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EDITOR’S NOTE: The following is a report by MSNBC, authored by Roland Jones, chronicling the host of economic headwinds currently stalling the RV industry. Although gas prices are a part of the picture, it is not the lone factor. Several other variables, like financing – or lack of it – are also throwing up a roadblock.
These are the dog days of summer at the Lazydays RV supercenter in Seffner, Fla. The huge center for motorhomes and travel trailers just off Interstate 4 east of Tampa — which bills itself as the nation’s largest single-site recreational vehicle dealer — is feeling the bite of the economic downturn.
Lazydays laid off 75 employees, or about 15% of its work force, on July 9, blaming the “current uncertain economic conditions combined with a significant downturn in RV demand,” according to a filing with the Securities and Exchange Commission (SEC).
Stewart Schaffer, chief marketing officer for the center, says visiting customers are more cautious these days — they’re delaying purchases and trade-ins and looking for lighter, more fuel efficient vehicles.
But contrary to conventional wisdom, he said, the high price of gasoline is not the main reason buyers are shying away from purchasing motor homes and trailers.
“The price of gas will impact a person’s travel habits, but for the RV industry it’s really about the lack of financing that’s causing the current downward trend in RV sales,” Schaffer said.
“Consumer confidence is factor too — people have less confidence to make a larger-ticket purchase, and RVs are discretionary purchases, so they’re more difficult to justify,” he added. “But it’s not like the SUV market where everyone is running away because of the price of gas.”
An RV is no small purchase. While an entry-level, towable camping trailer typically costs between $5,000 and $15,000, a larger motorhome in the Class B or Class C category can cost anywhere between $40,000 and $150,000.
A Class A motorhome, the largest available, is built on a bus chassis and can cost between $60,000 and $400,000. Class A’s that cost more than $400,000 include all manner of customization, such as marble flooring, granite counter tops and flat screen televisions.
These days, when it comes to buying RVs, Americans are voting with their feet. With fuel prices climbing and the economy faltering, sales of motorhomes and towable trailers are down 17% from this time last year, according to Kevin Broom, a spokesman for the Recreation Vehicle Industry Association (RVIA), while total RV shipments were down 32% in June
The bigger the vehicle, the worse the decline. Sales of large Class A motorhomes, which can be up to 45 feet in length, fell 56% in June, while smaller Class C motor home sales slid 54%, Broom said. Sales of towable RVs were down 28% in June and off about 13% for the year, he said.
University of Michigan economist Richard Curtin, who studies the RV industry, says that while high gas prices are having an impact on sales by decreasing Americans’ discretionary incomes, they are having a minor influence on the industry. The major impact on RV sales is coming from changes in home values, stock portfolios and the resulting decline in household wealth, he said.
“One of the common ways people finance an RV purchase, especially for the bigger vehicles, is by taking out a home equity loan, and that has of course become more problematic lately because home prices have fallen and people have less home equity,” he said, noting that lenders are now much more cautious about extending credit and they are charging higher interest rates.
The RV sales decline has hit makers of motorhomes hard, said Curtin. Manufacturers like National RV Holdings Inc., Western RV Inc. and Alfa Leisure Inc. are filing for bankruptcy, shutting operations, or cutting production and employees, he said. Winnebago, one of the nation’s largest RV manufacturers, recently reported a quarterly profit drop of 73%. CEO Bob Olson told Reuters that the economic headwinds for manufacturers of motorhomes are worsening.
“We’ve got a lot of things going against us,” he said, adding that in the past RV manufacturers had “only one thing to worry about.” Today, he continued, “there’s about four, five, six different variables, not just one focus point. You have escalating food prices. You can’t turn on the TV or radio without hearing it’s another record-setting day for fuel. And I think that’s probably one of the biggest concerns right now, not only of RVers but everybody. They don’t know where this is going to settle in.”
Curtin, director of the University of Michigan’s closely followed monthly consumer sentiment report, says he became interested in the RV industry because he sees it as a good barometer of consumer confidence. He expects the challenges facing the industry will continue through the end of 2009, when he expects overall consumer spending levels will start to recover. However, RV sales are unlikely to increase until late 2010, he added.
While they might not be buying RVs in the same quantities, RV enthusiasts are still going to take their vacations in a 40-foot motorhome that gets about 8 miles per gallon, notes Lazydays’ Schaffer.
A main draw is that RV vacations are cheaper than taking regular airplane-hotel-restaurant vacations. Schaffer cites a recent study by PKF Consulting and commissioned by the RVIA that found RV trips are the least expensive type of vacation, with the typical RV family trip costing on average 27% to 61% less than other types of vacations, such as traveling by airline and staying in a hotel, even when you factor in gas prices and the cost of owning a RV.
According to the study, a family of four taking a 10-day vacation in a folding camping trailer and traveling from Phoenix, Ariz., to Napa, Calif., staying at campgrounds that cost a local average of $33 per night would save 52%, or $2,379, over the same trip taken using a car, eating in restaurants and staying at hotels averaging $122 per night.
“The RV industry is a diverse spectrum,” said Schaffer. “On the low end you have a folding camping trailer that you can buy new for $5,000, and at the high end you have luxury motorhomes that can cost you in excess of $400,000. The vast majority of vehicles sold are towable trailers with an average retail price of under $40,000, and they’re typically getting used between 25 and 35 days per year.”
Sales of RVs might be down, but rentals are up about 18% this year, according to the RVIA’s Broom. This implies that Americans still want to use motorhomes and trailers, he said.
“We think they are postponing their purchases until their confidence in the economy improves,” he said.
RV dealers are dealing with tougher times by finding new ways to boost revenue, such as by opening rental offices, or by focusing on customer service, said Phil Ingrassia, a spokesman for the National RV Dealers Association (RVDA) in Fairfax, Va.
“People might not be buying new RVs in the numbers they once used to, but they are still using them and so dealers are focusing on parts and accessories; customer service remains a big part of their overall business plan,” he said.
“They’re also watching their inventory very closely to make sure they don’t order more than they can sell,” said Ingrassia. RV dealers typically use floorplan financing, which essentially means they borrow to cover the cost of inventory and can be caught short if they fail to sell those vehicles and their interest payments on their loans goes up.
At Lazydays, Schaffer believes in the indomitable spirit of the American RV enthusiast.
“Many of the people in the RV lifestyle are committed to it — it’s a way of life. RVers are like modern-day covered wagon people; they’re very patriotic and want to see their country,” he said. “So if the economy goes bad, they make adjustments. They are typically very dedicated, and if times are hard they can just go on shorter vacations.”