The name John O’Leary remains intrinsically tied to the Thomas Built Buses (TBB) brand for many in the school bus industry. After all, he was president and CEO from 2002-2010, a period when the flagship Saf-T-Liner C2 was launched. And the fact he is now president and CEO of parent company Daimler Trucks North America (DTNA) makes further sense. It’s safe to say O’Leary knows school buses as well as anyone at DTNA, which acquired TBB through its subsidiary Freightliner in 1998.
Fast forward to today, and after several executive leadership positions within the Daimler portfolio including chief financial officer of DTNA and chief transformation officer of Mercedes-Benz, O’Leary is now setting the zero-emissions strategy for the company’s entire portfolio, including school buses.
School Transportation News sat down with O’Leary last month at the Advanced Clean Transportation Expo in Anaheim, California, just hours before he took the main stage to provide the opening keynote to over 11,000 attendees the largest turnout since the event launched in 2011. Note: Edited for space and clarity.
STN: When we’re looking at the transition from diesel to zero emissions, and Daimler Trucks has publicly said electric is the future, is the company ready to put all its eggs into the electric basket going forward?
O’Leary: I’ll probably start by saying we don’t have all our eggs in the zero-emissions basket. We definitely have some eggs, a lot of eggs, in that basket. But currently, we have more eggs in the diesel basket because there’s still a really predominant demand for diesel. And that will continue for the foreseeable future. We’re able to walk and chew gum at the same time. We want to have the most competitive diesel offerings that we can as well as the most zero emissions, whether that’s battery electric, whether it’s hydrogen, or whatever. The transition I’d say is going faster on the school bus side for a number of reasons. A, it started earlier. B, there’s money out there in terms of incentives. C, it’s a depot charging application, which is typically easier to install than public charging [and] you’re going over some long 2,000-mile route.
I think the application is great in terms of the mileage that you need every day out of a bus. It’s easily met with battery electric. And even if you have to recharge between morning and afternoon sessions, you can. So, there’s a lot of things I think pointing in the right direction on the school bus side that makes it easier, as well as I think there’s the whole precious cargo argument that I was so aware of when I was in that business. You know, people realize that they are carrying the future of the country and they want the best for them. And they want to have the best lowest emission vehicles that are parked outside those schools. So, again, now it’s about 10 percent of the big bus market, or at least it will be this year for TBB. And that will only continue to grow.
STN: You’re saying by 2039 DTNA expects to no longer offer diesel in the marketplace? Or might it be sooner than that?
O’Leary: It will depend, state by state. And I won’t even talk about export markets and things like that. California has already lowered it down a little bit from the 2039. They just announced [the Advanced Clean Trucks Rule last month]. There might be other states that follow that. There are what we call opt in states that are kind of mimicking what California is doing. It could be in some states that it’s 2035, could be another that it’s 2039. To us, it’s kind of all the same. It’s out there in the in the distant future. And so that just means we have to continue developing the most fuel efficient and economical that we can.
STN: According to the State of Sustainable Fleets 2023 report released at the start of ACT Expo, DTNA has said it is moving away from propane, at least for Thomas Built Buses. What is the reasoning behind that?
O’Leary: In general, we as a company have to make certain decisions on where we place our bets for future engine technology. And we definitely are invested deeply on diesel. We’re obviously taking a look at gasoline with Cummins, with the [higher] octane. And then certainly on the zero-emission side, we’ve gone in with batteries and now we’re looking at both H2 [hydrogen internal combustion engine] and fuel cell. All of those take a lot of focus and money. You have to sometimes start honing down on the ones that you think are going to be the best for your customers and for you. That’s kind of the process that we’re in right now.
STN: Obviously fuel cell is a pathway for big trucks. But is the school of thought changing in terms of fuel cell applicability for school buses?
O’Leary: I would say the jury’s still out on fuel cell for school bus. Ultimately, it is a great battery-electric application. First and foremost, it’s a battery-electric application. And whether it’s fuel cell, whether it’s H2 ICE is hard to say at this point in time, in terms of what other fuel ultimately rises to the top. But at least for the foreseeable future, I feel very comfortable saying battery electric is the optimal application.
STN: Amid the massive federal and state subsidies for zero emissions, when will it finally make sense from a price parity standpoint for widescale adoption in the school bus industry to take off?
O’Leary: Realistically, it’s not going to reach any kind of parity until the volumes reach the kind of volumes that we’re producing today. Which means almost a full cut over to a new technology. And that’s at least the late 2020s, early 2030s. It’s a big deal, and we’re seeing this today in the supply chain for e-componentry. It’s a big deal to go from having an idea and a basic design for a new component, to then making that into something that’s going to live and last under the extreme conditions that a commercial vehicle or a school bus is put under. The design has to be extremely robust and hardened. And then, the supply base behind that, supplying all the little widgets that go into that that product ultimately then it has to be able to supply those, not just in the volumes but at the level of quality and predictable deliverability and everything else that it takes to feed a modern production line. And that’s where today you start to see some of those hiccups going on in that particular part of the supply chain. That’s going to take some time to mature.
