RV industry back in the driving seat

August 30th, 2013

News Coverage:

RV industry back in the driving seat

By Neil Munshi

August 30, 2013

An estimated 6m Americans and their families will hit the road in motorhomes and trailers for the long Labor Day holiday this weekend, many in brand new units as the recreational vehicle industry roars back from the depths of the recession.

The industry has had three years of solid growth since hitting its trough in 2009, when North American wholesale shipments dropped to 166,000 units, worth $5bn in retail sales, from about 391,000 units, worth $15bn, in 2006. Shipments through July are up 13 per cent compared with the same period last year and are on track to pass 300,000 units for the first time since 2007.

Favourable demographics as baby boomers age, rising consumer confidence and a rebounding economy are driving sales, while a recession that devastated the industry has left those that survived in much stronger positions.

"It was a very deep recession – a number of manufacturers and dealers did not survive," says Craig Kennison, analyst at Robert W Baird. "But those that did are emerging with better market share."

Leading manufacturers Thor Industries and Forest River, a subsidiary of Berkshire Hathaway, now control 68 per cent of the market and compete across the price spectrum for consumer attention. But one reason the industry has flourished is that unlike automotives, where advertising emphasises specific brands, RVs are also marketed collectively as a lifestyle by the Recreational Vehicle Industry Association.

"The bottom line is that by collectively promoting the lifestyle and the industry . . . we have widened the popularity and widened that pool for anybody and everybody in our industry to market to," says Doug Gaeddert of Forest River, who is also the chairman of the RVIA.

That lifestyle, outdoors but with all the comforts of home, tends to appeal to those at or nearing retirement age, meaning home and portfolio values affect the industry, but other economic factors tend not to.

"People buying these are not really affected by fuel prices, interest rates or unemployment," says Tom Walworth, of Statistical Surveys, which provides industry data. Some of the lower end models are purchased via financing by price-sensitive customers, but unless interest rates rise dramatically sales should not be greatly affected.

The US appetite for pickup trucks and sport utility vehicles, which is driving growth in the US automotive industry, is also bolstering demand for towable trailers, which make up roughly 90 per cent of all RVs.

"There’s a lot of towing capacity around today, which creates the market conditions you need to sell a towable," says Mr Kennison.

Towable shipments have risen by nearly 11 per cent compared with the same period last year, while motorhomes have jumped 35 per cent.

"The next eight to 10 years look extremely good, and if we continue to do our jobs the possibilities seem endless"

- Doug Gaeddert, Forest River

The potential of the higher-end motorised market will see Thor this year launch two production lines at a 600,000 sq ft facility in northern Indiana, the region that is home to about 80 per cent of RV production.

Thor reported $3.24bn in RV sales during the year ended July 31, up 23 per cent from the previous year. "Even in the heart of the recession, people didn’t quit camping," says Bob Martin, chief executive. "[That] told us the industry wasn’t going anywhere."

Thor has made numerous acquisitions in recent years and markets about 90 brands. Shares in the company are up more than 37 per cent this year, compared with a 15 per cent rise in the S&P 500.

Shares in smaller rival Winnebago, which controls 3 per cent of the market, have risen nearly 31 per cent this year. In June, the Iowa-based company announced that third-quarter earnings had nearly doubled, to $7.7m, during the three months to June 1.

In response to renewed demand, Winnebago increased production during the quarter by 48 per cent year on year. The company’s motorhome shipments hit their highest levels in five years, up 55 per cent compared with the same period last year.

Forest River sales rose 26 per cent year on year to July, with nearly $1bn in sales for the three months to June. Mr Gaeddert, general manager of 14 of the company’s divisions, is confident about the industry’s future.

With the Pew Research Center estimating that roughly 10,000 baby boomers will turn 65 every day through to 2029, he has reason to borrow some of the imagery of the great outdoors.

"The sun and the moon and the stars are aligned pretty well from an ageing standpoint," he says. "The next eight to 10 years look extremely good, and if we continue to do our jobs the possibilities seem endless."

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