RV Maker’s Overhaul : Saugus: Rexhall Industries was caught off guard when the economy skidded. But the recreational vehicle firm has cut its losses with a major restructuring.
Two years ago, Rexhall Industries Inc. was in overdrive. The Saugus motor-home maker, which opened in 1986, had seen its sales soar to $34 million in 1989--a year when nationwide shipments of recreational vehicles fell 2%. But in 1989 Rexhall’s profits more than doubled to $2.27 million from $918,000 the year before.
Little Rexhall was the toast of the recreational vehicle industry, which had long been dominated by the big three manufacturers, Fleetwood Enterprises, Winnebago Industries and Coachmen Industries. In May, 1990, Business Week even crowned Rexhall the nation’s No. 1 hot growth company.
The rest of the RV industry had started into a slump six months earlier, but June, 1990, was Rexhall’s biggest month ever. Chairman William J. Rex, now 41, figured that there was no need to hit the brakes. He leased two more facilities in an effort to expand production from eight vehicles a day to 20, boosted employment to more than 500 and continued introducing new products, and planned to raise $12 million through another stock offering and use part of the cash for further expansion.
Unfortunately, even veteran RV makers typically suffer from horrible roller coasters of booms and busts--and when the economy finally slowed down, Rexhall wasn’t ready. When Saddam Hussein’s army invaded Kuwait, Rexhall’s growth stopped as suddenly as a bug hitting a windshield.
While many of its more experienced RV competitors had already scaled back, Rexhall was caught off guard. “I made a critical error,” Rex admitted. “I got caught speeding.”
In 1990, Rexhall’s profit plummeted 68% to $701,000. And except for a brief spurt in sales during the few months after the end of the Gulf War, the slump worsened in 1991. Nationwide RV industry shipments plunged 15% for the year to 300,500 vehicles, while retail sales fell 18%, to $6.7 billion, according to the Recreation Vehicle Industries Assn., a Reston, Va. trade group.
In addition to the recession--which dampens consumer enthusiasm for high-ticket items such as RVs--Rexhall also felt the heat from its competition. Rexhall had made its mark with low-priced, well-equipped motor homes, but other companies seeking to appeal to increasingly cost-conscious consumers also began coming out with lower-priced products.
David V. Jackson, an analyst at Western Group, a division of the H. J. Meyers & Co. brokerage firm in Beverly Hills, said Rexhall was hit harder by the recession than some of its big competitors because dealers tend to favor better-known brands and more established companies during industry downturns.
As Rexhall began cutting back and laid off more than 300 workers, about 80 former employees filed workers’ compensation claims, which further ate into profits. The result: Last year Rexhall lost $1.15 million on a 35% drop in revenue to $25.9 million.
So in the fourth quarter of 1991, Rexhall undertook a major restructuring that included buying back the two new leases and reducing plant space from 250,000 square feet to 100,000 square feet. It discontinued a line of high-priced motor homes, made other products more uniform to simplify manufacturing operations, and wrote off unusable inventory for a total cost of $379,000.
After the restructuring, Rexhall managed to narrow its loss to $170,000 in the first quarter from $459,000 a year earlier, although revenue declined 19% to $3.76 million. While there’s no guarantee of a smooth ride for Rexhall from here on, in the past few months some encouraging signs have appeared.
Analyst Jackson said Rexhall was never close to seeking bankruptcy protection. Rexhall has no long-term debt, more than $4 million in cash, and with its overhead drastically reduced, Jackson believes that Rexhall is now poised for recovery.
Rex, who is also Rexhall’s president, chief executive and its majority shareholder with 51% of the stock, said he hopes that his company will return to profitability later this year. Production has been increased from one motor home a day to two, and Rex has slowly begun rehiring workers.
Indeed, the RV business--typically one of the first to be hurt by a recession and among the first to know when it’s over--has started bouncing back. According to the RVIA trade group, industry shipments surged 69% in the January-through-March period over a year-earlier, to 98,700 units.
“We’ve seen a dramatic increase in sales in the first quarter of the year, and April and May still continued fairly strong,” said Gary Groom, executive vice president of finance at Coachman Industries in Elkhart, Ind., which returned to profitability in the first quarter after a year-earlier loss.
