As the motorcoach industry looks toward the new year, financial conditions, lending confidence, and long-term demand remain top of mind for operators and suppliers alike. Moderated by Victor Parra, BUSRide convened representatives from Wells Fargo Equipment Finance and Customers Commercial Finance for a wide-ranging conversation on the industry’s current financial health, emerging challenges, and the road ahead.
Owner
Strategic-Focus Advisors and advisor to CFA Midsouth
In order to create a context for our discussion on Fleet Financing, please share your thoughts on the state of the overall private motorcoach market as we enter 2026.
Victor Parra: It has been a year since we were together last, and, from my vantage point, a very active year, but I’d like to hear your thoughts. What do you see happening out there? Have we seen improvement? Have we seen changes? Have we seen demand improve, drop? Are we shrinking or growing? What’s happening with margins? I just want to set the stage and create a picture of where we are today.
Matt Hotchkiss: From our perspective, the private motorcoach market remains healthy, continuing the positive trend that we have seen since the COVID recovery. Our business performance is strong, and our portfolio continues to deliver strong results
Sam Smith: Our portfolio remains very healthy, and our customers continue to perform well. Overall, the industry is showing strong, consistent performance.
Victor Parra: That is what we are seeing as well from the M&A standpoint. In fact, it has been a very active year from M&A. There is tremendous interest from private equity groups. In the past year we’ve put together eight deals, demand is very high. We are getting calls all the time now from private equity groups (PEGs) looking for opportunities, which I think
Senior Vice President, Bus Division Sales Manager
Commercial Vehicle Group
Wells Fargo Equipment Finance
reflects a couple of things. Number one, what is going on with private equity. There is about $2.5 million in what’s called dry powder, that ‘s money given to them by investors to find opportunities, find strong companies with a solid growth history worthwhile to invest in. Plus, we’re finding PEGs that have never looked at the private bus industry, which is a good sign. There is a lot of financial interest in the industry.
Matt Hotchkiss: The industry isn’t clearly shrinking or growing but it is consolidating. The most significant trend we are seeing is large regional operators that are expanding their footprint by acquiring smaller companies that are either within or near their geographic area, and we see that across the country. Private equity remains active as well, but to a lesser extent than the large regional operators that are growing. An interesting dynamic with the private contractors is that liquidity was strong coming out of COVID, but it’s weaker today, and many of the recent acquisitions have increased leverage profiles for the buyers. That could create some limitations going forward.
That said, I still anticipate meaningful activity—just with a slightly different mix. Private equity will likely continue to play a role, and we may even see public equity—large national or multi-national firms—looking to expand in this space in 2026.
Victor Parra: That seems to be a fair assessment. Most of the interest we are finding is really coming out of private equity, as ell as larger regional guys companies of any substantial size. But the private equity folks have really been aggressive. We suspect this level of interest will continue, especially if interest rates drop.
VP, Senior Business Development Manager
Customers Commercial Finance, LLC
Margins, are they growing? Remaining flat? What are your thoughts?
Sam Smith: Margins have remained generally flat over the past few years as the industry continues to emerge from COVID. Some operators have experienced modest margin expansion, while others have seen contraction driven by regional dynamics, competitive pressures, and rising operating costs. Insurance, in particular, continues to escalate and remains one of the most significant factors affecting profitability, while also being fundamental to an operator’s ability to run their business. As a result, insurance has become a key area of focus in our underwriting, especially in regions where obtaining liability coverage has become increasingly challenging.
Matt Hotchkiss: I agree with what Sam said. Margins aren’t as strong as they were coming out of COVID. Supply is catching up with demand, so we are seeing margins that are flat or slightly lower than last year. Another factor is the surge in travel demand coming out of COVID is subsiding. Overall, margins are still good, just not at the level that they were in the last couple of years.
Victor Parra: How about debt to equity? Are these guys paying down their debt? Where do you think we stand there?
Sam Smith: The bus and motorcoach industry can appear more highly leveraged when looking strictly at the balance sheet, depending on how the financials are presented. However, a significant amount of hidden equity often resides in the equipment—equity that is understated because accelerated depreciation reduces book value well below current market value. In today’s inflationary environment, combined with tariffs and rising equipment costs, many operators who purchased coaches over the past several years may hold more equity than their financial statements may suggest. Retained earnings and the true market value of the equipment remain essential components of our overall equity assessment.
