Blue Bird Corporation

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Blue Bird Corporation

3920 Arkwright Road
Macon, Georgia 31210
U.S.A.
Telephone: (912) 757-7100
Fax: (912) 474-9131
Web site: http://www.blue-bird.com

Wholly Owned Subsidiary of Henlys Group pic
Incorporated: 1932 as Blue Bird Body Company
Employees: 2,877
Sales: $626.4 million (1998)
NAIC: 336211 Motor Vehicle Body Manufacturing; 336213 Motor Home Manufacturing

Blue Bird Corporation, based in Macon, Georgia, is the leading manufacturer of school buses in North America. A wholly owned subsidiary of British bus maker Henlys Group plc since 1999, Blue Bird also manufactures high-end recreational vehicles and commercial buses geared toward charter, tour, and commuter usage. The company offers its products to both private and public organizations, including school districts, state governmental agencies, corporations, and churches. The majority of Blue Bird’s products are sold through a network of distributors located in the United States and Canada. The company also offers financing packages to school bus customers and manages four manufacturing facilities, located in Georgia, Iowa, Canada, and Mexico.

Entrepreneurial Beginnings: 1920s-40s

Albert L. Luce, Sr., was a dealer of Ford automobiles in Fort Valley, Georgia, located about 25 miles south of Macon. The small, quiet town boasted groves of pecan trees and little else. Luce’s foray into the building of buses began one day when he sold a bus to a customer at his dealership. Luce did not consider the bus, which was built on a Model-T frame, to be of high quality, and he informed the customer that he could probably build a better bus himself. The customer retorted that maybe he should try, and this led Luce to build his first bus, completed in 1927. Luce sold the bus that same year to an individual in a nearby town, and it was put into operation transporting schoolchildren. Luce then went on to build seven additional buses, and in 1932 he sold his car dealership and formally founded Blue Bird.

Much of Luce’s inspiration for starting a new company was reportedly attributable to his strong Methodist faith. The economic depression in the United States was causing car sales to decline, and Luce took this as a divine sign that he should manufacture buses and create jobs in his community. The name of the company, on the other hand, was allegedly inspired by a group of schoolchildren. Luce determined that using the family name would most likely be a poor idea, conjuring up bad puns such as “loose bus.” Then, while showing a blue and yellow bus model to some school officials, some of the students dubbed the bus a “pretty little blue bird.”

Luce was taking somewhat of a leap of faith with his new company, as public education in the United States at that time generally consisted of small, neighborhood schoolhouses within walking distance of most students’ homes. Luce predicted, however, that the consolidation of schools into larger units serving a wider geographical range and improvements in the quality of roads, as well as the building of new roads, would increase the demand for school buses.

In 1937 Blue Bird succeeded in manufacturing a bus made entirely of steel, which was more heavy-duty and considerably safer than the wooden counterparts of the day. By the early 1940s Blue Bird buses could be found in a number of states, and by the end of World War II the company ranked seventh in a group of twelve bus manufacturing companies.

A Family Affair: 1950s-80s

Luce built a company that emphasized community and, influenced by his religious beliefs, clean living. Religious services were offered at the factory’s lunchroom on a biweekly basis. Luce was also a businessman, however, and he paid keen attention to the bottom line, tolerating no waste. Luce’s son George recalled an incident in 1939 that illustrated Luce’s resolve to manage costs and make every penny count. Two of the three sons were home for the holidays from college, George told Rita Koselka of Forbes in 1986, when Luce began to discuss their study habits. George explained: “My father told us, ‘Boys, I can tell you almost to the penny what the sides, windows or bumpers of a bus cost. If we think the costs are too high in any area, we can try to find ways to cut those costs. Now, it costs me $500 to send you to college. From your grades, I don’t think you studied more than 100 hours. That means it cost me $5 an hour for you to study. That’s way too much’.” Luce then proposed a deal: he would lend his sons $500 each at the commencement of the school year. The loans would be repaid by studying, with an hour’s worth of studying prior to dinner counting for one dollar and an hour of studying after dinner being worth 75 cents. The discrepancy in the amount was due to Luce’s belief that studying before dinner was more productive. The sons were required to report their daily studies via postcard to the company bookkeeper, and amounts unpaid by the end of the school year were worked off during the summer at the Blue Bird plant (at 40 cents per hour).

The lesson Luce taught his sons through his college loan program proved valuable as they all entered the family business, taking over more control after their father began to suffer from a heart condition in the late 1940s. The sons, George, Albeit “Buddy,” Jr., and Joseph, focused on growth and expansion, eventually opening additional plants in Virginia, Iowa, Guatemala, LaFayette, Georgia, and two in Canada. School bus contracts were secured through a highly competitive and aggressive bidding process, and to stay on top of the competition, the Luce brothers searched through rival companies’ regional newspapers for any information that might provide them with an edge. The brothers were also helped by their attention to maintaining high efficiency and low costs, something they learned from their father.

