S. bus buyers have money.

Gross margins on coaches sold in the U.S. seem higher than in other parts of the world, probably more the result of the market being small, with unique demands, than greed.

One motorcoach executive who has been involved with domestic, European and Asian coaches points out that the U.S. represents only about 3 percent of the world market, while demanding a litany of features that are unnecessary most everywhere else in the world.

He notes that "the Asian markets, which are the worlds largest, dont understand why we have all this; they only wish they had the ability to build for these tough conditions. Most of the world sees buses (built for the North American market) as the benchmark for design and manufacturing."

Coaches running in the U.S. require a 25-year service life, while meeting the worlds toughest emissions standards and operating in environments from below sea level to 11,000 feet.

They provide adequate HVAC for temperatures ranging from minus 20 to plus 120 degrees (-28 to +49 Celsius), and because resale value is so critical, a "regional" bus is unacceptable.

American coaches must meet exacting safety standards, while traveling roughly 20 percent faster than in most countries, in a very litigious atmosphere.

Those and other factors are a partial explanation for why, in the past 30 years, no fewer than 12 heavy-duty coach manufacturers have failed, or simply given up, in the U.S.

When a builder leaves the market, companies operating their buses are presented with a variety of problems.

No matter how well built the coach, finding service and parts become more difficult. If part of the reason for the builders failure is poor quality, finding support can become a monumental task.

In addition, in a business where it remains crucial, resale value takes a nosedive.

General Motors quit manufacturing coaches in 1980. The value of every GM bus dropped immediately and substantially in value, despite the fact there were thousands of them still on the road, and everyone knew GM would deal with support honorably.

When a less substantial bus supplier bails out, and there is uncertainty about its ability and willingness to take care of its customers, the effect can be catastrophic.

The financial impact

There is also an adverse impact on the financial markets.

When residual values drop, and operators are upside down in coaches, repossessions may flood the market, hurting all brands.

Reputable funding sources become reluctant to finance coaches. When owners sign for loans personally, which is often the case in the motorcoach business, both companies and families can be devastated.

Its instructive to note that, of the 12 builders that have departed the U.S. market, 8 were relative newcomers, but the other 4 were long-time players that experienced some success before either failing or quitting.

All four were actually manufacturing complete coaches in the U.S.

The BCI disaster

The failure three years ago of BCI, the distributor of the Chinese-built "Falcon 45," has had far-reaching repercussions for companies operating them.

Currently there are more than 100 running in the U.S., in the hands of companies varying widely in both sophistication and size.

These operators have suffered a double whammy because not only has the builder/importer left the market, but these coaches were powered by Caterpillar engines. This model of engine has a history of problems and Cat has abandoned the over-the-road market. (See story on Page 1.)

In speaking to these operators, several use the phrase "worst business decision," and one expressed frustration at being "shackled" to the coaches.

Hes unable to sell them because their value has dropped by as much as 70 percent, and hes finding it difficult to locate parts or expertise to keep them going.

One company attended the auction of BCI assets and came away with a large quantity of parts. That inventory, plus a talented (and open-minded) maintenance staff, has minimized the pain.

Others are maintaining an informal network, helping each other where possible. A few coaches have been cannibalized.

BCIs old website, www.bcibus.com, has been re-opened, offering a forum for sharing information among BCI operators.

BCI parts house

Kevin Randall, a former BCI employee, has started a business specializing in supplying parts for the Falcon 45.

At present, Las Vegas-based UX Parts (www.uxparts.com; 877-893-8293) offers parts for virtually the entire coach, including windshields, but excluding the HVAC system.

However, Randall is negotiating with an A/C parts supplier to come up with replacement parts for the Falcon HVAC system and hes confident hell eventually be able to offer HVAC parts.

In the wake of BCIs departure from the U.S. market, a couple of unique aspects of coach sales in the U.S. popped up.

Several operators expressed dissatisfaction with the finance companies.

The precipitous drop in residual value of the Falcons means that virtually every operator now owes more than the coaches current value. Many company principals have personally signed on the loans, so a simple repossession isnt feasible, and some lenders havent been willing to negotiate.

What about the lenders?

The operators feel the finance companies bear some responsibility for lending based on an asset that has proven unpredictable.

Consumer lending institutions are required to disclose financial incentives provided by the seller, but that is not required of commercial lenders.

A manufacturer can, legally, offer money to a finance company to "steer" a commercial buyer to their product, without disclosing the fact.

Historically, one of any new U.S. bus suppliers most formidable tasks is to convince lenders of the long-term value of their coach because the finance company bears the brunt of risk if residual value plummets. Lenders often get some form of recourse from the seller.

This aspect can make funding a marginal deal feasible, but it only protects the finance company. If the seller goes bankrupt, everyone is left dangling.

In this case, the process doesnt seem to have worked well, and some lenders feel, with justification, that they dont choose which coach is purchased.

Most coach manufacturers take a dim view of finance companies that shift buyers to a particular brand; so, the lenders that do steer buyers are often marginal players.

No enforcement mechanism

Another potential pitfall is the perception that the builder (or importer) of a vehicle has ongoing responsibility for providing parts, warranty, and documenting and implementing recalls.

While, in many respects this is true, it is difficult to enforce if the manufacturer or dealer goes bankrupt, which seems to be the case here. There doesnt appear to be any provision, in private-sector sales, to provide assurance that a seller will be able to support their products in the event of a failure.

State departments of motor vehicles often require licensed dealers to provide at least some bonding, and in the event of an offshore manufacturers failure, the dealer may be responsible on the federal level for recalls and warranty. Again, though, if the dealer collapses, recourse is minimal. In the event a dealer is unlicensed, all bets are off.

Finally, most coach buyers have the impression that the federal government has very stringent guidelines and FMVSS (Federal Motor Vehicle Safety Standards) specifications that every vehicle must meet.

Again, this is true, but with a caveat. In the U.S., more than most developed nations, builders self-certify.

Other than emissions, they perform most tests themselves, and provide documentation to the National Highway Traffic Safety Administration to that effect. On rare occasions there are random inspections.

If, because of an accident, or perhaps a state inspection, discrepancies turn up, the builder or importer can be heavily fined. The problem is that, if they are gone, who do you punish?

If a motorcoach is later found to be out of conformance with the FMVSS, it cant be legally operated until it is altered, and again, in the event of a defunct builder who pays for that?

Doing your homework

What this all boils down to is that it is incumbent on coach buyers to assure their vehicle, and its key components and systems, will be supported in the U.S. -- whether this is by the dealer, distributor or component builder.

The BCI Falcon 45 was delivered with Caterpillar engines and either an Eaton UltraShift or Cat CX-31 transmission. While neither is considered a mainstream bus transmission, at least operators know who to call today for support for those components.

Engine, HVAC and electrical components should have a U.S. support mechanism.

In an industry whose economics are so dependent on durability and residual value, its critical that parts and service, as well as the suppliers ability to provide them in the future, be a factor in any bus purchasing decision.