Editor’s Note: Tom Walworth, former president of Grand Rapids, Mich.-based Statistical Surveys Inc., offers a historical perspective on this week’s tax cut and how it will impact the RV industry. Walworth currently serves as an RV industry retail consultant and market analyst.
Since my retirement in June of 2017, I have had some calls to discuss the history of the RV industry. I guess when you spend 40 years of your life in the RV industry tracking retail sales you pick up a few observations. So, I have become somewhat of a historian of the RV industry.
RVBusiness Publisher Sherman Goldenberg and I were discussing if the Trump administration’s tax cut that was finalized Wednesday would be a positive factor for the RV industry. As a point of comparison, I reviewed tax cuts that have taken place in the last 90 years. During that time, we have had several tax cuts and a number of tax increases. The RV industry did not have good shipment numbers until the mid-1970’s, so I will try to fill in the gaps. In addition to the tax cuts we have a large population bubble going through the RV industry, as the Baby Boomers continue to have a very positive effect on the industry.
The tax cuts of the 1920’s dropped the personal rate from 70% to less than 25% federal. Revenues grew from $719 million in 1921 to $1,164 million in 1928. This caused capital to be invested into business, creating jobs and profit to the corporations. In the 1930’s, the government raised taxes to more than 90% that hindered the economy.
In the 1960’s, which is when the RV industry exploded, President Kennedy proposed an across-the-board reduction from 90% to 70%. The result was that tax revenues climbed 33% after adjusting for inflation. This also increased individual and corporate income.
In the late 70’s, which is when I started gathering data, the RV industry was doing very well, shipping 412,000 units. Then we had the crash of 1979 and 1980. This was due to high inflation and an increased interest rate designed to roll back inflation, along with a personal tax rate in the 90% range. In 1980, shipments crashed to 107,000 units.
In the 1980’s, thanks to “bracket creep” and the inflation of the 1970’s, people were pushed into the higher tax brackets. To offset this, President Reagan proposed tax reductions to improve the economy which resulted in federal revenues rising 28% after adjusting for inflation. Individual income increased as well.
The reduction in taxes in the 1980’s increased RV shipments from 107,000 to 215,000, and in 1988 totals represented an increase of over 100% in eight years. In addition to the tax cut there were other factors such as interest rates and monetary policy that would factor into the increase.
The country has been in a flat growth mode since the early 2000’s, exacerbated when the housing bubble burst in 2008 with the retail bottom occurring in 2010. The RV industry, however, roared back and has seen a rapid rise from a low of 165,000 units in 2009 to a projected 2017 number of 509,000 units. This represents a 308% gain in wholesale shipments.
Baby Boomer Bubble Still Drives Industry
The RV industry has also been riding the population demographics bubble that has been occurring in other industries over the years. The Baby Boomers are responsible for a large percentage of the growth the RV segment has enjoyed since 2009. The age group is currently responsible for 46% of the purchases in the RV industry.
The fact is that if you were born in 1953 you may have already started your retirement. The peak of the Baby Boomers birth occurred in 1957. That would mean that we have four more years of Baby Boomers growing in our industry.
Now what does all this mean to the RV industry? The new tax rate will occur in 2018, and we have seen in history that the tax cuts will increase personal incomes and increase capital to businesses. This has been verified by the three tax reductions that occurred since the 1920’s.
The Baby Boomers have been a primary factor in the industry’s growth from 2009 to current. In addition, we now are seeing more demographic groups entering and enjoying the lifestyle including the Gen Xers and the Millennials, a segment the industry is targeting to replace the Boomers.
As of this writing, companies said that they will be increasing wages after the announcement of the tax cut. AT&T said it will pay a $1,000 bonus to more than 200,000 employees while Boeing will invest $100 million in employee retirement match — $100 million for workplace training and development and $100 million for future enhancements in the workplace. Fifth Third will raise its minimum hourly wage to $15 per hour for it 3,000 hourly employees and Wells Fargo has indicated it will hike its hourly wage 11% while also donating $400 million to community and nonprofit organizations.
To all RV dealers, continue to monitor YOUR market and focus inventory on your hot models and price points. 2018 is forecasted to be another record year prior to the notice of the tax cut. I believe shipments and sales will surpass the forecast as, in line with similar scenarios in our history, the RV industry will benefit from the tax cut.