Industry’s latest COVID-19 concern: Effect of shutdowns on bus value

If the motorcoach industry shutdown continues through the summer and into the fall, it could have a dramatic effect on the value of used coaches and, ultimately, sales of new buses.

Industry officials say that a prolonged shutdown caused by the coronavirus pandemic likely will force a number of operators to go out of business. Even after business resumes, it could take a year or more before the demand for bus travel returns to pre-coronavirus levels, meaning operators will need fewer motorcoaches.

Fewer operators with fewer buses on the road could, in turn, result in a flood of motorcoaches on the resale market, thereby exerting downward pressure on their values.

“There is only one way motorcoach values are going, and that is down,” said Randy Wilcox, a transportation consultant who spent 27 years selling pre-owned coaches for Motor Coach Industries (MCI). “What percentage they will go down is unknown,” Wilcox said. “We’ve never seen anything like this.”

Downturn like none before

The majority of motorcoach operators have had little or no business since March, when the virus caused the implementation of stay-at-home orders and social distancing across the country. Even major line operators, such as Peter Pan, shut down for a while and are now providing only limited service.

During past industry downturns — such as those caused by the 2001 terrorist attacks and the 2008 financial meltdown — operators were able to return to normal levels of business in a matter of months, because there was still demand for coach travel by schools, sports teams and tourists.

“This time, no one knows how long it will take or what the new normal will be,” said Wilcox, who is a member of the New England Bus Association’s board of directors.

Gradual recovery

Dennis Streif, vice president and owner of Vandalia Bus Lines in Caseyville, Illinois, and a United Motorcoach Association board member, said that once the industry starts back up, recovery will be a gradual process.

“To be operating the way we were in the first part of March is going to take a couple of years,” Streif said. “We will probably have to start with 20% to 25% of our fleet and gradually pick up every six months.”

He said smaller operators, those with fewer than 10 coaches, have narrow margins and don’t build up reserves, so could find it impossible to stay in business much longer.

“It’s going to be hard for them,” Streif said. “And if people close up and file for bankruptcy, there are going to be quite a few (used buses) available. And they will be devalued.”

Financial help needed

Luke Busskohl, president and CEO of Omaha, Nebraska-based Arrow Stage Lines, agreed that many operators wouldn’t be able to hang on if the shutdown drags on for too long and they don’t receive financial help.

“If the government doesn’t provide assistance to the motorcoach industry and nothing happens by October or November, there is going to be a dropout,” Busskohl said. “The effect on the used coach market could be massive.”

Related: Arrow Stage Lines’ new CEO: We got a lot done during pandemic shutdown

He added that, if operators are unable to make payments on coaches, banks would be stuck with those vehicles and probably would have to sell them off at greatly reduced prices, as they did with houses when homeowners walked away from their mortgages during the 2008 recession.

“Banks don’t have any interest in owning buses,” Busskohl said. “I hope it doesn’t come to that.”

Bargain hunters

Even operators that remain in business will find themselves having to make payments on buses they aren’t using. Streif said he doubts many would willingly walk away from their loans, but some might not have a choice.

Most, however, likely will be able to renegotiate their loans. Many lenders already have allowed operators to temporarily halt payments on idled buses, but they eventually will have to repay that money.

Some in the industry say that, with a glut of used buses on the market at lower prices, bargain-hunting operators could buy them up. That, in turn, could result in an industrywide devaluation of motorcoaches, even those currently not for sale.

“There will be some financially strong operators looking to expand their footprint,” said Prevost Vice President and General Manager Francois Tremblay. “They will be looking to buy those pre-owned coaches. That would put value pressure on the rest of the market.”

Focus on profitability

Wilcox said that, while it is possible some operators will buy devalued used coaches, most will be focusing on returning to profitability after the shutdown. They probably won’t be looking to buy any coaches for a while.

“It will be a smaller industry for a while, with fewer operators, and the survivors will be reluctant to take on new debt,” he said.

There also are questions about how the devaluation of used motorcoaches might affect new coach sales. Operators that might normally trade in used buses for new ones every few years to keep their fleets modern might be more comfortable holding on to their older buses for another year or two.

Being cautious

Streif said another factor that will likely reduce demand for new coaches is that it will take time for operators to catch up on their bus payments that were suspended during the shutdown.

“I can’t see anybody going out and buying new coaches for at least six months,” he said.

Streif added that the overall uncertainty about the future would make operators cautious about making any bus purchases, new or used.

“Well, I’d be cautious about that,” he said. “What if there is a second wave of the virus? How long will racial tensions last? Those things haven’t helped our business. What’s going to happen next?”

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