RV industry in lower gear as economy falters

Roland Jones • Profile • E-mail

These are the dog days of summer at the Lazydays RV supercenter in Seffner, Fla. The huge center for motor homes and travel trailers just off Interstate 4 east of Tampa — which bills itself as the nation’s largest single-site recreational vehicle dealer — is feeling the bite of the economic downturn.

Lazydays laid off 75 employees, or about 15 percent of its work force, on July 9, blaming the “current uncertain economic conditions combined with a significant downturn in RV demand,” according to a filing with the Securities and Exchange Commission.

Stewart Schaffer, chief marketing officer for the center, says visiting customers are more cautious these days — they’re delaying purchases and trade-ins and looking for lighter, more fuel efficient vehicles.

But contrary to conventional wisdom, he said, the high price of gasoline is not the main reason buyers are shying away from purchasing motor homes and trailers.

“The price of gas will impact a person’s travel habits, but for the RV industry it’s really about the lack of financing that’s causing the current downward trend in RV sales,” Schaffer said.

“Consumer confidence is factor too — people have less confidence to make a larger-ticket purchase, and RVs are discretionary purchases, so they’re more difficult to justify,” he added. “But it’s not like the SUV market where everyone is running away because of the price of gas.”

An RV is no small purchase. While an entry-level, towable camping trailer typically costs between $5,000 and $15,000, a larger motor home in the “Type B” or “Type C” category can cost anywhere between $40,000 and $150,000.

A “Type A” motor home, the largest available, is built on a bus chassis and can cost between $60,000 and $400,000. Type A’s that cost more than $400,000 include all manner of customization, such as marble flooring, granite counter tops and flat screen televisions.

These days, when it comes to buying RVs, Americans are voting with their feet. With fuel prices climbing and the economy faltering, sales of motor homes and towable trailers are down 17 percent from this time last year, according to Kevin Broom, a spokesman for the Recreation Vehicle Industry Association, a trade group, while total RV shipments were down 32 percent in June.

The bigger the vehicle, the worse the decline. Sales of large “Type A” motor homes, which can be up to 45 feet in length, fell 56 percent in June, while smaller Type C motor home sales slid 54 percent, Broom said. Sales of towable RVs (fifth wheels) were down 28 percent in June and off about 13 percent for the year, he said.

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University of Michigan economist Richard Curtin, who studies the RV industry, says that while high gas prices are having an impact on sales by decreasing Americans’ discretionary incomes, they are having a minor influence on the industry. The major impact on RV sales is coming from changes in home values, stock portfolios and the resulting decline in household wealth, he said.

“One of the common ways people finance an RV purchase, especially for the bigger vehicles, is by taking out a home equity loan, and that has of course become more problematic lately because home prices have fallen and people have less home equity,” he said, noting that lenders are now much more cautious about extending credit and they are charging higher interest rates.

The RV sales decline has hit makers of motor homes hard, said Curtin. Manufacturers (like National RV Holdings, Western RV and Alfa Leisure) are filing for bankruptcy, shutting operations, or cutting production and employees, he said. Winnebago, one of the nation’s largest RV manufacturers, recently reported a quarterly profit drop of 73 percent. CEO Bob Olson told Reuters that the economic headwinds for manufacturers of motor homes are worsening.

“We’ve got a lot of things going against us,” he said, adding that in the past RV manufacturers had “only one thing to worry about.” Today, he continued, “there’s about four, five, six different variables, not just one focus point. You have escalating food prices. You can’t turn on the TV or radio without hearing it’s another record-setting day for fuel. And I think that’s probably one of the biggest concerns right now, not only of RVers but everybody. They don’t know where this is going to settle in.”

Curtin, director of the University of Michigan’s closely followed monthly consumer sentiment report, says he became interested in the RV industry because he sees it as a good barometer of consumer confidence. He expects the challenges facing the industry will continue through the end of 2009, when he expects overall consumer spending levels will start to recover. However, RV sales are unlikely to increase until late 2010, he added.

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