Monaco Coach Corp.’s senior management didn’t let recent newspaper headlines regarding interest rates and gas prices stand in its way during Dealer Congress 2007, held June 26-28 at the Gaylord Palms Hotel and Convention Center in Orlando. Fla. Given the opportunity to address the current state of the market, Monaco Chairman Kay Toolson took the bull by the horns and didn’t try to candy-coat anything, although he clearly projected a positive view of the industry’s long-term prospects in his comments to 525 dealer attendees.
In fact, Toolson, in a self-deprecating way, lent some much needed perspective to current events. “Well, I am getting older and, more importantly, I’ve been in this industry since 1972,” said Toolson. “I’ve lived through a lot of ups and downs – two energy crises where there was rationing of fuel, and interest rates were over 20%. And we think (interest) rates are high now, and we think business conditions are tough now. This is nothing, this is just a little bump along the way.
“Of course,” he added, “we can sit and worry about how bad the fuel prices are and how much it’s going to hurt our business. Or, we can just know that there is going to be an ample supply of fuel. I can tell you, there are plenty of greedy oil people out there who are making a lot of money at these current high prices, so it’s doubtful that prices will get much higher.”
So, what in Toolson’s view does the future hold?
“If you look at the demographics of this industry and the number of Baby Boomers entering our market over the next ten to twenty years, it’s phenomenal,” added Toolson, who founded the publicly held company in 1987. “In the United States and Canada, there are over four and a half million people turning 50 years of age each year… and as long as we have good business models, as long as we continue to be innovative and partner together, our business and our futures are incredibly bright.”
Reflecting the general stance of the rest of his management team throughout the Orlando event, Toolson then enumerated some of the sharp-edged weapons with which Monaco is currently attacking the marketplace – a market that hasn’t been all that kind to date to Monaco and its motorized competitors over the past year.
Monaco in late July reported second quarter net income of $372,000, or 1 cent a share, for the second quarter ended July 1, down from $755,000, or 3 cents a share, from the same period last year. Quarterly sales reached $321.3 million, up 5.5% from $304.5 million. Motorhome sales totaled 1,408 units in the latest quarter, down 12.3%, but this was partially offset by improvement in the company’s towable segment. For the six months, revenues were $706.4 million, an 11.5% increase from $633.3 million for the first six months of 2005. Net income for the six months was $8.7 million, vs. $6.1 million in ‘05.
As CFO Marty Daily pointed out, “we anticipate that the third quarter will remain challenging.”
Meanwhile, here are some of Monaco’s points of emphases for the 2007 model year:
Franchise for the Future: Year II: The Orlando meeting afforded Monaco a chance to review progress made by the company’s fledgling Franchise for the Future (FFTF) program, a means for the company to maximize shelf space – and meld relationships – with its retailers. And the word from Monaco President John Nepute and Vice President of Sales Mike Snell was soundly positive, although, they admit, some adjustments are in order.
“Last year in Las Vegas we introduced our Franchise for the Future initiative,” said Snell. “We couldn’t have imagined that the first year of FFTF would fall on such challenging times for the RV industry. But in many respects, FFTF couldn’t have come at a better time. Many dealers throughout the country have experienced lower sales and floorplan interest rates at twice what it used to be, and everyone knows that’s a tough combination for any RV dealer.
“But you – Monaco Coach Corp. dealers – have FFTF payments to substantially make up the difference. We’re certain that business will rebound. But in the meantime, we want our dealers to be in a strong position.”
“Over the past year,” added Nepute, “we’ve rolled out our brand elements, kiosks, pylons and signs to over 168 dealerships. Our quarterly franchise checks have continued to grow and, all told, we expect to send out $35 million to our dealer partners in our first full year under the franchise program.”
FFTF also has boosted profitability and dealerships satisfaction levels, Snell maintained.
Due to frank feedback from dealers, again, Monaco is making some changes by adjusting downward the dealer pricing of its more affordable gas motorhomes and is altering upward its support of co-op advertising and local shows. New software is being provided for franchise-related kiosks and more incentives are being offered to sales people on older inventory. And a controversial mystery shopper program is being altered so that dealers can now reject one mystery shopping experience per year to prevent a bad day — or an extraneous factor – from damaging one’s overall scores. From now on, moreover, only a salesperson’s performance will be under review.
“And we’re not stopping there,” Nepute noted. “We said last year that we expected our franchise program to evolve over the years and, with your valuable feedback, we are making some changes to the program that we think will provide more value for your dealerships. We think the tweaks we’re making to the program will meet with your approval since they’re a direct result of our conversations with you, our dealer partners.”
