MILWAUKEE -- A dealer survey conducted by the financial analysts at RW Baird support's the firm's continued pessimistic outlook, according to a press release issued today.
RW Baird contacted 147 RV dealers to assess recent trends.
"Conditions remain dreadful with few signs that a recovery is imminent. With few buyers and excess inventory, dealers plan to order significantly fewer units, putting pressure on manufacturer revenue/profit," said Craig Kennison, a certified financial analyst with RW Baird. "We expect more capacity (dealers, manufacturers, lenders) to exit, providing a long-term opportunity for the survivors – but things may get worse before they get better."
Among the points supporting his conclusion, Kennison cited the following:
- Retail traffic -- Motorhome unit sales fell 40 percent in the third quarter, according to dealers, while towable sales fell 15 percent. Weak consumer confidence, tighter credit, falling home values, and higher oil prices remain stiff economic headwinds. Traffic worsened as the quarter progressed.
- Inventory -- Motorhome inventory increased to 173 days from 130 days a year ago (210 in July). Towable inventory remained relatively stable at 125 days from 113 days a year ago (137 in July).
- Orders -- Dealers plan to reduce orders further in the face of weak demand. For the next six months, dealers plan to order 59 percent fewer motorhomes and 26 percent fewer towables.
- Pricing/Capacity -- Dealers report aggressive discounting driven by depressed demand and excess inventory. Kennison has heard that some manufacturers have liquidated finished goods inventory below cost in order to raise cash – disrupting equilibrium in the market.
- Dealers expect other dealers, manufacturers, and lenders to exit the market, suggesting more disruptions in the market.
- Financing -- Banks continue to tighten credit standards, further impacting dealer sales. Meanwhile, Keybank recently pulled out of the market.
"We do not expect conditions to improve until consumer confidence rebounds as it impacts housing, economy, oil and credit," said Kennison. "Among companies we cover, Thor and Winnebago have the financial and operational strength to be among the survivors, but our near-term industry outlook remains bleak."
This RV cycle has been particularly severe, Kennison noted. The downturn has been nearly twice as long and twice as deep as the last cycle. At the current 2008 pace, motorhome registrations will drop to 32,000 units, down 48 percent from 62,000 units in 2004 and more than 14,000 units below the bottom of the last two cycles.
"We believe a cyclical recovery could begin sometime next year assuming consumer confidence rebounds and borrowing conditions improve," said Kennison.
Lending rates remain flat despite drop in Fed Funds Rate. Kennison believes lower interest rates are needed to drive a cyclical recovery, especially in motorhomes. Since the Fed cut rates in late 2007 and early 2008, he said the industry has yet to see RV loan rates move lower.
"As a result, spreads have remained wide for the more risk-averse banking sector. A recovery in the RV market will likely be delayed until movement in RV loan rates catches up with trends in the Fed Funds rate," Kennison explained.
Dealer sentiment fell to its lowest level since July 2006 as worsening industry sales have pressured dealers. Long-term sentiment remains favorable, Kennison said, but the current conditions metrics is more strongly correlated to near-term orders and sales outlook.
Motorhome sales fell 40 percent last quarter, according to dealers, and deteriorated as the quarter progressed. Statistical Surveys, Inc. reported a 52 percent drop in motorhome retail registrations for July. By manufacturer, Gulfstream, Winnebago, and Thor sales appeared to decline the most. Newmar and Forest River dealers reported the least severe declines.
Towable sales fell 15 percent in the quarter following a similar trend as motorhomes by weakening through the quarter. By manufacturer, Coachmen and Monaco dealers reported the largest YOY declines while Thor and Jayco dealers reported less severe losses in the quarter.
Although dealer traffic continued to fall in the quarter, many dealers reported better close ratios, and that the customers coming in were serious buyers. This may be attributed to the growth online traffic, said Kennison, because customers can research and shop around online before making the trip to the dealer.
Motorhome inventory increased to 173 days from 130 last year (210 in July) due to continued slow sales. The slowdown has left more than 70 percent of dealers uncomfortable with current inventory levels going into the winter. Thor and Monaco dealers reported the highest days supply of new motorhomes while Coachmen, Tiffin and Forest River dealers reported the lowest.
Towable inventory remained relatively stable at 125 days from 113 days a year ago (137 in July). Kennison said the majority of dealers feel comfortable with their level of inventory, a significant improvement from last quarter when most dealers felt inventory was too high.
Motorhome promotional activity is flat from July. While some manufacturers are offering higher promotions, they appear to be tied to reorders, frustrating some dealers that are looking to reduce inventory levels. Winnebago and Coachmen showed the greatest promotional activity.
Towable promotional activity is also relatively flat from July. Similar to motorhomes, dealers are looking to reduce inventory, but the only promotions offered are tied to reorders. Thor and Coachmen showed the highest level of promotional activity.
Towable outlook is more positive than that for motorhomes, said Kennison. "Several dealers indicated plans to focus more on their towable businesses given dismal conditions for motorhomes," he explained. "On average, dealers anticipate a 26 percent cut in towable orders over the next six months, down from expected cuts of 35 to 40 percent last quarter. This reflects the general sense of uncertainty as to near-term prospects in the industry."
While sentiment is negative for all brands in the survey, it is impossible for all to lose share, Kennison noted. Dealers remain very positive regarding Tiffin and expect the company to fare better than others in 2009. Dealers are the most negative regarding Gulfstream, Coachmen, Newmar and Monaco.
Dealers continue to expect Jayco, Thor (Keystone), Heartland RV and Forest River to outperform the other manufacturers. Keystone expectations could reflect the impact of aggressive discounting activity. Dealers expect Fleetwood, and Monaco to lose the most towable market share in 2009.
Tighter credit has had a noticeable impact on retail sales, according to several dealers. "Lenders have raised standards as credit becomes tighter throughout the economy. Recall that GE exited the market for consumer RV loans earlier this year, and just last week KeyBank ended its RV lending business," said Kennison. "More than 70 percent of dealers indicated that it has become more difficult for customers to obtain financing recently, up from roughly just under 70 percent in July, 45 percent in April and 30 percent in January.
SOURCE: RW Baird press release