RV Sales Rebound as U.S. Economy Improves: EcoPulse
When Tom Walworth and his wife planned a weekend getaway to Traverse City, Michigan, earlier this year with friends, they didn’t book a hotel. Instead, they rented an RV.
In addition to saving about $100 on food and lodging, Walworth got a taste of an activity he’s analyzed for more than 30 years as president of Statistical Surveys Inc., a research company based in Grand Rapids, Michigan.
“We were hooked; we had an absolute ball and would do it again,” he said.
More Americans are taking to the road in recreational vehicles as sales of towable campers approach pre-recession levels and shipments of motorized models gain speed. The total for all new units sold this year is projected to rise about 11 percent from last year to 316,300, Walworth said. Meanwhile, 2014 looks like “another good year,” as sales could top 335,000, the most in six years.
“All things are a go for the RV industry again,” he said.
That’s good news for manufacturers Thor Industries Inc. (THO) and Winnebago Industries Inc. (WGO) It’s also encouraging for the U.S. economy because RV demand has a “strong relationship” with household confidence, and these vehicles are “very discretionary” purchases, said Richard Curtin, director of consumer surveys at the University of Michigan in Ann Arbor, who has analyzed the industry for more than 30 years.
While demand for more-expensive motorized vehicles has been slower to recover than in previous expansions, 2013 marks a significant turning point, Curtin said. More than four years since the 18-month recession ended in June 2009, sales of these units -- with an entry-level price of about $80,000 -- are up more than 30 percent from last year, he said, citing data from the Recreation Vehicle Industry Association, a trade group. Meanwhile, towable units -- retailing for as little as $4,000 -- have risen 8.5 percent.
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Customer emphasis on value caught Winnebago by surprise, Chief Executive Officer Randy Potts said in a phone interview today. In response, the Forest City, Iowa-based company expanded its lineup of lower-priced motorhomes, including its Minnie Winnie and Sunstar models, he said.
In addition, sales of new vehicles have been below average for several years, creating a shortage of late-model used RVs at dealerships and steering some new buyers to less-expensive options, Potts said.
“Historically the motorized market has been more equally distributed across various segments, and in the recovery the value-priced have become a bigger part of that,” he said.
The industry is benefiting from improvements in consumer spending related to gains in the housing and stock markets, as well as low interest rates, said Curtin, who added it’s “impressive” that sales “have been steady and at a remarkably good pace, which is expected to continue for the next several years.”
The Bloomberg Consumer Comfort Index climbed to an almost six-year high of minus 23.5 (COMFCOMF) in August, and the reading for the week ended Dec. 15 of minus 29.4 is 12 points above the post-recession average of minus 41.4. The Standard & Poor’s 500 Index is trading near an all-time high of 1,813.55 (SPX), reached Nov. 29. Meanwhile, the median price of an existing house rose almost 13 percent to $199,500 in October from a year earlier, according to data from the National Association of Realtors.
Many of Thor’s customers delayed purchases during the economic slump and some traded down to less-expensive models, Chief Executive Officer Bob Martin said in a phone interview. They were having trouble getting loans or couldn’t afford more expensive options, so the Elkhart, Indiana-based company expanded its lines of towable campers priced near $30,000 -- a category that “came back pretty quickly after the recession” - - and motorized RVs retailing for less than $100,000, he said.
Now, pent-up demand and easier access to financing for motorhomes priced as much as $150,000 are helping boost sales, so “we’ve seen a nice swing heading upward,” Martin said.
It’s useful for investors to monitor this industry because it’s proven to be “fantastic as a leading indicator of overall economic trends,” said Kathryn Thompson, a founder and analyst at Thompson Research Group in Nashville, Tennessee. Sales began to drop as interest rates climbed into 2006; the yield on 10-year Treasuries reached 5.24 percent in June of that year. By December, “the consumer was completely falling apart in the RV industry.”
‘Very Strong’ Sales
That slump came one year before the U.S. entered the worst recession in more than 70 years. Now traffic at dealerships nationwide probably will be even better in 2014, Thompson said, adding that “very strong” sales have helped drive towable units near the pre-recession peak.
Gross domestic product expanded at a 3.6 percent annualized rate in the third quarter, and RV shipments are growing at about three times that pace, said Mac Bryan, a vice president at the RVIA in Reston, Virginia. “The adjective I’d use to describe this year’s sales is ‘wow.’”
That sentiment is echoed at Thor, maker of the Airstream brand, as dealers attending a recent exposition in Louisville, Kentucky, were “very optimistic” about the spring sales season, said Jeff Tryka, director of investor relations. The company recently unveiled a new RUV model that’s a cross between an RV and a sport-utility vehicle.
The strength in towable-camper purchases is partly because of their relative affordability, which remains an important aspect of this recovery, Bryan said. The segment now accounts for about 88 percent of new sales, up from 50 percent in the 1980s, he said.
Thompson is “favorably inclined” to Thor because it’s more dependent on these products than Winnebago, though she maintains buy recommendations on both companies.
Shares of Winnebago fell 11.4 percent as of 12:49 p.m. in New York today after it reported fiscal first quarter revenue of $222.7 million, below the consensus of analysts’ estimates compiled by Bloomberg. The stock still is up 64 percent this year, while Thor has risen about 38 percent and the S&P 500 has gained 27 percent.
Units that can be towed typically have a longer life -- up to 25 years -- than motorized vehicles, Curtin said, adding that the growing popularity of trucks and SUVs in the 1980s and 1990s helped spur sales.
More-expensive motorized vehicles still have “a long way to go” to reach pre-recession annual sales of about 71,000, Thompson said. Dealers are “fairly enthusiastic” heading into 2014, though a slowdown in the economy could derail the industry. “It makes me a little nervous when people are optimistic because I wonder when the next shoe is going to drop.”
Companies are working to broaden product appeal, including a “Go RVing” campaign that has helped attract younger and other nontraditional RV buyers, Curtin said.
“The typical purchasers are older than 55 and have a much more established economic situation,” though Americans ages 34 to 54 are the largest segment of owners, he said.
While sales of new RVs are a significant indicator of discretionary spending, there’s also a large used market that’s harder to track, Walworth said. More than 9 million U.S. households own one of these vehicles, up 16 percent from 2001 and 64 percent from 1980, he said, citing industry data.
Walworth sees further gains on the horizon. “Families participate in this recreation, and as families grow older, kids grow up and mirror what their parents did.”
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