The head of Junction City, Ore.-based Country Coach Inc. has notified employees that it will shut down for good in two months if it can’t obtain new financing, according to a report in the Register Guard, Eugene.
“Looking forward, due to recent and unexpected circumstances beyond the control of Country Coach, it now appears that Country Coach will be forced to permanently shut down unless it obtains additional financing on or before Feb. 28, 2009,” CEO Jay Howard said in a letter to employees, dated Dec. 30 and obtained Wednesday by the Register-Guard.
Even if the company is able to obtain a loan, the company expects “mass layoffs” starting around March 1, Howard said.
Country Coach, like other RV makers, has been hammered by brutal market conditions this past year. The privately held company has already laid off hundreds of employees in a series of job cuts in 2008.
Company spokesman Matt Howard said the company currently has about 500 employees. As recently as June 2006, the company said it had 1,700 workers and was planning to hire 200 more to help build two new models of motor coaches.
Matt Howard said he couldn’t speculate on the likelihood of the company’s ability to obtain loans that would permit it to stay in business.
“We’re spending every effort right now trying to resolve that,” he said Wednesday. “All our emphasis lies in making sure Country Coach stays open and viable.”
The letter was sent to employees as “a worst case scenario” and to fulfill a legal requirement under the federal Worker Adjustment and Retraining Notification Act. The WARN Act requires employers to give employees and communities 60 days notice in advance of plant closings and mass layoffs.
“These are the worst economic times any of us have ever seen in this business,” Matt Howard said.
Historically, the company has furloughed workers for two weeks in December, but this year Country Coach extended its shutdown for the entire month of December because of the tough economic times.
The Register-Guard reported that the company had planned to reopen next Monday. That won’t happen, Matt Howard said.
In his letter to employees, Jay Howard outlined the problems confronting the company:
In August, the company sought financing, but the funding it received in October was less than initially requested, he wrote. He doesn’t specify the numbers, and Matt Howard said he did not have authority to discuss the financing.
But in September, the company issued a news release saying it had obtained a $6 million capital infusion from investors, and SEC filings showed that it sold $10.9 million in subordinated secured promissory notes to 11 investors earlier in the year.
Jay Howard said RV sales were hurt by the high gas prices last summer, and then by a nationwide credit crunch. Then in November, GE Capital, the primary lender for Country Coach dealers, announced that it would not finance RV purchases at least through the end of 2008, he said.
“GE’s surprising decision to stop funding Country Coach’s dealers effectively stopped the demand for motor homes,” Howard wrote.
As a result, several Country Coach dealers closed, which “triggered massive repurchase obligations for Country Coach while decreasing the demand for motor homes even further,” he wrote.
If the company cannot obtain financing, the plant will not reopen and will close permanently sometime between Feb. 28 and March 14, he wrote. Even if financing is obtained, Country Coach anticipates “mass layoffs” starting on or about March 1.
“While Country Coach would have preferred to provide earlier notice of the mass layoffs and potential shutdown, to do so would have undermined its efforts to obtain financing to preserve its business,” Howard wrote.
Country Coach, originally known as Country Camper, was founded in 1973 by Bob Lee, a former aerospace worker who was one of the original partners in Monaco Coach Corp. Over time, the company developed a market niche of building higher end, bus-like RVs that today range in price from $300,000 to more than $1 million.
Lee sold the company in 1996 to National RV Holdings Inc., a publicly traded RV maker in Perris, Calif., that paid $9 million for the company and assumed $10.1 million in debt.
After National RV got into financial trouble, Lee was among the partners, led by Los Angeles investment banker Bryant Riley, who bought Country Coach back from National RV. in February 2007 for $38.75 million in cash and the assumption of $13 million in debt. The new ownership took the company private.
Signs of trouble at Country Coach began to emerge late last year. In December 2007, the company imposed the first in a series of job cuts, laying off about 200 workers. More layoffs came in March. And in April, the company imposed a 5% pay cut on all employees, and Jay Howard said he was trimming his own pay by 25%.
In December, the company elected not to attend the biggest RV trade show of the year in Louisville, Ky., even though it had developed what observers said was the biggest innovation the industry had seen in years: an RV with a retractable deck.