Fleetwood, based in Riverside, recently reported a 22% jump in its motor-home sales in 1991’s fourth quarter. And Winnebago cut its losses in half in its quarter ended Feb. 29, to $4.1 million. “The whole RV industry is very optimistic right now,” said Sheila Davis, a Winnebago spokeswoman.
Along the way, a few companies have disappeared. Hard times forced an industrywide consolidation, while some companies sought bankruptcy court protection. Recently, for instance, Indiana RV maker Mallard Coach Co. filed for reorganization in bankruptcy court.
Rexhall’s new product line has also caught the eye of some dealers. “We’re looking to order a little bit more, go a little deeper with Rexhall than we have in the past,” said John Mancinelli, sales manager of Lazy Days RV Center in Tampa, Fla., one of the nation’s largest RV dealers.
Yet another factor that augurs well for Rexhall, and other RV makers, is demographics. Rexhall’s bread-and-butter is the over-50 crowd, a group that’s due to grow substantially in numbers as the baby boom generation ages.
But Rexhall isn’t ready to hit cruise control just yet. The history of the RV industry is one of ups and downs, and older companies have learned to prepare themselves for the inevitable downswings, said David Humphreys, president of the RVIA.
In the mid-1970s, the industry was squeezed by the Arab oil embargo, and the 1979-80 gas crunch and skyrocketing interest rates devastated RV sales. That’s why many manufacturers have little debt, keep inventories lean and hire non-union employees, Humphreys said. And because RV makers are actually more assemblers than manufacturers--piecing together vehicles with parts bought from others--operations can be quickly shifted into low gear.
Rex, a 1969 graduate of San Fernando High School, worked for two other local motor home makers for 16 years before starting Rexhall in 1986 with Charles A. Hall. In 1988, Hall left the company and sold his one-third stake back to Rexhall.
The company went public in June, 1989, by selling 1.15 million shares, reaping Rexhall $5.8 million. Rexhall was then fast gaining attention with its well-constructed motor homes that were comparable to rival products but priced a few thousand dollars less. Rexhall’s main product lines--Airex, Concord, Vision and Airbus--now retail for between about $32,000 and $90,000.
Rex said he was able to undercut competitors’ prices while keeping quality up by doing more manufacturing in-house. Rexhall builds its motor homes mostly on Ford and Chevy chassis, but makes its own fiberglass walls and roofs, builds its own drivers’ doors and does much of the upholstery work. It also uses welded “unibody” steel roll cages that form the motor homes’ frames, he said, in contrast with the riveted frames of other brands that are more subject to rattling.
But each new product line that Rexhall came out with had a completely different design, making the manufacturing process complicated and unwieldy. Now, Rex said, the same chassis, cage systems and storage systems are used on different models, increasing efficiency.
Rexhall sells its motor homes through more than 100 dealers. About 30% of its sales have typically come from Southern California, although that share has probably declined somewhat because of the region’s lingering recession, Rex said. Foreign sales, meanwhile, once just 3% of total sales, now account for 10%.
Given the volatility of the RV business, Rexhall is sure to encounter rough spots again. Has Rex learned how to decelerate?
He said, “I’ll be more conservative this time when I start expanding again.”
Rexhall Industries Inc. at a Glance
Rexhall Industries is a Saugus-based manufacturer of motor homes. Founded in 1986 by William J. Rex, the company grew quickly by offering well-equipped vehicles priced well below big competitors such as Fleetwood Enterprises and Winnebago Industries. But Rexhall’s rapid rise was stanched by the economic recession, the Gulf War and new lower-priced products by its rivals. The company now hopes an improving economy and a restructuring completed late last year will gradually return it to health.
Recreational Vehicle Stocks
RV makers typically suffer from the roller-coaster of good and bad times depending on the overall economy. This has also proved true for a newer RV maker, Rexhall Industries in Saugus. Shown below are the swings in stock prices for three major RV companies, plus Rexhall.
Fleetwood Winnebago Coachman Rexhall Recent stock price* $35.50 $5.63 $7.63 $3.38 Ten-year high $41.90 $23.90 $39.60 $11.75 Ten-year low $5.30 $2.10 $3.20 $2.00 Company’s peak annual profit in $70.5 mil $27.8 mil $22.9 mil $2.2 mil millions**
* May 22 closing price ** In 1988 for Fleetwood, 1984 for Winnebago, 1983 for Coachman, 1989 for Rexhall
