RV Industry on Bad Stretch of Road

The wheels are starting to come off the motor home manufacturing industry, as Fleetwood Enterprises Inc. illustrated again Wednesday.

Fleetwood said it expects to post a loss for its fiscal first quarter ended July 30, because of sharply lower sales of recreational vehicles--especially motor homes--to dealers, and efforts by Riverside-based Fleetwood to cope by cutting its work force and taking other restructuring steps.

The problems: Rising interest rates, higher gasoline prices and excess stockpiles on dealers’ lots are braking the industry’s growth. They’re also threatening to send the highly cyclical RV industry into another of its long-term slumps, following a banner year in 1999.

RV sales “at both the wholesale and retail levels over the past six weeks have been below our expectations,” Fleetwood President Nelson Potter said in a statement. “Motor home sales in particular did not reach the level we anticipated six weeks ago.”

The problem is mostly with the dealers, who typically borrow heavily to finance their purchases from RV manufacturers, said Fleetwood’s chief financial officer, Paul Bingham. Though consumer sales are down slightly, dealers--already too flush with unsold models--have sharply cut back buying more vehicles because of the recent hike in interest rates, he said.

“So they’re cutting back on the level of inventories they’re carrying, and that backs up to the factory floor rather quickly,” Bingham said.

Fleetwood is only the latest RV maker to announce a downturn. National RV Holdings Inc., based in Perris, Calif., last month said its second-quarter profit plunged 86% from a year earlier on a 29% drop in sales, and it laid off 350 workers, or 16% of its employees, because of lower production.

Even Winnebago Industries Inc., which still enjoyed higher RV sales through the first half of 2000, warned recently that “unfavorable market conditions . . . may make the next quarter or two more challenging for us.”

And Wall Street is showing the companies no patience. Fleetwood’s stock price so far this year has plunged 39%, Winnebago is down 35%, National RV has skidded 55%, Coachmen Industries Inc. is off 30% and Thor Industries Inc.’s shares have lost 20%.

“With slowing sales and the uncertain state of the economy, coupled with the interest-rate environment, you’re seeing dealers scale back,” said Jeffrey Graff, an analyst at the investment firm A.G. Edwards in St. Louis.

In the case of Fleetwood and Winnebago, which are also major suppliers of manufactured houses, it hasn’t helped that the pre-built housing market also has suffered from a glut of unsold models for more than a year now.

RVs technically entail several types of vehicles, including towable trailers, and total domestic RV sales last year were 321,200, a 10% gain from 1998 and the highest sales level in 21 years, according to their trade group, the Recreation Vehicle Industry Assn.

And despite the sales drop in motor homes, higher sales of certain trailers and other recreational vehicles such as truck campers--which are becoming more popular as people increasingly buy rugged sports utility vehicles as their everyday cars--will lift overall RV sales to about 330,000 units this year.

Fleetwood, though, said that its overall RV sales fell 34% in its fiscal first quarter and that sales of motor homes plummeted 50% from a year earlier, to $152 million. Fleetwood expects its overall first-quarter sales to drop 24% from a year earlier, to $729 million, but it didn’t specify the loss it expects for the period.

“We don’t expect [motor home sales] the rest of the year to be off that much,” Bingham said, but he acknowledged they’ll still show a sizable decline.

He also declined to say how many workers Fleetwood is laying off, either permanently or temporarily, saying the numbers are still being decided. “When production volumes decline, as they have over the last couple of months, we’ve had to make some cuts in the work force,” he said. Fleetwood had about 20,700 employees as of April 30.

And although the problem is mostly at the dealer level, Bingham said there’s no question that the jump in gas prices and interest rates, along with the stock market’s slump this year, have slowed retail motor home sales this year.

The core audience for motor homes has long been people age 50 and over, so the aging U.S. population is considered a favorable trend for the industry. However, an increasing number of the vehicles--which can cost up to $250,000 for luxurious models--are being bought by people ages 35 to 50.

Both groups are more savvy about the economy and financial trends than ever before, and the confluence of higher gas prices and lending costs, along with some erosion of consumer confidence about the future, have dampened sales, Bingham said.

“These people know what’s going on,” and the change in economic trends “has a psychological impact,” he said. “They start becoming a little more cautious.”

As a result, Graff of A.G. Edwards expects motor home sales alone to drop 5% or more this year. In 1999, motor home sales rose 13% to 71,600 vehicles, according to the RVIA.

After its announcement, Fleetwood’s stock slipped another 13 cents a share, to a near 52-week low of $12.63. Winnebago’s stock was unchanged at $13 a share, and National RV edged up 6 cents to $8.63 a share. All trade on the New York Stock Exchange.

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Motor Home Sales: Here’s the Hitch

While recreational vehicle sales overall are expected to be up this year, sales of motor homes are sharply lower. Sales of travel trailers and other “towables” are expected to lift overall RV sales again this year. Here are annual domestic shipments of RVs:

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Shipments of all RV types (In thousands)

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Estimate for 2000: 330,000

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Year-to-date change

Percent change in shipments made through June this year compared with same period in 1999

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June-to-June change

Percent change in shipments made in June 2000 compared with June 1999

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RV factoids

* The typical owner of a motor home or trailer is 49 years old, has an income of $47,000 and is married with no children under 18 living at home.

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* The highest rate of motor home ownership is among Americans ages 65 to 74. About 4.5% of this age group owns a motor home.

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* Motor home ownership rises sharply after age 45; the median age is 60.

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Researched by NONA YATES/Los Angeles Times

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Sources: Recreation Vehicle Industry Assn., Recreation Vehicle Dealers Assn.

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Trailing Stocks

Amid a slowdown in sales of motor homes, investors have punished the stocks of recreational-vehicle producers during the last year. Here are some examples:

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Ticker 52-week 52-week Wednesday current Stock symbol high low close fiscal year Coachmen COA 19.13 9.50 10.63 9 Fleetwood FLE $23.69 $12.38 $12.63 10 Monaco Coach MNC 30.94 10.81 15.31 6 National RV NVH 27.31 8.13 8.63 6 Thor Industries THO 30.56 20.75 24.44 8 Winnebago WGO 28.25 12.50 13.00 6

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Sources: Times research, Bloomberg News