Realigned Manufacturing Sites: A new approach to manufacturing entails the consolidation of lower-priced gas and diesel motorized production in Indiana, and the redeployment of mid-to-higher-priced diesel products to Oregon. “We’re also planning to begin production of towable products in Oregon, enabling us to deliver these products less expensively to our West Coast towable dealers while allowing us the opportunity to introduce new lightweight models – like the Aluma-Lite and Star-Lite models – to our dealers in the eastern part of the United States,” Nepute explained.
These moves are designed to fuel increased efficiencies in sub-assembly plants, procurement and engineering and to provide greater flexibility to adjust model and floorplan mix in production run rates, balancing output with retail and wholesale demand. “The ability to manufacture like-priced units and simplify chassis operations in Oregon and Indiana should increase quality and efficiency in each of our plants,” Nepute said.
A Fresh Look at Rally Sales: Monaco’s management is well aware of how some dealers nationwide feel about the way it handles sales at large retail events by allowing dealers from throughout the country to work those events. As a result, in a rather surprising turn of events, Monaco has decided to change its approach by opening up those venues to area dealers only, as Toolson pointed out. ”Beginning in 2007, we will no longer treat FMCA conventions or Affinity rallies as national sales events,” said Toolson. “Instead, we will support these conventions at a regional or local level.”
Monaco Financial Services: Toolson maintained that his company’s newly established Monaco Financial Services (MFS), a wholesale and retail program unveiled earlier this summer by the Coburg, Ore.-based manufacturer along with GE Capital Solutions and GE Consumer Finance, ought to take some of the sting out of higher interest rates for Monaco dealers nationwide.
Noting that 55% of Monaco-brand dealers are already participating in the MFS program, Nepute called it “the most competitive wholesale and retail financing program” on the market. “On the wholesale side,” he said, “you can expect a competitive flooring rate as well as 30 days free flooring for Class A products and 15 days free flooring on B’s, C’s, and towable products… On the retail side, you can expect exclusive dealer buy rates on retail loans at least a quarter point below the standard GE retail rate sheet, which means an extra one percent dealer participation payment on financed amounts right from the start.”
The R-Vision Impact: The effects of last November’s purchase of R-Vision Inc., a volume RV builder that has thus far given Monaco an unprecedented entry into entry-level markets, were apparent throughout the Dealer Congress. “The acquisition of R-Vision was great for our company,” Toolson told the dealers. “In addition to their traditional offerings, it’s allowed us to design and build some very exciting and competitive products, including the new B+’s and C’s, along with the new towable products.”
“We’ve been in the C business for four years,” reports Snell. “But with the acquisition of R-Vision we are able to get lighter weight, lower cost C’s that are more price competitive. We think we are price-and-feature competitive on all these products It’s been one of the great things with this acquisition of R-Vision.”
Nepute said Monaco’s management has learned a lot from R-Vision about producing lightweight, less expensive products. “With a combined annual production rate of over 20,000 recreational vehicles,” he said, “this acquisition positions us as one of the volume leaders in our industry. And with volume comes tremendous buying power.”
The Monaco Extended Care Service Contract Program: April Klein, vice president of Customer Support Services, considers the extended service offering a pivotal profit-generator during a period of softer retail sales. “Dealers who took the time to sit down with us, understand the program and sign up have been more than pleasantly surprised by the profit margins they have experienced,” said Klein. She said Monaco dealers sold 400 contracts in 2003, 1,300 in ‘04 and nearly 2,400 in ‘05, which equated to $20 million in service contract sales alone. “And $14 million dollars of that went directly to your bottom line.”
New Dodge-Badged Towables: Monaco signed a three-year agreement in May for the exclusive use of the Dodge logo and designs on North American towable RVs. But those units, due for release in September, weren’t at Dealer Congress.
A greatly expanded line of 2007 products that maintain the company’s long-standing upscale reputation yet place a premium on new lower priced products like affordable McKenzie Star-Lite/Holiday Rambler Aluma-Lite travel trailers (yes, the Aluma-Lite brand is back after a hiatus of several years) in addition to a smaller Augusta B+ motorhome and a reemphasis on other C-bodies.
“Whether it’s our exciting new lightweight, entry level towables, entirely new Class B products or completely revamped Class C models, you’re going to see that our model lineup does truly span the product spectrum,” said Nepute. “And let’s not forget our bread and butter Class A products, where you’ll find we’ve upgraded our models without upgrading the price.”
Having said that, fashionable full-wall slideouts are now available throughout the company’s Class A motorhome lineup. And the biggest eye-catcher at Dealer Congress was the new, front-engine-diesel Safari Simba Class A toy hauler, a $142,300, rear-entrance, 37-footer on Freightliner’s new front-engine (FRED) chassis powered by a 300 hp Cummins ISB engine.