Aware of the possibility of a saturated market, the impending decline of school-age children, and the problems inherent in relying on one product for all sales, diversification was also on the Luce boys’ agenda. Over the course of several decades Blue Bird tried out new products, including city buses, soda delivery trucks, and a window fan. The majority of these new product attempts failed, but one succeeded, though it, too, had a relatively inauspicious start; in 1963 Blue Bird introduced the Wanderlodge, a high-end recreational vehicle, and entered the motor home market.

The original Wanderlodge was priced at $12,000, and the company had high hopes, anticipating a growing audience for luxury recreational vehicles. To promote its new product, Blue Bird sent some of its employees on a two-year trip around the country. Their instructions were to drive the Wanderlodge to various motor home camps to increase visibility and create interest, which would then, hopefully, generate sales. The marketing concept failed, however, and Blue Bird began preparing to return to the drawing board. Then, around the same time, in 1965, House Beautiful magazine published an article about the Wanderlodge, and orders for the vehicle began to pick up.

The Luce brothers assumed full control of Blue Bird following their father’s death in 1962. By then Blue Bird was the fourth-largest school bus company in the nation, battling for market share with four other top competitors. Over the course of two decades Blue Bird climbed to the top spot, its sales increasing 20-fold. Blue Bird began selling buses to foreign customers in the late 1970s and early 1980s as domestic school bus sales started to drop, and in 1984 the company introduced financing services to its customers. By the mid-1980s one out of every three school bus sales was a Blue Bird, and the company sold about 11,000 school buses annually. Blue Bird employees, which numbered about 1,500 in Fort Valley alone, were paid above the local average wage, and the sense of family and community bred by the elder Luce continued—the Luce brothers knew many of their employees by name.

Though business was strong at Blue Bird, the health of the three Luce brothers was not; in the early 1980s the brothers developed heart conditions, and by the mid-1980s they had each undergone heart bypass operations. Taking the advice of a consultant, the brothers opened their family-only board of directors to outsiders in 1984, and two years later they hired Paul Glaske to serve as president and assume daily control of Blue Bird. Glaske left his post as president of heavy equipment manufacturer Marathon LeTourneau of Longview, Texas, to join Blue Bird. The Luce brothers’ plan was to eventually pass control of the company to the third generation of Luces who were then in their early thirties and worked for Blue Bird. In the meantime, Glaske would run the company and had no plans to make major changes at Blue Bird; Glaske told Forbes shortly after joining the company, “Blue Bird … is really what an American company should be, the type of company I can be proud to be associated with.”

Company Perspectives:

When the first Blue Bird school bus was built in 1927, its concept was years ahead of its time. This pioneering spirit still lives on at Blue Bird, where we continue to set industry standards in bus design and manufacture. This consistency isn ‘t just the result of our commitment to manufacturing excellence, our design innovations and the pride that our highly skilled workforce takes in its work. It’s also the result of listening to our customers to find out what they need from a bus and then implementing those needs efficiently and economically. Thanks to our continued success in the school bus and recreational vehicle markets, coupled with our highly successful entry into the commercial bus market, we are well on the way to achieving our long-term goal of growth through diversification. This diversification enables us to increase revenue without having to rely solely on the purchasing cycles of a single product line for that revenue.

As management shifted, sales of the Wanderlodge continued to rise, and by the late 1980s Blue Bird was selling about 150 to 200 of the recreational vehicles on a yearly basis, accounting for about 20 percent of total company sales. The price had risen considerably since the early 1960s, with the price tag starting at $199,000. The top model fetched $350,000 before options, which were numerous. The motor home industry, according to the Recreation Vehicle Industry Association, enjoyed sales of 379,500 recreational vehicles in 1986, down from the all-time high of 541,100 in 1976 but up from 1980, when only 181,400 were sold. So committed were owners to their Wanderlodges, affectionately called “Birds,” that many traveled to Fort Valley when their Wanderlodges required servicing. Blue Bird offered the owners free camping at Wanderlodge Wayside Park, Blue Bird’s mobile home park.

Changing of the Guard: 1990s

Entering the 1990s, Blue Bird was the confirmed leader in the U.S. school bus market, producing nearly half of all school buses sold in North America, and its recreational vehicle business was solid. A slowdown in school bus sales prompted Blue Bird to reduce the workforce from 427 salaried employees to about 300, and three plants, the Guatemalan unit, one in Canada, and the Virginia plant, were sold. Operations were further streamlined, and the factories were computerized to increase productivity.

