RV makers dying for boomers to get old
The 50 and older crowd is our prime market, RVIA president Richard Coon says. Over the next decade, that market is expected to double to 80 million from 40 million.
LOUISVILLE, Ky.–The American recreational vehicle industry faces a steep uphill climb, but top manufacturers and dealers are banking on favourable demographics to restore RV sales.
Retail sales of motorhomes have fallen for 19 consecutive months as higher interest rates and gas prices combine with a slowdown in the housing market to weigh on consumer confidence.
Further deterioration is seen for 2007, when shipments of motorhomes and campers are expected to drop more than 11 per cent, according to the latest forecast from the Recreation Vehicle Industry Association.
But RVIA president Richard Coon insists that he’s optimistic. The reason? Gas prices have moderated.
More importantly, baby boomers continue to age.
Coon’s favourite piece of data: Every day, more than 12,000 Americans turn 50.
“The 50 and older crowd is our prime market,” Coon says. Over the next decade, that market is expected to double to 80 million from 40 million.
Mike Molino, the president of the Recreational Vehicle Dealer Association, agrees.
“It’s hard to fail in this business,” he says. “We could do a bunch of things wrong because the demographics are so strong.”
But relying on an aging population to deliver customers to showrooms wasn’t much of a strategy in 2006 – and it’s not likely to be any more effective in 2007, analysts say.
Within the motorhome category, sales of gas-powered, Class A coaches – the biggest and most profitable that the industry makes – fell 20 per cent in the first 10 months of this year.
Class A diesel sales are down 12 per cent.
Sales of towable travel trailers and folding campers are also down, but only by 1 per cent.
Take out sales to relief agencies and others after the back-to-back hurricanes that pummelled the U.S. Gulf Coast in 2005, and “the declines are even worse,” says Bob Simonson, an analyst at William Blair.
As a result, stocks of some of the biggest publicly traded manufacturers have suffered.
Shares of Fleetwood Enterprises Inc. and Monaco Coach Corp. the No. 1 and No. 2 manufacturers in the Class A category, have fallen 37.5 per cent and 13.3 per cent, respectively, as demand for the fuel-swilling bus-like behemoths has dried up.
But not everyone’s hurting. Thor Industries Inc. and Winnebago Industries Inc. are up about 25 per cent and 6 per cent, respectively.
Both are big players in the hard-hit Class A category but have aggressively brought new products to market, helping them avoid the fate of their slower-moving peers.
Thor, the No. 1 maker of towables, has had success with the vehicle, also known as the “toybox,” a trailer with extra cargo room and a drop-down rear wall popular with all-terrain vehicle enthusiasts and motorcyclists.
Winnebago has scored big with its new diesel-powered Class C motorhomes – smaller and more fuel efficient than the Class As, but bigger than the Class B van campers.
“Where companies are innovating, we see growth,” says Craig Kennison, an analyst at R.W. Baird. “Where companies are not innovating, they’re subject to interest rates and other macroeconomic variables and finding it difficult to grow.”
Even those newly created markets are showing cracks. Thor recently reported earnings below some analysts’ estimates as it reduced prices to help dealers move inventory.
Analysts said the industry still faces stiff economic headwinds, including borrowing costs.
While they are low by historic standards, rates are still higher than a few years ago.
That’s discouraging RV owners from trading up, which is a critical part of the market.
“We don’t expect a turnaround to occur in the motorhome industry until we see lower interest rates,” Kennison says.
The other big headwind is the real estate market. Because many first-time buyers use home equity to finance such discretionary purchases, falling home prices kill new sales.
“I’m quite concerned about next year, particularly at the high end,” says Simonson at William Blair.
“This is a very discretionary item. It’s one that can be easily postponed.”