In February, North American Bus Industries Inc. (NABI) in Anniston, Ala., appointed Robert Shaughnessy as its new president and CEO.
I’ve sat in very many chairs, particularly in the heavy truck business. My background includes engineering, finance, marketing and sales. You learn how the many pieces go together, which is the best way I can think of to take over as a generalist like a COO or CEO. My prior experience in transit was a very good training ground for the peculiarities of the industry, which are numerous. The most obvious are built around the whole FTA funding process, the Altoona testing and the Buy America requirements. I’ve been in a number of industries, but I’ve never seen the number of unique characteristics found in transit. I was pretty well versed in all of those before I ever took over at NABI. What’s the greatest challenge facing North American transit bus manufacturers?
If you asked four OEMs, you might get four different answers. Overall, though, the challenge that is probably most prevalent is capacity. Right now, in a soft market, the problem is overcapacity, but, ironically, if we return to the kind of volumes we had in the late 1990s, we would probably not have enough capacity. So the very volatility of the market is probably the challenge, not the capacity, but its affect upon capacity. How is the Anniston plant doing in terms of its capacity?
We could build some more, but we have done things to reduce our costs and put ourselves in a position to be profitable at these lower volumes, and we are. Can you be specific about some of the changes at the Anniston plant?
We have a number of major changes in terms of personnel. We have a new senior vice president of operations, a new senior vice president of finance, a new controller, a new quality person and a new CFO. We have reassigned a number of people. The big step has been that we’ve installed a system of metrics measuring key performance variables. There’s an old trite saying that “what gets measured, gets done.” We’re measuring it, and it’s getting done. Are there areas in the bus procurement process where reform is needed?
Reform may be too strong a word. I’m not saying it isn’t the right word. There are elements of the process that are definitely counterproductive. But they are not universal. You can’t say they are true of every transit authority. I’ll give you some mundane examples. In regard to liquidated damages that are assessed if you don’t deliver by a certain date, I believe that should be changed and there should be a 90-day delivery window. The reason is, if an OEM takes two orders (and you never know which orders you’re going to get until you get them), and they have the same due date or are very close to each other, the OEM automatically fails on one of them. Which I don’t think is what either of the transit authorities want. As another example, I would like to see the industry come up with a standard definition of inspection standards and requirements. In baseball, some umpires talk about having their own strike zone. As far as I’m concerned, if they have their own strike zone they should be unemployed. The strike zone is defined in the rule book. I don’t think inspection standards are well enough defined in our rule book. If they were, it would reduce the variation, which can be enormous. If you get a technician whose specialty is paint, he’s particularly tough on paint. If you get one two weeks later on the same production run whose specialty is electronics, all of a sudden paint isn’t important but electronics are. A set of universal standards for the industry would help significantly. Let’s get everybody on the same rule book. Is there anything that can be done from an OEM standpoint to help transit properties control their fuel costs?
The OEMs have an advantage over the transit people in that they see a lot of different and various components and ways of doing things. And you might see something that works very well somewhere else, but is not in the specification for a deal that you’re looking at now, which could probably do that transit group a lot of good if they’d give it a try. If it’s not in the specs, what can the OEM do to help the transit agency?
You can go for approved equals. In fact, it probably isn’t an equal, it’s a better. But since it’s an unknown to the group that you’re quoting, they don’t know that. The flip side is also true. Some organizations will specify unproven technology and then they’re surprised when it fails. We could do a better job of testing technology before we place large orders for it. Can you give me an example of an unproven technology that’s been implemented too soon?
Although I regard today’s CNG and LNG systems as proven technology, if you go back to the first ones that were done, I think you’ll agree that they were not ready to be delivered in large orders. I would like to think that we would have run a half dozen of them, fixed any problems and then made the big orders. The design of your new 42-foot bus is very stylized. Do you think there’s a movement by transit properties to require a more stylized design?