The third generation of Luce employees left Blue Bird to pursue other interests, leaving the company with no family members to assume leadership. After George Luce died in 1990, brother Buddy approached president Glaske and told him that the brothers planned to put the company up for sale. In the summer of 1991, potential buyers of Blue Bird began visiting the Fort Valley corporate headquarters to inspect the merchandise. Glaske told the Atlanta Journal and Constitution, “We were doing dog and pony shows, sometimes a couple a day, with potential buyers, their lawyers and their accountants.” Six companies offered bids, all in the price range of just more than $400 million, in November 1991. Glaske wished to secure interest in the company as part of the sale and also hoped to maintain current management strategies and procedures.

Eventually, Merrill Lynch Capital Partners, Inc., a division of Merrill Lynch & Co., agreed to pay $397 million in a management-led leveraged buyout. The firm acquired 82 percent of Blue Bird in 1992, and Glaske, along with 14 other managers selected by the Luce brothers, acquired the remainder. The name of the company was changed from Blue Bird Body Company to Blue Bird Corporation, and existing management continued to run the company. The two Luce brothers formally retired but kept offices at the factory. Buddy Luce voiced confidence in the new ownership structure and said he hoped new management would carry on the Luce family’s legacy. Buddy told the Atlanta Journal and Constitution, “We’ve made an impact in this community, put a manufacturing base where there was none.... At my retirement party a man came up to me and said, ‘You hired me when I was 18 and now I’m 38, and my first-born is getting ready for college, and every dollar came from this good company.’ I hope people will be able to say that for a long time. I think they will.”

With new owners in place, Blue Bird focused on continued success, which included plans to expand into the commercial bus market. In 1992 the company introduced the Q-Bus, its flagship, medium-duty commercial bus that targeted the charter and commuter markets. The 37-foot bus allowed seating for up to 45 passengers and also offered such features as a restroom and option for a 300-horsepower engine. And to maintain its leadership position in the school bus arena, Blue Bird offered technological innovations, such as the first school bus to run on natural gas, introduced in 1992. Blue Bird also forged strategic partnerships with other companies to work with alternative fuels and search for environmentally friendlier options. In 1994, commissioned by the Antelope Valley School District in southern California, the company teamed with Westinghouse Electronic Systems to develop an electric school bus. A year later Blue Bird worked with John Deere, a leading manufacturer of farm equipment, to install a John Deere natural gas engine in a Blue Bird school bus for the Poway Unified School District, located near San Diego, California. The retrofit was one of many promoted by the California Energy Commission, which began a program in 1992 to convert existing school buses in California to more environmentally friendly and efficient systems. In 1996 Blue Bird and Electrosource, Inc., began work on the development of an advanced battery system to power buses and other electric vehicles. Blue Bird’s involvement with fuel alternatives was not only influenced by its desire to stay on the cutting edge of technology but also by the company’s belief that school districts across the nation would increasingly opt for more economical, clean-burning vehicles.

Blue Bird’s performance over the course of the decade continued to improve, with sales climbing each year. In 1995, for instance, sales reached $517.4 million. The following year sales increased 10.2 percent to climb to $570.2 million. In 1997 sales equaled $576.1 million, up only 1 percent, but gross profit rose 6.9 percent. 1998 sales rose 8.7 percent, to $626.4 million. The company continued to head the North American school bus industry, commanding a market share of about 45 percent in 1999, and though Blue Bird’s operations in commercial vehicles and motor homes grew, the company still relied for the most part on its school bus business, which accounted for about 77 percent of net sales in 1998.

Key Dates:

1927:: Albert L. Luce, Sr., builds his first school bus.
1932:: Luce forms the Blue Bird Body Company.
1962:: Founder Luce dies.
1963:: Company introduces the Wanderlodge and enters the luxury recreational vehicle market.
1986:: Blue Bird hires its first outsider to run the company.
1992:: Management leads a leveraged buy-out of Blue Bird with the help of Merrill Lynch Capital Partners and renames the company Blue Bird Corporation.
1999:: Henlys Group plc acquires Blue Bird.

As the close of the decade approached, Blue Bird headed toward another significant change. In October 1999 Blue Bird was acquired by Henlys Group plc, the United Kingdom’s leading manufacturer of bus bodies. The purchase significantly boosted Henlys efforts to expand in North America. Henlys agreed to pay $428 million for Blue Bird and to repay Blue Bird’s debt, which totaled about $237 million. The Blue Bird acquisition was a welcome success for Henlys, as an attempt to purchase bus chassis manufacturer Dennis had recently been thwarted by a rival. Swedish car manufacturer AB Volvo held a ten percent stake in Henlys. Henlys planned to take advantage of Blue Bird’s leadership position in the United States to expand operations and move more heavily and aggressively into such areas as the recreational vehicle and commercial vehicle markets. The new owner also planned to increase international exports. Henlys chairman Norman Askew announced his pleasure with the acquisition in a prepared statement, stating, “Blue Bird’s market leadership position, proven experienced management team coupled with a strong financial track record will complement Henlys’ existing North American activities. Jointly we will capitalise on existing relationships and distribution networks to deliver strong growth in order to enhance shareholder value.”