Sales at leading recreational vehicle (RV) maker Thor Industries (THO) are on the road to recovery after being slammed by high gas prices, scarce credit, and recession-racked consumers. U.S. consumers are favoring less expensive and more fuel-efficient models, analysts and industry experts say.
Americans' willingness to spend, if not splurge, on so-called second homes on wheels could in turn provide a clue to positive trends in the broader economy.
"The RV industry is a great leading indicator for the overall health of the economy," says Kathryn I. Thompson, founder of Thompson Research Group in Nashville, Tenn. Over the last decade, manufacturers have produced an average of 309,000 RVs a year, according to the Recreation Vehicle Industry Assn.
On Sept. 28, Thor, the largest U.S. maker of recreational vehicles, reported a 51 percent jump in last quarter's sales from a year ago. Profit rose 64 percent, with net income exceeding by 16 percent the estimates of analysts surveyed by Bloomberg.
The recession took its toll on the industry. In March 2009, two of the largest RV makers—Monaco Coach and Fleetwood Enterprises—filed for bankruptcy protection.
looser credit, not greater demand
On Sept. 24, the RVIA released August data showing that the 177,300 RVs shipped to dealers so far in 2010 had exceeded levels at this point in 2009 by 70 percent. In 2009, the number of RVs shipped to dealers was 58 percent below the 390,500 RVs shipped in the peak year of 2006, according to the RVIA.
A key factor in the RV recovery has been credit, says Mac Bryan, vice-president of the RVIA. Because of the credit crisis, neither consumers nor dealers could borrow to buy RVs, which in the case of motorized homes can cost at least $200,000. Much of the improvement in 2010 does not reflect a "change in demand, but an improvement in financing in vehicles," Bryan says, as the financial crisis has eased and banks have reentered the RV financing market.
So far in 2010, the rebound in actual retail demand has been "fairly modest," says Bret Jordan, an analyst at Nashville-based investment firm Avondale Partners. "The retail consumer never really came back in a big way," says Jordan, who is based in the firm's Boston office.
There are, however, signs that this could be changing. "After a tenuous summer, the season ended well," Robert W. Baird analyst Craig Kennison wrote on Sept. 29 while unveiling the results of a survey of 104 RV dealers.
Baird's survey showed that some parts of the RV industry are doing better than others. Sales of motor homes—RVs with engines cost significantly more than trailer RVs—rose 8 percent to 10 percent in the third quarter of 2010. Towable RVs, meanwhile, jumped 16 percent to 18 percent.
Trading down to towable RVs
Consumers are deciding on towable RVs partly because of cost, but also because extra features have made them competitive with motor homes, Jordan says. A "high-end towable vehicle" can cost $60,000 while a high-end motor home with a diesel engine can be $200,000. Many new towable trailers now feature so-called "slide-outs"—portions of the trailer that can be expanded when parked to increase living space. "You're getting comparable living space" to motor homes, he says, adding: "There is a lot of utility in towables for the cost."
In 2006, pricier motor homes made up 14.3 percent of all recreational vehicles produced. So far in 2010, that share has fallen to less than 10 percent.
"You are seeing the trade-down effect," Thompson says. "People aren't necessarily giving up the RV lifestyle but they're choosing less-expensive products." RVs priced below $150,000 are "doing "OK," she says, while "anything below $100,000 is doing the best."
According to Thompson, such trends could hurt Winnebago Industries (WGO), the motor home maker headquartered in Forest City, Iowa. They could favor Thor, for which towable RVs made up 70 percent of sales last quarter, she says. A maker of RVs under the Airstream, Dutchmen, Komfort, CrossRoads, and other brand names based in Jackson Center, Ohio, Thor announced on Sept. 17 the acquisition of Heartland Recreational Vehicles, another specialist in towable RVs, for $100 million in cash and 4.3 million shares of Thor stock—or a total value of $247 million based on the recent share price. On Oct. 1, Thor said it would boost its quarterly dividend, from 7¢ to 10¢ per share.
big extra: additional flat-screen TV
Winnebago shares are down 14 percent so far in 2010, while Thor shares are up 9 percent.
To make cheaper RVs more attractive to consumers, manufacturers have piled on extra "bells and whistles," Jordan says, like including three flat-screen televisions, instead of just two.
In response to the volatility of gas prices in recent years, RV manufacturers have made their products more fuel-efficient. "We're seeing a great deal of attention [paid] to the greening of the RV," Bryan says. RVs are being made of lighter materials and the efficiency of furnaces, air conditioners, water heaters, and other appliances has been improved, he says.
There are further recent indications of returning retail demand. The Pennsylvania RV and Camping Show, an annual event held in Hershey, Pa., bills itself as "America's largest RV show." The exhibition, from Sept. 13-19, saw record attendance that was up 9 percent from last year and the number of RV units on display rose 43 percent.
Tiffin Motorhomes, a privately held RV company based in Red Bay, Ala., told show organizers that sales were 44 percent higher than last year.
"People had been holding back on purchases and now they were ready to buy," says Heather Leach, marketing and education director at the Pennsylvania RV and Camping Assn.
RV dealer: Customers remain "leery"
Exposure to the U.S. consumer is just one factor that makes the RV industry a good economic barometer, Thompson says. The industry is also affected by important credit trends, including the availability of short-term credit for dealers buying inventory and of long-term credit for customers buying RVs. The industry is also a good window into factors that affect U.S. manufacturing, such as raw material and labor costs.
The economic environment continues to concern the industry. Consumer spending rose 0.4 percent in August, according to data released Oct. 1 by the U.S. Commerce Dept. According to an unidentified RV dealer quoted in a Sept. 7 survey by Thompson Research Group: "Customers [remain] leery, kind of careful about everything."
Nonetheless, industry participants say they are confident about the RV's long-term appeal, especially as Baby Boomers retire and younger Americans seek affordable vacations. "Assuming gas prices remain reasonably affordable, it's a cheap way to have a vacation," Jordan says. "It's cheaper than a second home."
Park campgrounds are as busy as ever, Bryan says, a fact that underscores the appeal to Americans of the RV lifestyle. According to the National Park Service, the number of RV campers at National Parks rose 6.8 percent from 2008 to 2009. "Recreational vehicles have a very bright future," Bryan says.