Stephane Babcock | Associate Editor

Ask the purchasing department of any manufacturing company about rising commodity prices and they can tell you the affect they are having on their bottom line. Those reasons, although valid, are often lost on consumers when it comes time to pay the price of a particular product, especially school buses.

Who’s to Blame?
“In a nutshell, technology is flattening the world,” said Chris Ciovacco, president and CEO of Ciovacco Capital Management, an independent money management firm based in Atlanta. “People in China, Vietnam and India are going from lower class to upper class, and they are demanding products, which require commodities to produce. We’re behind the curve because we haven’t built new refineries or dug new mines. The odds are quite high that commodities are in a long-term up trend that could last 10 to 15 years.”

Ciovacco is not the only one to point towards other countries for the soaring commodity prices. An average increase in wages of 18 percent last year combined with increasing corporate profits has changed the economic landscape of the People’s Republic of China. But some experts are not so quick to lay the blame on the Chinese.

“Many writers for some reason like to cite China as a bad thing for the economy,” said Robert Whelan, a senior economist with ECONorthwest, an economics consulting firm. “It is as if people want the average Chinese family to remain destitute so they do not drive up the price of oil and steel. Also, the fear that the U.S. is losing its hold on manufacturing is foolish. The reality is that the U.S. represents about 21 percent of the world’s total manufacturing, which is about the same as it was a decade ago.”

Some companies, like Fidelity Investments, refused to comment for the article for fear that their opinion would affect market trends.

Keeping Watch for Increases and Alternatives
Like many other companies, school bus manufacturers keep a closeeye on the market and commodity price fluctuations. But daily trends have very little effect on the overall price. It is the longer trends that have a more significant impact on the business, according to Mark Bernasconi, Blue Bird’s director of corporate purchasing.

“We are continuously looking for the best quality and lowest cost solution for the application,” said Bernasconi.

And like other manufacturers, it attempts to keep the increases from affecting its customers.

“We constantly strive to minimize cost increases via internal efficiencies, recruiting experienced staff for enhanced productivity and purchase leverage via our sister companies, NABI and Optima,” said Roger Howsmon, senior vice president of sales and marketing.

Companies can also protect themselves from being affected from the daily market highs and lows.

“In most cases, we have contracts in place to protect us from short-term volatility,” said Brian Long, IC Corp’s director of purchasing.

But, sometimes there is only so much a company can do to protect the consumer.

“As a manufacturer, we are always working to reduce our cost base to offset cost increases we have seen through manufacturing efficiencies, supplier negotiations and alternative sourcing. When cost increases outpace our efforts to reduce costs, we have to consider price increases,” said Keith Kladder, IC Corp’s marketing manager.

The Consumer Effect
Increases in the price of steel, aluminum, platinum and petroleum can have rippling effects in the end on the districts who purchase the school buses.

“The school bus industry is fairly small,” said Arby Creach, director of the transportation division of Orange County Public Schools in Orlando, Fla.

“What these companies are really doing is passing on the cost to manufacture plus whatever the profit margin they need to remain viable as a business.”

Creach’s district purchases approximately 150 buses each year, about 10 percent of its total fleet. With annual price increases and the recent jump related to the 2007 engine emissions standards, Creach said he was only able to purchase 136 buses last year, although the district y had budgeted for the full 150. But Creach does not fault the manufacturers themselves.

“There are to-be-expected growth issues, but again, they are improving the buses, doing different engineering work to the buses, so you would expect that kind of thing,” he added.

School districts can also feel the pinch if they contract their transportation services. Companies like Student Transportation of America attempts to mitigate the costs as best as possible when it recalculates an upcoming bid.

“We don’t want to pass it on to the customer, but sometimes that’s the unfortunate end cap to all of this. Someone’s going to have to pay for the increased prices; it kind of goes downhill,” said Keith Engelbert STA’s sales and marketing director.

In the end, the rise in school bus prices may be as simple as high school economics.

“The price that buses sell for is tied to supply and demand,” said ECONorthwest’s Whelan. “I would bet that bus manufacturers are operating close to their capacity. When this happens, competition softens and sellers can raise their prices with less fear they would be undercut.”