I think it’s regional. In markets that have been very heavily reliant upon cars for transportation and now are experiencing tremendous traffic jams, making the bus alternative more attractive will attract people. Some markets already have fully developed transit systems, and there’s no stigma attached to public transportation. For example, everybody in New York rides the bus or the subway. For some, like New York, I don’t think there’s really any need for stylization; in some others stylization will make it more acceptable. Do you see a need for higher-capacity buses?
There are economies there if you have enough people to transport. It may come down to whether to buy three 40-footers or two 60-footers, depending on the number of people that need to be transported and the time frame. Transit systems are doing a very good job of making that decision. There is room for a 30-foot bus, too. Hybrid buses are making inroads among some of the early-adopter transit systems. Do you think hybrids will eventually take over a majority of transit market share?
The upfront cost for hybrid buses is too high. I question whether the economics will ever be sufficiently attractive to achieve a majority. I think sales will be substantial, but I seriously doubt they will be a majority in the near future. In cars, you’re dealing in huge volumes. The U.S. auto industry will sell 17 million cars in a year. With those huge volumes, you can build a Prius in large enough production runs that you get your production costs down. However, on a transit bus, with an annual industry volume of 2,500 to 5,000, the production runs are never big enough to do that. You’re going to have to latch on to something else like heavy trucks. Even there, Class 6, 7 and 8 heavy trucks are, in a good year, only 480,000, which is nothing like 17 million in terms of size of production run and unit costs. Now that SAFETEA-LU has been authorized, are you seeing growth in demand for transit buses?
We’re not getting an immediate surge, but we’re seeing more conversations. Like I mentioned earlier, transit authorities are talking about going out with an RFP in ’07 for production in ’08, ’09 and ’10. I’ve also seen some transit people struggling to come up with their 20% share. So I don’t know what the net impact of that is going to be. Are you optimistic about an increase in bus orders?
Yes, mainly because of the age of the buses. We’re approaching a period where the number of old buses that are becoming enormously expensive to keep running is growing. You reach a point where it costs more to run the ones you’ve got than to buy new ones. What are you hearing from your customers in regard to their most critical challenges?
There are a number of them. One is that they’re having difficulty raising the 20% to make the acquisition. Also, there seems to be an inordinate number of very talented, long-service employees taking early retirement at the transit authorities. People are retiring eight to 10 years earlier than they thought they were going to. It’s like a brain drain. Many of the transit authorities admit they haven’t had time to back fill. I’ve heard that from four or five different people recently. Is there a different direction that you’re looking at for NABI over the next few years?
We’re going to try to take a more empirical approach than I think anybody does in terms of what products to offer. That’s one example of it. The part of the business that I enjoy the most is talking with customers and new product development for them. I’ve done it before in many places, and I anticipate we’ll do quite well at it here. Do you consider product development as the most important initiative for NABI?
No. I can get it down to a few. There’s a long-term need to achieve a high quality level. What I mean by quality is not only the original manufacturer but after-sales service, parts availability and the like. I don’t think anybody does it very well yet. That could become the best way to differentiate yourself. How competitive is the market right now?
It’s extremely competitive right now. But if you see this market double in 12 months, then I think it’s going to be very uncompetitive. All of a sudden your schedule is full two or three years out, and what are you going to do? Nobody is going to order a bus for delivery three and a half years from now. Personally, what’s been the biggest challenge so far?
Actually, it’s been a real honeymoon so far. I’m having a good time. We’re doing a pretty good job of empowering people. It’s been a bit of a challenge, and there’s been a reluctance in some cases, but they’re pretty well growing into it. They’re getting comfortable quickly now. A lot of them are comfortable already.
Shaughnessy brings a truckload of experience to his new position, having held senior-level executive positions at Kenworth Truck Co., Navistar International, Stratford Co. and Marmon Motors/SST Truck Co. He also has experience in the transit bus market, having served as president of NOVA Bus in the early 2000s.
