Date April 2016
Approximate net recovery on cost
- The stock of Thor Industries, Inc., the largest RV and bus manufacturer in the U.S., rose 15 percent during the first quarter of 2016
- Industry revenues: $15 billion
- Major product categories: Folding Camper Trailers, Fifth Wheel Trailers, Travel Trailers, Truck Campers, Class A and Class C Motorhomes
- Significant companies: Thor Industries Inc., Winnebago Industries, Forest River, Berkshire Hathaway Inc., Jayco, Fleetwood RV, Monaco RV
- Industry concentration: There are approximately 600 RV manufacturers in the U.S.
- Recent sales trends: Manufacturers posted double digit increases of shipments during the first two months of 2016. Towable RVs led with the highest growth in units shipped, while motorhomes posted the highest percentage growth.
RV shipments up: According to the Recreation Vehicle Industry Association (“RVIA”), wholesale shipments surged in February 2016 following a strong finish to 2015. Year-to-date shipments were 11.4 percent higher than during the same period last year. The association noted February had the best total in 39 years and the highest annualized rate since 2005. This follows strong performance in 2015 when shipments increased 4.9 percent over the previous year, marking the sixth consecutive annual increase. Manufacturers were encouraged by these numbers as May, historically the industry’s busiest month, approaches.
Seasonality a factor: Retailers preparing for the peak spring and summer sale season typically stock up on inventory during March, April and May, before the summer driving season. Lenders should consider a seasonality analysis when ordering inventory appraisals to determine the extent values are impacted by these buying trends. A high/low analysis, which illustrates values during peak and valley demand periods, may also help mitigate risk for businesses, such as RV dealers, with seasonal fluctuations.
Component parts vary in marketability: Manufacturers’ inventories are comprised primarily of parts purchased from suppliers. The value of these components is derived from their utility in the marketplace. Parts that are very specific to platforms such as awnings, extrusions, wiring harnesses, tables, windows and doors typically have low recovery values. Other inventory such as carpeting and wall coverings that can be marketed to buyers outside the industry fare a bit better. Items that are more generic and widely marketable such as televisions, appliances, mattresses, and aluminum or fiberglass sheets are typically expected to have the highest net recoveries.
Chassis a major inventory category: A chassis is the base frame of the vehicle along with wheels, engine and transmission. In some cases, it may include the cab and steering mechanisms as well. While they comprise one of the most significant portions of the cost of RVs, chassis aren’t necessarily the most valuable category in liquidation. Appraisers must analyze supply and demand for each particular platform to estimate recoveries. For example, in the current market, Freightliner Class A chassis are in demand. Lenders should be aware that modified chassis have limited value in a liquidation scenario.
Financing assumptions are important: Most manufacturers are typically not making vehicles (with the exception of towables) to stock; rather they are making to independent dealers’ orders. This means that, in a liquidation, units would continue to sell through this channel. Dealers typically purchase units with floor plan financing. According to the Commercial Finance Association, this means a distributor or dealer accepts shipment of merchandise from a manufacturer by borrowing funds from a finance company, bank, or manufacture captive. Repayment terms are linked to the sale of the merchandise (“pay-as-sold”) or according to a schedule (“scheduled pay”). Our appraisers assume dealers would have access to those plans in a liquidation scenario or alternative financing would be arranged by other lenders. In some cases, manufacturers agree to repurchase agreements in which they will buy back unsold units at a discount if they don’t sell within specific timeframes. Dealers accustomed to these terms will seek greater discounts in liquidation.
Lack of warranty lowers recoveries: Buyers of new RVs expect warranties of three to five years. In a liquidation, however, manufacturers no longer honor these contracts, which means that units must either be sold without a warranty or dealers must assume the liability. Because of this additional risk, dealers will expect steeper discounts when purchasing RVs in liquidation.