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Editor’s Note: Following are highlights of the October RV Dealer Survey conducted by the staff of Robert W. Baird & Co., a Wall Street investment firm that tracks the RV industry.

baird_new_logoInventory hits bottom. We contacted 100 RV dealers to assess recent trends. Soft demand and limited access to wholesale credit have forced dealers to slash inventory – but dealers may finally have found the bottom. Inventory turns have improved and dealers plan to order more units, driving manufacturer backlogs higher. Our medium-term outlook remains bright, as demand improves, survivors gain share, and dealers replenish inventory – but we prefer THO (Thor Industries Inc.) to WGO (Winnebago Industries Inc.) on valuation.

Summary

  • Traffic/Retail. Traffic fell again, but some dealers saw pockets of sunshine. Dealers sold 20% fewer motorhomes and 5% fewer towables, smaller declines than in recent quarters. Interest in towables and used RVs remain stronger than in motorhomes – supporting our more cautious stance on the category. Several dealers attributed better traffic trends to the “cash for clunkers” program – although RVs were not eligible for the government subsidy.
  • Dealer inventory strikes bottom – the first step toward recovery. After an extended period during which dealers ordered fewer RVs than they sold, we expect the replenishment rate to approach 1:1 – driving backlogs higher. Dealers plan to order 16% more motorhomes and 43% more towables – marking the end of a severe and prolonged destocking trend. Motorhome inventory fell to 109 days from 191 days in July, as most dealers characterize inventory levels as “about right.” Towable remained relatively unchanged at 90 days versus 87 in July, with some dealers reporting that inventory is too low. A few dealers expressed relief after liquidating motorhome inventory – with no plans to restock.
  • Credit and market conditions. Credit conditions remain difficult – especially in wholesale financing – but have not worsened materially. Dealers that survived the downturn seem more selective about their finance and OEM partners. With credit scarce, dealers have little control – but more are working with “stronger manufacturers,” a trend that favors Thor and Winnebago, among public companies.
  • Outlook. Dealers expect the 2010 retail market to expand 0-5% in motorhomes and 5-10% in towables, broadly consistent with our expectations for a turnaround. As dealers replenish inventory, the wholesale recovery will be dramatic. We see better value in Thor, which trades near 17x F2010E EPS (ex cash), than Winnebago, which will likely struggle to earn a profit in F2010.