The outlook for recreational vehicle manufacturers is grim as the latest round of earnings reports gets underway this week, according to Reuters.
The collapse in credit markets and the recent precipitous decline in stock prices will undoubtedly make it harder for consumers to contemplate – let alone finance – the purchase of a new motorhome, yacht, motorcycle or snowmobile.
“Anything big-ticket discretionary – whether it’s a vacation, whether it’s an RV, whether it’s a boat, it’s just off the table right now,” said Hayley Wolff, an analyst at Rochdale Securities. “It’s going to be a real rocky period for awhile.”
The trouble is that RV makers were struggling to cope with crumbling sales long before the latest crisis unfolded as falling home values and rising gasoline prices kept buyers out of their showrooms. For motorhome makers, the downturn in sales was already in its fourth year before the current problems hit.
As a result, analysts say the sector’s pain is likely to get worse before it gets better.
“The problems have really magnified since mid-September,” said Tim Conder, an analyst at Wachovia Capital Markets. “Consumers are just frozen or, even if they want to buy something, they run into financing problems.”
Two announcements last week suggest the industry is girding for a long downturn.
On Friday, Fleetwood Enterprises Inc., which has gone to the extraordinary length of selling its headquarters to raise cash, said it was closing a key Pennsylvania motorhome plant and firing 325 workers to cut costs.
That news followed Brunswick Corp’s announcement on Thursday, in which the world’s largest maker of pleasure boats and marine engines said it was cutting its full-year profit forecast, speeding up four plant closures and temporarily shutting three more plants as it deals with a 40% drop in industry sales – a drop it warned was accelerating.
Reuters reported that the back-to-back announcements came as three of the industry’s biggest names – motorcycle maker Harley-Davidson Inc., motorhome builder Winnebago Industries Inc. and all-terrain vehicle and snowmobile maker Polaris Industries Inc. – prepared to report their earnings this week.
The preliminary indications they may give shareholders won’t be encouraging. A survey of Harley’s dealers outside the U.S. by Craig Kennison, an analyst at Robert W. Baird, found most were selling bikes well below the suggested retail price – which he called a “troublesome” trend.
The credit freeze, meanwhile, has huge implications for Harley, which has its own in-house unit that helps more than half of its buyers finance their purchases. But that unit relies on a healthy securitization market for both its operations and profits – and that market is, for all intents and purposes, closed.
Adding to the problem for Harley and all its RV-making kin? A number of lenders that used to finance purchases have exited the market.
“The pool of lenders is getting smaller, the hurdles are getting higher in order to qualify for a loan, and the down payments have gone up,” said Wolff at Rochdale. “And it’s all happening while home values are shrinking … It’s tough.”
The outlook for the motorhome and trailer market, where six-figure sticker prices are not unusual, is even worse.
In August, the last month for which data are available, registrations of Class A motorhomes were down 54%, the industry’s worst showing in a decade.
“Conditions remain dreadful, with few signs that a recovery is imminent,” said Kennison. The downturn will ultimately end, but “things may get worse before they get better,” he said.