Matt Hotchkiss: If we look at just basic equity (total debt over total equity), the typical range is 1:1 to 3:1, but it can vary. If a company is using tax-based reporting and they are accelerating their depreciation, they often have poor equity even though the business is doing quite well. However, for a mature company with good financial reporting, we generally like to see traditional debt to equity at 3:1 or better.
As Sam said, you always need to look at the hidden equity on the balance sheet because when a company depreciates assets quickly, the net asset position on the balance sheet is much lower than the actual value. You really need to dig into that to understand the true equity of a business.
Victor Parra: Where do you think the average stands? Last year when we talked about it, it was actually a little less than two to one. Do you think that has gotten worse or has it improved?
Matt Hotchkiss: I think it is consistent.
Sam Smith: I would agree.
Victor Parra: Let’s really get into interest rates, a topic everyone is wondering about. Wil the Fed drop interest rates at its December meeting? What are your thoughts?
Sam Smith: There is often a misconception that when the Fed cuts rates, long-term equipment financing rates will automatically fall. That is not the case. Fed actions primarily influence short-term benchmarks such as the Federal Funds Rate and Prime. Treasury rates—what most of us price off—are driven much more by market sentiment, inflation expectations, and global economic factors. When the Fed cut rates in September, we received many calls asking whether Treasury-based rates had fallen, but they remained essentially unchanged. My expectation is that Treasury rates will remain relatively flat over the next few months unless there are larger economic shifts. Things could change with a new Fed chair coming in mid-2026.
Matt Hotchkiss: Those are all great points, Sam. Although it may vary by lender, rates are down between half a point to maybe 65 basis points from one year ago if you look at a like-term swap or similar index.
Victor Parra: So how do operators plan?
Sam Smith: Being part of a well-positioned bank allows us to offer a very competitive cost of funds; however, longer-term interest rates, broadly speaking, remain outside of anyone’s control. In my view, the best way for operators to plan in the current rate environment is to focus on the underlying business justification for the purchase. Perhaps a new replacement bus will reduce maintenance expenses, or a new contract provides the economics to support the added payment. Ultimately, operators should incorporate current rates and projected bus payments into their internal pricing models to ensure the acquisition makes financial sense.
Another way to achieve a lower payment is through a TRAC lease. A TRAC can be an attractive option because it allows the bank to monetize bonus depreciation and pass that benefit back to the operator in the form of lower implicit rates and reduced payments. But regardless of the structure, there must be a sound business rationale for acquiring new equipment.
Victor Parra: Why don’t we get right into financing and loan financing versus the more traditional way of financing? Are there any trends developing here? Are lenders or operators leaning more in one direction than in the other?
Matt Hotchkiss: Loan financing is still the predominant form of financing in the coach market because operators tend to need accelerated depreciation for tax reasons. TRAC leasing is something that companies should consider, especially if they don’t have the ability to utilize depreciation fully. The One Big Beautiful Bill made bonus depreciation permanent, so it is now 100% without a sunset. Before the bill was passed, onus depreciation was only 40% this year and it was going to phase out entirely by 2027. Having 100% bonus depreciation is a significant tax advantage for a lender, and this can be passed back to an operator through lower lease payments. An implicit rate could be between a point and a point and a half less on a lease, which is a significant decrease in the payment itself. From a cash flow perspective, leasing can be really advantageous.
Sam Smith: As Matt mentioned, a company’s tax and accounting objectives often influence whether a loan or a TRAC lease is the better fit. A key consideration is whether the operator can fully utilize the depreciation benefits. If not, allowing the lender to monetize that depreciation through a TRAC structure can result in a lower implicit rate and reduced payments. These decisions can vary widely by operator, so it’s an important discussion to have with your accountant—particularly toward year-end when planning considerations are top of mind.
Victor Parra: Why don’t we talk about secured credit? Are we seeing more availability? Is secure credit as strong as it was last year?
Matt Hotchkiss: Liquidity remains strong. Our company is highly active in the market, and has capital to deploy. From what I’m seeing, other lenders are also engaged. So, overall, secured credit availability is robust. I would call it similar to what it was last year.
Victor Parra: I think given where we are in terms of their debt situation, that is very much accurate. Right now, things are very strong. The operators that we are dealing with have gotten through COVID. For some, there is really no opportunity to transition the business to son, daughter, or anyone else in the family. So, we take them through the whole process of selling the business. The first step is to do what we call an Opinion of Value so they understand what their business is worth in the open market. While we don’t use this figure as they sales price, but it does set expectations up front. At that point they can decide to go forward, or make changes to improve the valuation to sell the business at a later date.