One of Shaughnessy’s key initiatives is developing new bus products with critical input from the industry’s transit customer base. He’s also implementing new metrics that will help NABI assess its quality indices at the manufacturing level as well as after-sales services and parts availability.
METRO Editor Steve Hirano recently spoke with Shaughnessy about his return to the transit bus manufacturing arena and his perspective of the industry.
You’ve held several high-level positions in the bus and truck industries. How have they prepared you for your current position?
I’ve sat in very many chairs, particularly in the heavy truck business. My background includes engineering, finance, marketing and sales. You learn how the many pieces go together, which is the best way I can think of to take over as a generalist like a COO or CEO. My prior experience in transit was a very good training ground for the peculiarities of the industry, which are numerous. The most obvious are built around the whole FTA funding process, the Altoona testing and the Buy America requirements. I’ve been in a number of industries, but I’ve never seen the number of unique characteristics found in transit. I was pretty well versed in all of those before I ever took over at NABI. What’s the greatest challenge facing North American transit bus manufacturers?
If you asked four OEMs, you might get four different answers. Overall, though, the challenge that is probably most prevalent is capacity. Right now, in a soft market, the problem is overcapacity, but, ironically, if we return to the kind of volumes we had in the late 1990s, we would probably not have enough capacity. So the very volatility of the market is probably the challenge, not the capacity, but its affect upon capacity. How is the Anniston plant doing in terms of its capacity?
We could build some more, but we have done things to reduce our costs and put ourselves in a position to be profitable at these lower volumes, and we are. Can you be specific about some of the changes at the Anniston plant?
We have a number of major changes in terms of personnel. We have a new senior vice president of operations, a new senior vice president of finance, a new controller, a new quality person and a new CFO. We have reassigned a number of people. The big step has been that we’ve installed a system of metrics measuring key performance variables. There’s an old trite saying that “what gets measured, gets done.” We’re measuring it, and it’s getting done. Are there areas in the bus procurement process where reform is needed?
Reform may be too strong a word. I’m not saying it isn’t the right word. There are elements of the process that are definitely counterproductive. But they are not universal. You can’t say they are true of every transit authority. I’ll give you some mundane examples. In regard to liquidated damages that are assessed if you don’t deliver by a certain date, I believe that should be changed and there should be a 90-day delivery window. The reason is, if an OEM takes two orders (and you never know which orders you’re going to get until you get them), and they have the same due date or are very close to each other, the OEM automatically fails on one of them. Which I don’t think is what either of the transit authorities want. As another example, I would like to see the industry come up with a standard definition of inspection standards and requirements. In baseball, some umpires talk about having their own strike zone. As far as I’m concerned, if they have their own strike zone they should be unemployed. The strike zone is defined in the rule book. I don’t think inspection standards are well enough defined in our rule book. If they were, it would reduce the variation, which can be enormous. If you get a technician whose specialty is paint, he’s particularly tough on paint. If you get one two weeks later on the same production run whose specialty is electronics, all of a sudden paint isn’t important but electronics are. A set of universal standards for the industry would help significantly. Let’s get everybody on the same rule book. Is there anything that can be done from an OEM standpoint to help transit properties control their fuel costs?
The OEMs have an advantage over the transit people in that they see a lot of different and various components and ways of doing things. And you might see something that works very well somewhere else, but is not in the specification for a deal that you’re looking at now, which could probably do that transit group a lot of good if they’d give it a try. If it’s not in the specs, what can the OEM do to help the transit agency?
You can go for approved equals. In fact, it probably isn’t an equal, it’s a better. But since it’s an unknown to the group that you’re quoting, they don’t know that. The flip side is also true. Some organizations will specify unproven technology and then they’re surprised when it fails. We could do a better job of testing technology before we place large orders for it. Can you give me an example of an unproven technology that’s been implemented too soon?
