Monaco Coach Corp. is not operating any of its production plants this week and, beginning next week (April 14-18), its work force will be smaller by 14%. But the company has no plans to permanently close any of its factories in Indiana or Oregon, Monaco executives recently told Wall Street investment analysts.
Monaco shut down its factories this week and laid off 850 of its 5,900 employees late last week to reduce the number of unsold units in its inventory, Chairman Kay Toolson and other company executives told the analysts last Thursday (April 3).
During the six- or seven-week period that ended last Friday (April 4), Monaco operated its plants on four-day work schedules. Beginning Monday (April 14), it plans to return to five-day work weeks, but as a result of the layoffs, Monaco plans to produce 20% fewer units.
As of late last week, Monaco’s unsold inventory totaled around 550 units, of which about 500 were Class A motorhomes, said Toolson, who also is the CEO.
Normally, Monaco plans to have an unsold inventory equal to one to one and a half weeks worth of production, he said.
Prior to the layoffs, Monaco was building 177 motorhomes a week, and, beginning next week, it will produce 133 motorhomes a week. Consequently, unsold inventory of around 500 Class A’s is equivalent to about four weeks of production. “That’s a couple of weeks more than we’d like, which is one of the reasons why we’re taking the week off and reducing the run (production) rates,” Toolson told the analysts.
Monaco’s dealer order backlog as of last Thursday was only half as big as its backlog as of the end of last year, Toolson added.
As a result of the layoffs, Monaco will be operating its factories at only 50% to 60% of their total capacity, but CFO Marty Daley does not believe permanent plant closures will become necessary.
In 2000, Monaco operated with “basically the same number of plants” and it earned $42.5 million that year on $902 million in sales.
In 2002, Monaco achieved $1.2 billion in sales and, prior to the layoffs, it was staffed to achieve that sales revenue figure again this year. But as a result of the layoffs, which could be temporary if the dealer demand for RVs rebounds, Daley said, “We can continue generating profits. We’ve done it before and we can do it again.”
Actually, it’s more efficient to operate with a large amount of unused factory capacity than to permanently close factories, only to open plants “from scratch” a few years later, Daley said.
That’s because materials account for 65% of the wholesale price of a motorhome and labor accounts for 9% to 10%. The location of a factory does not greatly change materials or labor costs, Daley explained.
Monaco usually hopes to achieve a 13% gross profit margin on each motorhome it builds, leaving 12% to 13% of the wholesale price for “indirect costs,” he said. “What’s more significant (than indirect costs such as expenses related to unused factory capacity) is our ability to ramp back up when the market changes. It’s a lot easier to ramp up an existing line than to recreate an entire production facility from scratch,” Daley said.
Monaco would permanently close factories if it concludes “this market will never come back,” but Daley said Monaco executives are confident the motorhome market will rebound.