STN: Supply chain pressures have been on the forefront of everyone’s minds the last couple of years but are improving. What are some of the challenges that DTNA is still seeing and some opportunities that have arisen?
O’Leary: The chip-related part of those woes has eased off considerably. That was the main problem for pretty much all of last year. That hasn’t completely gone away, but it’s mostly gone away. So that’s gotten significantly better. Now, the major issues would be more along the lines of, I would call it like historical types of legacy parts, like frame rails tires, wheels, brake components, things like that. For a variety of reasons, those are the ones that are bedeviling everybody right now. That’s not unusual in a time of high production output across the industry. There are always a few suppliers or a few components that somehow end up being the pacing item for everybody else. That’s what’s going on right now. One of the big opportunities is we and I’m sure others incurred an awful lot of waste in our extraneous labor, handling and premium freight, to get these vehicles out the door. When we were having chip shortages, it wasn’t unusual to have to touch a truck or a bus multiple times, until you got the precise chip or a component or whatever it was you were missing, to get that [vehicle through the production line]. Now, the big opportunity is to drive out all that extra handling, labor and freight costs. Now we’re in a more normalized fashion because what typically happens is, once you get comfortable with that, it just kind of becomes routine. And then you don’t think too hard about chasing that cost out. That’s typically the next step that we’re going through right now, to try to drive as much of that cost out as we can and get people back in kind of more a normal operating mode and let them realize that, hey, we’re not in the middle of a war anymore. There are a few battles [remaining], but you don’t have to bring out all the super expensive tools to win the war. Just do what you need to do to win the battle.
STN: You’re referring to the federal Chips and Science Act?
O’Leary: We won’t see the benefit from that for probably four or five years because that’s how long it takes to actually build a chip plant, hire the people, get it online, get it up to speed and in the volumes that it should produce. That’s a good four or five years down the road. But in the meantime, what we’ve seen is due to things going on in the economy, slower growth, depending on where you are, inflation, etc. Passenger cars and consumer electronics and gaming, which were a huge draw on chips, that demand in those particular areas has eased off. And as a result, there are more for us on the commercial vehicle side. So, that’s actually holding us right now, and the fact that there’s some slowness in the economy and some of those consumer areas.
STN: What is DTNA and TBB’s current outlook on order backlogs?
O’Leary: Yeah, I mean, our backlog and again, I’m not talking about school buses we can get you the figures on that but the backlog has been super strong. A, before all the chips stuff got solved because fleets wanted more vehicles because they had a lot of business. They had great spot rates at play, they had a sweet spot from an operating perspective that they weren’t in, they were aging up. And so now even though the spot rate has dropped, and other things have kind of come into play to kind of tamp down some of their overall situation. [Fleet owners] are still not in the operating zone that they want to be in from an average age of equipment. So, again, there is still very strong demand. On the truck side, especially. We’ve had basically zero cancellations. There is just a lot of demand still out there. Even in Mexico, Australia and other places where we operate, they would still like to get thousands of more trucks. So, for the time being, you know, we’re good. Now we know that we’re in a very cyclical industry, and that could change tomorrow. It just takes one announcement from some economist or some big major cancellation from a fleet, and then the whole avalanche starts. We’re keeping [tabs], trying to make sure we understand what’s going on. But for the foreseeable future, it looks pretty good.
STN: New vehicle price increases put a big drain on the industry over the past year. With supply chain and inflation forecasts improving, will some of those hikes abate? Or are high prices here to stay?
O’Leary: The reason for the big price increases was that basically every input into manufacturing had gone up significantly. Whether it was the labor of the people, the average price of per hour labor. Whether it was the benefits and things like that, that we’re paying people as a percentage of that labor,. Whether it’s the parts that we’re getting from suppliers and all that. Obviously, inflation was a big thing. And everybody understood what that was. Inflation has leveled off, you know, it’s not rising anymore. But it has not gone backward. To people thinking, oh, there’s going to be price reductions or things like that, potentially, if the prices of inputs start going backward. Just take labor, for example. What you pay people per hour to build a bus or to build an engine or to build any component that goes into it, typically, their wages are not going to be cut with some kind of pass along to us that we then pass along to the customer. There are some parts, like fuel cost delivery, that go into it. And I think the average delivery price per vehicle that moves up and down, depending on what the markets doing for diesel fuel. But in general, I think the prices are where they are for the time being. And again, I think that the increases for this year, are far more modest than they’ve been the last couple years, which is reflective of this new state of leveled-off inflation.
STN: Thank you.
Editor’s Note: As reprinted in the June 2023 issue of School Transportation News.
Related: (STN Podcast E161) Questions We Should Be Asking: Leadership, Bus Stop Safety & Electrification
Related: (STN Podcast E163) Onsite at STN EXPO Indy: Electric School Bus Guidance
Related: New ‘Bus Talk’ Video Series Tackles Electric School Bus Questions
Related: How receptive is your operation to adopting electric vehicles?