Warren Buffett Was Right About the RV Business
Like most people who buy recreational vehicles, Warren Buffett made his decision quickly. He heard about Forest River in the summer of 2005 1 via a two-page fax and bought the company just seven days later.
Today, the purchase seems particularly sage. The Recreational Vehicle Industry Association projects that North American manufacturers will ship 369,100 machines this year at an average price of around $37,000, which would be a 52 percent boost in business from five years ago and make 2015 one of the industry's best years on record. With a dominant market share of close to 40 percent, Forest River is in pole position.
"The sun, the moon, and the stars are all lined up," said Doug Gaeddert, general manager of Forest River's RV business. "A lot of folks who made this purchase are doing pretty well right now."
Buffett’s timing wasn’t even that great. Just a few months after getting into the RV business, the industry began its peak year. After 2006, the home-on-wheels industry drove into the crisis, almost disappeared, and has since been slowly accelerating back to cruising speed.
Forest River, however, fared better than the industry at large. Despite some bumpy years, it steadily drove annual sales from $1.6 billion in 2004 to $3.8 billion in 2014.
A lot of factors are fueling the recent boom, including a surge in interest from bored baby boomers, relatively cheap gas, and even cheaper financing. More than anything else, however, the business rides almost entirely on the economy at large. A consumer needs to be feeling fairly sanguine to think: "Wouldn't it be cool if we could drive somewhere with our bed and flat-screen TV in a $400,000 rig?"
A lot of those consumers happen to be among the more than 10,000 U.S. baby boomers retiring every day. Roughly 10 percent of RV owners are over the age of 54, according to the RV Industry Association 2 The average age of buyers is now 46. . But younger cruisers are buying in as well, in part because the industry's major players pour about $15 million a year into a collective marketing budget that has been sending caravans of big rigs around to college campuses and music festivals.
Gaeddert said there is a 50 percent chance that the industry will sell more than 400,000 RVs next year, even factoring in a slight uptick in interest rates. "That would absolutely be a milestone number," he said.