KeyBank, a major source of RV dealer inventory finance and an important lender to RV builders and their suppliers, believes the RV industry will have a strong second half of 2004 despite high gas prices, according to Kevin VonBusch, senior vice president and national commercial manager at the Key Recreation Lending division of the Cleveland-based bank.
“I look for a strong second half for the industry,” VonBusch said. “I don’t think gas prices will have a significant effect on sales.”
To support that opinion, VonBusch used the example of an RV that gets 12 miles per gallon. That means, the cost of fuel for a 1,000-mile RV trip at $1.50 a gallon would amount to $125. Taking the same trip when fuel costs $2.50 a gallon would amount to $208.33, a difference of $83.33.
“That’s not a deterrent to the RV lifestyle,” VonBusch said.
“The RV industry’s demographic trends are solid for the foreseeable future,” he said. “With all that’s going on in the world, it’s difficult to project out longer term (beyond Jan. 1). However, I think people are looking for fun and interesting things to do with their families. The RV industry is uniquely positioned to accommodate family travel at an affordable price with maximum flexibility in destinations.”
Currently, RV dealer inventories “are about right at their current levels,” VonBusch said. Most dealers are turning over their inventories “at historical levels” for this time of year, he added.
Though the Federal Reserve is expected to raise interest rates this summer, VonBusch said the impact on the RV industry will be negligible if the increase is small.
“We (KeyBank) certainly believe interest rates will begin to rise,” he said. “However, rates are still historically quite low, so I don’t think small increases will have any dramatic effect, though larger increases would.
“I think people forget that 2001 started out with a prime rate of 9.5% and ended with a prime of 4.75%,” VonBusch said. “It subsequently moved slowly down to the current 4%.
“In fact, the 10-year average for the prime is 7% and a reversion to the 10-year average would have significant effects at both the consumer and dealer level.
“Conventional wisdom has always said that consumers are most affected when interest rates go over 10%.”
The Fed. may raise interest rates as soon as its next regularly scheduled meeting on June 29-30. The Fed.’s other regular meetings this year are scheduled for Aug. 10, Sept. 21, Nov. 10 and Dec. 14.
During the past 10 years, the Fed. has raised or lowered interest rates by one-quarter or one-half of a percentage point increments, except for one occasion late in 1994, when its actions resulted in the prime climbing three-quarters of a percentage point from 7.75% to 8.5%.*