Although I regard today’s CNG and LNG systems as proven technology, if you go back to the first ones that were done, I think you’ll agree that they were not ready to be delivered in large orders. I would like to think that we would have run a half dozen of them, fixed any problems and then made the big orders. The design of your new 42-foot bus is very stylized. Do you think there’s a movement by transit properties to require a more stylized design?
I think it’s regional. In markets that have been very heavily reliant upon cars for transportation and now are experiencing tremendous traffic jams, making the bus alternative more attractive will attract people. Some markets already have fully developed transit systems, and there’s no stigma attached to public transportation. For example, everybody in New York rides the bus or the subway. For some, like New York, I don’t think there’s really any need for stylization; in some others stylization will make it more acceptable. Do you see a need for higher-capacity buses?
There are economies there if you have enough people to transport. It may come down to whether to buy three 40-footers or two 60-footers, depending on the number of people that need to be transported and the time frame. Transit systems are doing a very good job of making that decision. There is room for a 30-foot bus, too. Hybrid buses are making inroads among some of the early-adopter transit systems. Do you think hybrids will eventually take over a majority of transit market share?
The upfront cost for hybrid buses is too high. I question whether the economics will ever be sufficiently attractive to achieve a majority. I think sales will be substantial, but I seriously doubt they will be a majority in the near future. In cars, you’re dealing in huge volumes. The U.S. auto industry will sell 17 million cars in a year. With those huge volumes, you can build a Prius in large enough production runs that you get your production costs down. However, on a transit bus, with an annual industry volume of 2,500 to 5,000, the production runs are never big enough to do that. You’re going to have to latch on to something else like heavy trucks. Even there, Class 6, 7 and 8 heavy trucks are, in a good year, only 480,000, which is nothing like 17 million in terms of size of production run and unit costs. Now that SAFETEA-LU has been authorized, are you seeing growth in demand for transit buses?
We’re not getting an immediate surge, but we’re seeing more conversations. Like I mentioned earlier, transit authorities are talking about going out with an RFP in ’07 for production in ’08, ’09 and ’10. I’ve also seen some transit people struggling to come up with their 20% share. So I don’t know what the net impact of that is going to be. Are you optimistic about an increase in bus orders?
Yes, mainly because of the age of the buses. We’re approaching a period where the number of old buses that are becoming enormously expensive to keep running is growing. You reach a point where it costs more to run the ones you’ve got than to buy new ones. What are you hearing from your customers in regard to their most critical challenges?
There are a number of them. One is that they’re having difficulty raising the 20% to make the acquisition. Also, there seems to be an inordinate number of very talented, long-service employees taking early retirement at the transit authorities. People are retiring eight to 10 years earlier than they thought they were going to. It’s like a brain drain. Many of the transit authorities admit they haven’t had time to back fill. I’ve heard that from four or five different people recently. Is there a different direction that you’re looking at for NABI over the next few years?
We’re going to try to take a more empirical approach than I think anybody does in terms of what products to offer. That’s one example of it. The part of the business that I enjoy the most is talking with customers and new product development for them. I’ve done it before in many places, and I anticipate we’ll do quite well at it here. Do you consider product development as the most important initiative for NABI?
No. I can get it down to a few. There’s a long-term need to achieve a high quality level. What I mean by quality is not only the original manufacturer but after-sales service, parts availability and the like. I don’t think anybody does it very well yet. That could become the best way to differentiate yourself. How competitive is the market right now?
It’s extremely competitive right now. But if you see this market double in 12 months, then I think it’s going to be very uncompetitive. All of a sudden your schedule is full two or three years out, and what are you going to do? Nobody is going to order a bus for delivery three and a half years from now. Personally, what’s been the biggest challenge so far?
Actually, it’s been a real honeymoon so far. I’m having a good time. We’re doing a pretty good job of empowering people. It’s been a bit of a challenge, and there’s been a reluctance in some cases, but they’re pretty well growing into it. They’re getting comfortable quickly now. A lot of them are comfortable already.
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