CHARLOTTE — Spartan Motors Inc. has landed on the short list for a potentially large government contract to make the next generation of delivery vehicles for the United States Postal Service.
The Postal Service — which operates as an independent agency of the U.S. government — issued contracts totaling $37.4 million to six heavy-duty vehicle manufacturers across the country to build prototypes of possible replacements for its aging fleet of delivery vehicles.
Charlotte-based Spartan Motors (Nasdaq: SPAR) received $3.6 million in late September to create a prototype for the program over the next year under its Utilimaster brand, based in Bristol, Ind.
While the initial prototype contract offers a short-term opportunity for the heavy-duty vehicle manufacturer, securing the production business could provide a needed shot in the arm for Spartan Motors, which has struggled with profitability in recent years.
“The USPS prototype contract is (a) notable achievement as it demonstrates the progress we are making in our effort to grow the Company’s manufacturing footprint and market share,” Daryl Adams, president and CEO of Spartan Motors, wrote to MiBiz in an email. “We expect our prototypes will incorporate the latest technologies in an effort to enhance safety, improve service and reduce emissions.”
The Postal Service expects to purchase up to 180,000 delivery vehicles ranging in price from $25,000 to $35,000 for an overall contract worth up to $6.3 billion, according to a request for information issued in January 2015. The winning supplier would deliver vehicles over a period of five to seven years. The USPS said it expects to award the contract for the delivery vehicles to a single supplier.
The Utilimaster division previously secured contracts to supply the USPS with delivery vehicles.
Details on the actual prototypes are sparse given the confidential nature of the projects, but they will contain updated safety features, fuel efficiency upgrades and interiors designed to fit awkward and bulky cargo, according to the USPS website. Many of the current delivery vehicles lack common safety features such as anti-lock brakes and front airbags.
The prototype vehicles will also include advanced powertrain systems and varying degrees of hybrid technology, according to the Postal Service.
Five other manufacturers, including AM General LLC, Karsan, Mahindra Group, Oshkosh Corp. and VT Hackney Inc., also were recipients of the USPS prototype contract.
Production of the vehicles is expected to begin in 2019, according to Adams.
Spartan Motors in April announced a $5.5 million expansion project at its Charlotte headquarters to supply the 2018 model of Isuzu’s F-Series truck. At the time, Adams noted the expansion came as part of Spartan Motors’ strategy to increase profitability after several years of disappointing performance.
“Spartan has struggled over the last number of years to be profitable, so the change has to be made and we’re making it,” Adams told MiBiz at the groundbreaking in April.
Since then, profitability has increased for the company, at least over the short term. Spartan Motors reported net income of approximately $4.9 million in the first half of 2016, compared to a net loss of roughly $1.7 million over the first half of 2015, according to the company’s financial statements. Those losses extended in the second half of 2015, when the company posted a loss of about $15 million.
Adams said the USPS contract is an extension of Spartan Motors’ strategy to increase profitability in the near term.
“We continue to invest in engineering, forward-looking technology and manufacturing performance improvements that contribute to profitability, and that approach is serving us well,” Adams said. “We’ve had a nice streak of wins of late.”
It remains unclear if Spartan Motors would expand its facilities to accommodate production of the delivery vehicles if it wins the contract.
“Spartan Motors has the planning capabilities and will have the production capacity in place to successfully fulfill the contract no matter the scale,” Adams wrote in an email to MiBiz.