Spartan Motors, Inc. (NASDAQ: SPAR) said that manufacturing of the Reach delivery vehicle is under way at the Charlotte, Michigan, campus, and will be completed in the third quarter.
Spartan's Utilimaster subsidiary is currently addressing fit-and-finish quality and appearance issues on approximately 170 vehicles. The company expects to ship the majority of these vehicles to customers or dealers during July and August. No deliveries were made in the second quarter. Spartan expects full-year 2012 shipments of 500 to 1,000 Reach vehicles.
Spartan announced its Utilimaster subsidiary has received a new order for an additional 150 Reach vehicles from one of the world's largest delivery service companies. These units will be delivered during the second half of 2012.
"The attractive value proposition offered by the Reach is highlighted by this order,” said Spartan's Chief Executive Officer, John E. Sztykiel. “This represents an important milestone as we work to realize the long-term opportunities for Reach. As we have demonstrated with the Reach, it is possible to achieve improved vehicle performance while meeting a number of green/sustainability goals."
Spartan is currently transferring production of the Reach from Utilimaster's Wakarusa, Indiana, facility to Spartan's Charlotte, Michigan, campus, as previously announced. This process began during June as production ended at the Wakarusa facility. Spartan is currently setting up a dedicated production facility at the Charlotte campus.
"The move to Charlotte has always been a part of the Reach business plan, as any product involving Isuzu will be centered in Charlotte. Our N-Series chassis alliance with Isuzu in Charlotte has produced up to 21 chassis per day with 49 people, which is a great metric. We expect to realize that same success with the Reach," said Sztykiel.
Spartan has also selected Frank Faga, an automotive executive with extensive experience in new product launches and production, as program manager. Faga has previously served in senior product development and production roles for automakers including Fisker, Chrysler and Daimler-Benz. He will lead a team assigned to implement these changes and bring the Reach to full production status at the Charlotte facility.
Sztykiel commented on the Reach ramp-up, stating, "The launch of the Reach has been a more difficult and time-consuming process than we would have preferred. Encountering a few delays and cost issues requiring resolution is not surprising since the Reach is an all-new, transformational delivery vehicle utilizing advanced composite materials and new manufacturing processes. As is often the case with game-changing new products, we have encountered some challenges to overcome as we bring the Reach into the marketplace and believe it is appropriate to slow the production ramp-up. But all problems have identifiable solutions. Those solutions are being put into effect now and the customer's delivery requirements will be met. We are focused on ensuring we have a great-looking, performance-oriented product to drive growth in sales in 2013 and beyond."
Despite Reach challenges, the company reaffirmed its previously disclosed expectations for 2012 financial performance. Management has previously stated it expects full-year 2012 revenue growth in mid-single digits over 2011 levels, with a gross margin in the 15-15.5% range and operating expenses of 12-12.5% of revenue. Both the gross margin and operating expense expectations are from continuing operations, excluding restructuring or expenses from Utilimaster's relocation to Bristol, Indiana. For the year, Spartan expects to deliver approximately 500-1,000 Reach vehicles. For 2013, the company expects production of the Reach to be approximately double the number of 2012 shipments.
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