Editor’s Note: In the following Q&A, Tim Hyland, president of Wells Fargo CDF recreation and specialty vehicles group, offers an assessment of the industry’s overall health heading into 2019.
While the RV industry might see a slight step back this year in terms of wholesale shipments, 2019 likely will still wind up as a very solid year, according to Tim Hyland, president of Wells Fargo CDF RV Group.
The industry is working through an “inventory bubble” that first appeared in the middle of 2018, he pointed out, adding that this is a healthy adjustment and not at all unexpected.
Hyland spoke to RVBUSINESS.com at a time when the industry finds itself at an interesting point. After nine consecutive years of growth in wholesale shipments, with the high-water mark being 504,599 units in 2017, 2018 finished with a 4.1% decline at 483,672 units. Furthermore, January 2019 — which saw a 39.8% year-over-year drop — was the sixth consecutive month for a decrease in shipments.
Countering that, though, is relatively healthy retail market, as consumer demand remains strong. In fact, according to Statistical Surveys Inc., new retail registrations closed out 2018 at an all-time high of 489,440 units — an increase of 3.57% over 2017, which at the time was the best year on record.
Hyland, whose Wells Fargo team represents one of one of the industry’s leading floorplan finance providers, recently sat down with RVBUSINESS.com to participate in an impromptu “state of the RV industry” discussion. What follows is an edited transcript of that conversation.
RVB: What’s your assessment on the state of the industry?
Hyland: We saw a bit of a bubble created in 2018. Dealers had ordered a lot of inventory with a concern about being able to get enough products to satisfy demand. Manufacturers expanded capacity and were able to meet the orders that were requested, which created an oversupply in 2018. So, at about mid-year, dealers started pulling back on their ordering.
Overall, I would consider that to be healthy for the industry. What we’ve seen is somewhat of a correction, in which we have a little too much inventory in the market. Dealers pulled back on their ordering, and they’ve been working to get through that inventory and get back to a more normal state of operation. I consider that healthy for the industry.
It’s going to put a little bit of a strain on the manufacturers in the near term — as far as being able to ship as much inventory — but in the long run it’s healthy for the industry. As we get through the first quarter, and probably into and maybe even through the second quarter, we will see that bubble clearing and return back to more normal levels.
RVB: Do you have a forecast, perhaps, for what 2019 might hold for the industry?
Hyland: So far we’ve seen good attendance at the consumer shows, and we saw retail activity through 2018 hold up pretty well.
Plus, dealer sentiment seems to be good. There are some dealers who feel like they have the right levels of inventory and are taking advantage of buying opportunities, and there are other dealers who feel like they need to work through some of the inventory they have on their lots.
But, overall, there’s a general sentiment that’s positive for 2019.
RVB: Of course, the U.S. economy certainly plays a factor in how 2019 will play out. What’s your assessment on that topic?
Hyland: The government shutdown created a little turmoil, but we’ve moved past that for the time being. And, if you look at the overall health of the economy, and in particular GDP growth, most economists are talking about anywhere between 2% and 2.5% GDP growth for the year — which is good.
We’ve also recently seen the Fed come out and say that they’re going to be patient with interest rates; that implies that interest rate growth is going to moderate some. Inflation is generally stable, and we’re seeing very low unemployment — and, actually, the creation of wage pressure because of that low unemployment — all of which leads to a generally strong economy.
When you look at consumers, consumer confidence rose in February and is the best we’ve seen since December of 2000 — that’s an 18-year high in consumer confidence. Another similar poll said Americans are more optimistic about personal finances than at any point in the last 16 years. One highlight was 69% said they feel that they’re going to be better off this time next year.
So what you have is consumers who are feeling good and an economy doing well. Absent political volatility, which is tough to forecast, 2019 looks like a strong year.
RVB: Getting back to the RV industry, what are you hearing from your dealers and the people you work with?
Hyland: I think maybe a better way to answer that would be to use data. So if you look at our portfolio — because our portfolio reflects what we’re seeing from the dealers — what we’re seeing right now, again, is a stepping back on their ordering, which speaks to the correction issue. We had a bit of a bubble out there, so we expected to see aging creep up a little. And it has. Again, if you don’t order as much on the front end, then it’s to be expected that you’re going to have a bit more inventory in the middle and you’re going to see aging go up as a percentage of the total.
Historically, we look at aging and say, ‘Anything that’s 10% or better is actually very good.’ But we’re in that range and we consider that to be healthy. Actually, the aging we’re seeing right now is much better than it was prior to the downturn (of 2008-09), to provide some perspective.
And, if you look at turns, they’ve come down a little — as you would expect — but we have seen turns over the last few years at two times or above, and we’re still seeing that. Plus, overall dealer health seems to be stable.
So when we look at our portfolio, and with what we hear dealers saying about the market, we feel generally good.
RVB: So, the bottom line then, would be what?
Hyland: 2019 might be a little bit lower than the last two years, but that does not constitute a bad year. It’s still pretty good.