Like almost every other business, the recreational vehicle industry hit the skids when the US plunged into a recession.
Sales of RVs—those big, lumbering van-like homes on the highways—went into a virtual freefall as consumers cut back on spending, especially on discretionary items.
"Right now, it’s brutal—it’s a bloodbath," says Morningstar analyst David Whiston. "In January, sales were down 79 percent, compared to January 2008."
Despite being among the the most inexpensive way for Americans to vacation, the typical pricetag of $40,000 for an RV prompted many people to steer clear of buying a new one.
"People aren't giving their RVs up right now, but they're not upgrading," says Mark Polk, owner of RV Education 101, an education program that publishes how-to books and videos for newcomers to the RV lifestyle.
"A lot of people lost a substantial part of their funds," Polk adds. "Shipments have dropped significantly, a lot of people are waiting to see what will happen. This is going to continue to influence trends."
Still, as the recession nears a bottom, many believe RVs may be ready to turn the corner.
"The RV industry serves as a bit of a microcosm of the housing market," says Craig Kennison, an analyst at Robert W. Baird. "The recession affected the RV industry first, so we’d like to believe that we’ll see it turn before the rest of the economy."
The $37 billion industry took off in the 1960s, as millions of Americans purchased RVs to realize their American Dream and travel around the nation. The fascination stuck, growing with each passing decade.
There are now about 8.2 million RV owners across the nation, according to the Recreation Vehicle Industry Association. Unlike the stereotype of older couples hitting the road after retirement, the average RV owner is middle-aged and married, traveling a total of 4,500 miles and 26 days annually.
Right now, the biggest roadblock to a recovery has been consumers’ inability to secure credit to buy an RV.
"The single biggest issue for the industry is financing," said Winnebago CEO Bob Olson. "People just can’t get financing from major lending institutions. This is affecting retail and wholesale customers."
With credit tight, there has been less need for inventory at RV dealerships. At the end of last year, wholesale shipments had fallen by 75 percent, according to a research note from Baird.
Such drastic cuts have severely impacted many manufacturers. RV makers Fleetwood, Country Coach and Monaco Club recently sought Chapter 11 bankruptcy protection.
As smaller companies go under, they leave room for larger, more stable companies to take over the industry.
"Thor and Winnebago will be among the survivors. It’s a matter of having a sound balance sheet," Kennison said. "They will gain a significant amount of market share as other companies exit the market. At the end of this, there will be a considerably significant advantage for Winnebago and Thor."
This potential is not lost on the RV companies.
"We have a good foundation to weather this storm," Olson said. "We have no debt and an excellent management team. The economy will turn and we are well poised to take advantage of it."
Thor did not return phone calls seeking comment.
Investors have taken notice as well, believing that the crunch in the industry will benefit larger companies. They are taking interest in the likely survivors, said Kennison.
However, valuation of the stocks is difficult to discern, since RV companies aren't making money in the current economic environment. Kennison's firm has come to terms with this issue by estimating free cash flow for future years and discounting it by the cost of capital. He currently rates both Winnebago and Thor stocks as neutral.
Despite the difficulties facing the industry, things might soon be looking up as a bottom may be forming.
"Sure, sales are down, but we don't look at it negatively," said Dena Hurley, president of Crossroads Trailer in Newfield, NJ. "It's down a little, but not much, people are still buying RVs." There has been an increase in customers in the last few months, Hurley said, a trend which has been seen nationwide.
In addition, retailers have indicated their intentions to stop decreasing inventories, said Kathryn Thompson, an analyst at Avondale Partners, in a research note.
If the RV industry is bottoming, it may be indicative of the beginning of a new trade cycle. Motor home sales follow an average four to six year trade cycle, with the last one peaking in 2004. After five years, industry watchers are expecting an upswing within the next two years.
Many also believe there to be pent up demand in the public, signaling an increase in sales as the market begins to prosper and consumer confidence returns. The numbers from the Florida RV Super Show held in January reveal an interest in the purchase of RVs within the general public. The show drew record numbers, with over 10,000 guests during the exhibit’s first two days.
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The success of RV-related businesses also bolster hopes of a turnaround in the industry. Polk has seen steady business throughout the recession. "Our sales have dropped a little, but it’s not significant," said Polk. "Business is strong and it shows that people have good intentions of staying with RVs."
Another positive factor looming on the horizon is the expected increase in new buyers entering the market, as the baby boomer generation enters retirement.
"Baby boomers have had a really large impact on the industry already. They represent the largest group of owners in the industry," Polk said.
RV companies have been anticipating the influx in potential customers for awhile.
"All along, for the last four or five years, we’ve known the baby boomer population is coming. Every month there will be 350,000 potential customers in the baby boomers through 2030," said Olson. "There is a potential opportunity for our customer base to grow. A portion of them will want to join the RV lifestyle. This bodes well for us in the future."