Making Safe School Buses for China's Kids
John McKinney sat outside a Beijing Starbucks, sipping coffee and snapping photos of the traffic with his iPhone. He was looking for school buses, or what passes for them in China. A dozen different school-bound vehicles rolled by on their morning runs. Some were minivans, others were shuttle buses painted yellow. Few looked as if they would meet the safety standards used in the U.S. since the 1930s—and therein lies a potential business proposition for McKinney, head of Navistar International’s bus business. “You look at the China market, and they have school buses, and they’re cheap,” says Daniel Ustian, Navistar’s chief executive officer. “They have scrimped on quality and safety standards, so this is our opportunity to step in.”
Last November, 19 kids were killed and 43 injured when 64 people riding in a nine-seat minivan en route to school hit a coal truck in Gansu province. A month later a driver swerved to avoid two electric bikes in Jiangsu province and lost control of his bus, which overturned into a river, killing 15 students and injuring 11. Seven students died after an overloaded minivan fell into a valley in Yunnan province in late December. The resulting outcry pressured the government to improve safety standards in May.
The Chinese government says it plans to spend about 463 billion yuan ($72.7 billion) over the next decade on transportation equipment and upgrades for its school system. Navistar, which makes about half the school buses sold in the U.S., expects part of the budget will be used to buy 50,000 yellow buses annually by 2015. With its joint-venture partner, Anhui Jianghuai Automobile, Navistar hopes to get most of that business. The company will start limited bus production in China later this year, Ustian says.
Blue Bird, a U.S. school bus maker owned by private equity firm Cerberus Capital Management, is also looking to China for growth and is in talks with a mainland company it declines to name about setting up a joint production venture, says Phil Horlock, Blue Bird’s CEO. The Fort Valley (Ga.)-based company shipped one of its buses to Beijing in February for the first-ever Chinese bus show. “Based on the reception we’ve had, there’s strong interest in getting an American school bus out there in the market,” Horlock says. “They’ve set some pretty aggressive standards, and compliance is going to require quite a bit of engineering work.” Buses in the U.S. sell for about $80,000 and in China may fetch $50,000 to $60,000, he says.
China is strengthening its regulations faster than domestic companies can adjust, says Sanjeev Varma, a Troy (Mich.)-based senior automotive adviser on business strategy and mergers at Duff & Phelps. “The Chinese want to get to Western standards sooner rather than later,” he says. “They’re trying to access technology at a much faster rate, either by hiring Western consultants and advisers or by forming joint ventures.” Navistar’s Ustian and McKinney say they worked with government officials to develop China’s bus safety standards.
In the U.S., where about 475,000 vehicles ferry 23.5 million kids to and from school each day, school buses are the safest form of transportation, according to the National Highway Traffic Safety Administration. Each year about seven kids are killed in school bus crashes, or 0.2 deaths for every 100 million vehicle miles, compared with 1.5 deaths for cars. To make its case in China, Navistar has been showing officials footage of a tractor-trailer hitting one of its buses filled with kids at 40 mph. The kids walked away from the accident unharmed.
China’s new buses will be required to have a “sealed” safety cage protecting the driver and passengers, with the engine extending in front of the windshield, an elevated passenger cabin, and strict capacity requirements to ensure vehicles aren’t overloaded, Horlock says. Bus makers have 13 months to comply with the new standard. “They’ve adopted what they see superficially—their buses are yellow. It has a stop sign, it’s got lights that flash,” says McKinney. “But from a structural-integrity standpoint, it’s much more than the color. … It’s much more than the flashing light. That’s a lot of what we’ve been trying to educate them about.”