RV industry steers through post-pandemic US slump

Winnebago Industries

25/07/2023 11:00

By Timothy Aeppel
       July 25 (Reuters) - The U.S. economy may ultimately
skirt a recession, but it's felt like one for months at Jon
Ferrando's 103 RV dealerships.
    Retail sales of recreational vehicles are on track to be the
lowest since 2015, said Ferrando, CEO and president of Fort
Lauderdale, Florida-based Blue Compass RV, which operates in 33
U.S. states. There's "definitely a recession in RVs," he said.
    Blame the coronavirus pandemic. Few industries better
illustrate the wild shift in U.S. spending habits that occurred
during the health crisis.
    In a matter of months, consumers stuck at home cut spending
on services, as restaurants shuttered and airports turned into
ghost towns, and began splurging on goods, especially items like
RVs, bicycles, and swimming pools. Anything that made quarantine
conditions more tolerable saw a massive surge in demand.
    Winnebago Industries  WGO.N  CEO and President Michael Happe
has called it the "COVID retail frenzy" when speaking to
investors.
    But trouble emerged soon after pandemic restrictions were
eased and U.S. interest rates began to rise. The Federal Reserve
has hiked borrowing costs 10 times since last March as part of
an aggressive campaign to tame high inflation. The U.S. central
bank's benchmark overnight interest rate has climbed by 5
percentage points to the 5.00%-5.25% range, the highest level in
about a decade-and-a-half.
        The interest rate consumers pay on loans is well above
even that, and RV loans recently have averaged around 10% versus
7% or so before the Fed's monetary tightening kicked into high
gear, Ferrando said. With 80% of his company's customers
financing their purchases, it was natural that rapid rate hikes
would curb buyers' appetites.
    
    'SCREAMING RECESSION'
    As demand evaporated, manufacturers hit the brakes. North
American shipments of new motorhomes and trailers, almost all of
which are produced in the United States, are expected to plummet
to 300,000 this year, about half the number shipped in 2021,
according to the RV Industry Association. The only other time
shipments have fallen so sharply was during the 2007-2009
financial crisis and recession.
    Winnebago and Thor Industries  THO.N , the largest U.S. RV
manufacturer, declined to discuss how they are adjusting to the
slump, but investors seem to think the worst is over. Shares of
Elkhart, Indiana-based Thor and Eden Prairie, Minnesota-based
Winnebago are up about 46.5% and 29%, respectively, on a
year-to-date basis.
    "Our industry has always been a little challenged on
forecasting around demand," said Jason Lippert, CEO of LCI
Industries, a large supplier of parts to the RV industry that is
also based in Elkhart. 
    That shortcoming was magnified during the pandemic, he said.
"During COVID, dealers would take whatever they could get - as
long as it was an RV."
    Downturns in this business have long been considered a
dependable recession gauge, but that may not apply this time.
    "If I was just looking at RV data, I would be screaming
recession," said Michael Hicks, an economics professor at Ball
State University in Indiana who tracks the industry, adding that
pullbacks in RV shipments have signaled every U.S. recession
since 1981. But the glut created by a rare event like the
pandemic may have skewed the normal picture, he said.
    RVIA spokesperson Monika Geraci said the industry faces a
dual challenge: inflation has led to higher sticker prices and
higher interest rates have made it costlier to finance hulking
purchases like RVs.
    "We expect in the second half of this year shipments (of
RVs) will start to increase again," Geraci said. The RVIA
projects that shipments in North America will rebound to about
350,000 units next year "as consumers get more comfortable with
the leveling off of inflation and the level of interest rates,"
she said.
    
    OLD AND OVERPRICED
    The problem for many dealers is the unsold RVs on their
lots. Gregg Fore, an RV industry consultant who previously ran
an RV parts supplier, said half the new inventory at some
dealers he works with are 2022 models. That figure would
normally be about 20% to 25%, he said.
    Dealers now face the prospect of bringing onto their lots
the newest 2024 models which cost less than these aging models.
"How do you sell a '22 that's more expensive than a '24?" Fore
asked.
    Meanwhile, other sectors that saw pandemic-related booms
have also fallen to earth - though in many cases not as hard as
RVs.
    Tyler Hermon, vice president of sales and marketing at Pools
of Fun, a large in-ground pool builder in Indiana, said his
backlog of orders for new pools is down to about three months -
compared to the year-long waits that customers saw at the height
of the pandemic.
    "I would say we're still, volume-wise and revenue-wise,
ahead of where we were pre-COVID - so we haven't fallen
completely back," he said.
    Back at Blue Compass, there is also optimism. The company
moved quickly to sell off the glut of older RVs on its lots,
Ferrando said, and its service business has stayed strong as
existing customers continue to need repairs and upgrades.
    "There's still interest in RVing," he said, "but customers
are just more cautious right now."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic-RV spending boom cools    https://tmsnrt.rs/43FMw06
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Timothy Aeppel;
Editing by Dan Burns and Paul Simao)
 ((Tim.Aeppel@thomsonreuters.com;))