Paying less for public transit buses

Buses are the most used public transit mode in the U.S., accounting for more than 3.8 billion passenger trips in 2024. They promote equity, create jobs, foster economic development, and address the increasing problem of carbon emissions’ contribution to climate change. Despite their ubiquity and necessity, transit buses are unusually expensive to buy and replace—with some buses nearly three times more expensive in the U.S. than in peer nations. The market for purchasing buses in the U.S. suffers from fragmented procurement, over-customization, and market concentration.

While technological change and heightened global market competition reduced the real quality-adjusted price of a new private vehicle by 40% between 1995 and 2025, the U.S. transit bus market has not kept pace. Diesel buses are slightly more expensive today than they were 30 years ago. Prices for electric and hydrogen-power buses, despite experiencing considerable technological advancements, have not become cheaper and remain far more expensive than diesel options. Currently, the federal government pays up to 80% of the cost of municipal bus purchases, and even more for certain purchases related to ADA and Clean Air Act goals.

Public transit agencies also tend to purchase buses in small volumes and choose highly customized models. Addressing local needs and preferences serves as a benefit across communities but raises price. In a dataset assembled by three of the authors, 68% of bus orders differed from every other contract by at least one specification. On average, each unique specification comprised only five buses per order. This lack of standardization reduces efficiencies of scale; smaller orders also often cost a transit agency more than larger orders. In one case, the authors find that an order for 65 40-foot diesel buses cost one transit agency $450,000 per bus; an order of ten similar buses cost another transit agency over $950,000 per bus.

Additionally, agencies using federal funding for bus purchases are subject to Buy America requirements. This mandate requires buses procured with federal funding to use at least 70% domestic materials and assemble finished products in the U.S. This provides an advantage to American companies but reduces market competition—driving up costs. Between 2019 and 2023, two firms accounted for over half of all bus contracts with public transit agencies. In 2023, the Herfindahl-Hirschman Index for transit bus procurement market reached just over 2000—indicating the concentration metric is twice as high as the overall U.S. vehicle market.

This paper proposes three sets of recommendations to reduce the cost of transit buses in America: improving incentives for cost containment, encouraging mass production, and enhancing competition.

First, the authors propose price caps on subsidies, building off existing EPA funding program structures. Under this proposal, the FTA would create a bus order price database detailing propulsion type and size over previous years. It would then create a price distribution for similar bus specifications and set a price target at 25% of that distribution. Local transit agencies would then receive grants of up to 80% of total bus pricing, so long as it falls below this target price. Agencies would then bear any additional costs themselves. A built-in price deflator would adjust for inflation minus 2% annually to push for prices to fall in real terms over time.

Second, the authors also would encourage an increase in the volume and uniformity of bus purchases. The FTA would create a “Bus Formulary,” or a standardized list of bus specifications and prices. Like insurer drug plan lists, this list would simplify procurement, make pricing more transparent, and strengthen both buyers’ and manufacturers’ ability to plan for scale. Local transit agencies would be able to customize buses within bounds, but formulary buses would be prioritized for federal funding. Pricing standards could gradually tighten over time.

Third, they propose to ease made-in-America purchasing requirements temporarily to provide a path for more global firms to manufacture buses in the United States. To counteract the concentration that has occurred in the bus manufacturing market, a trial would be conducted allowing global bus makers to sell up to 100 units manufactured abroad at or below the previously mentioned target price. This solution would allow foreign firms to prove product quality and build a customer base before then investing in U.S.-based manufacturing plants and supply chains. Buses would be subject to the same FTA testing and compliance requirements as domestic manufacturers, and producers would need to provide maintenance guarantees.

Together, these proposals aim to drive greater efficiencies in the production of U.S. transit buses, which would lower prices and allow agencies to invest more in the quality, frequency, and reliability of transit service.

Read the paper