From your vantage point on the financing side, how do you see the mergers and acquisition market?
Sam Smith: I agree with what Matt said. Activity should continue at moderate levels. As long as liquidity remains strong, private equity, family offices, and other alternative investors will remain interested in the space. Consolidation will continue as well—this is not an industry where we see many new entrants due to barriers like insurance, regulatory hurdles, and operational requirements. Underwriting standards also contribute to that barrier to entry.
Victor Parra: What are your thoughts on consolidation? How much is it going to affect your business?
Matt Hotchkiss: Because Wells Fargo has been in the market for so long, when a company is acquired, they are often a Wells Fargo customer. If a customer is also the one making the acquisition, we want to be able to increase our exposure to them as they grow – both organically and through acquisition. That is how we maintain our market share.
Sam Smith: When one of our customers is acquired, we evaluate whether a transfer or assumption makes sense, and in some cases, it may be appropriate to restructure the debt or expand the facility to support the combined entity. Regardless of whether we’re assisting the seller or the buyer, our goal is to remain in the credit and support the new or consolidated organization, when appropriate.
Victor Parra: I agree with that assessment. I don’t see your business negatively impacted that much. But, we are going to see a very different business with private equity controlling the business. Clearly in the deals we have seen management is a key component. In fact, we’ve seen deals fall through when management decided against staying with the company post-acquisition. PEGs readily acknowledge they do not know how to run a bus company, and they need that management team and perhaps an owner or the owner’s son to remain involved for a period of time. In most cases, that is a must, keeping management in place.
Sam Smith: From a credit perspective, the presence of an experienced management team is essential. A strong operator with deep industry knowledge is critical to ensuring continued performance and stability—particularly in transactions involving private equity. If there isn’t a clear management structure in place, that may become a meaningful credit consideration.
Victor Parra: As a side note, PEGs typically don’t buy real estate as that is a nonperforming asset from a private equity vantage point. They would rather put their money toward improving the performance of the the company – buying additional equipment, targeting new customer markets, and other ways to promote organic growth. And, of course, they will tap into the management staff market knowledge to identify companies worth pursuing for acquisition purposes. As for real estate, they typically provide attractive lease arrangements to the seller.
Now let’s look forward. Are we optimistic about 2026? Where do we see private bus industry headed?
Sam Smith: We remain optimistic. While demand may be plateauing—or perhaps more accurately, “normalizing”—the industry continues to perform well. We anticipate revenue to remain relatively flat year-over-year, with no major growth surges but steady, solid performance. We also expect some improvement in equipment availability as supply conditions continue to stabilize.
Matt Hotchkiss: We are also optimistic. The industry is doing well. There are always headwinds (insurance for example), but we aren’t seeing anything significant that is going to hinder an operator’s ability to succeed or buy equipment. It’s possible there will be some pre-buying next year depending on what ultimately happens with the EPA emission requirements that come into play in 2027. There is also a lot to prepare for with major events on the horizon, such as The FIFA World Cup, the country’s 250th anniversary, and the Olympics. We expect cap ex to be solid in 2026.
Victor Parra: Any other issues that you think we need to cover?
Matt Hotchkiss: I’ll conclude with this; be in a position for growth but do it smartly. Take advantage of opportunities to expand as long as you are not sacrificing your margins and you maintain reasonable leverage levels. Be ready to capitalize on the demand surge, but equally important, be prepared to withstand inevitable business disruptions. Flexibility and financial discipline will be key to navigating both upside and the volatility ahead.
Sam Smith: Financial reporting is critical. Keeping management statements, debt schedules, and financials up-to-date—and working with an accountant familiar with this industry—positions operators for the most competitive financing options. As lenders, we want to understand your business, ask questions, and build a relationship that supports long-term growth.
We are here to listen and provide guidance as opportunities arise. Ultimately, operators who closely monitor margins and maintain a strong understanding of their costs will be best positioned for future success.
Victor Parra: Those are two good watchwords that you mentioned, relationships and accountants. We have seen it from our end, having a really good accountant who can guide you and make sure that you are moving in the right direction and you are applying your resources and capital properly is absolutely critical.
And when that has not been there, when they have not had an experienced capable accountant, it shows up badly, unfortunately. Those relationships are so vital, they play out in a lot of ways. They certainly play out in the M&A area.