Recreational Vehicle (RV) Manufacturing Trends
Date May 2019
- Wholesale recreational vehicle (RV) shipments were down 27.1% for the first quarter of 2019; March 2019 marked the 11th consecutive monthly decline in shipments signaling a longer term decline for the industry
- Domestic consumers aged 35 and older represent the largest market for industry operators, accounting for over 67% of total industry revenue in 2018
- Travel trailers represent the industry’s largest product segment, accounting for approximately 55% of total industry revenue in 2018
Approximate net recovery on cost
By the numbers
RV shipments down: Continuing the downward trend in wholesale RV shipments that began in May 2018, shipments for the first quarter of 2019 were down 27.1 percent over 2018. What started as a single-digit decline in May 2018 (-1.7 percent), escalated to a decline of 29 percent in September 2018, which had been a strong sales month for the industry in 2017. Driving the decline were double-digit decreases in almost all vehicle categories, with towable RVs and travel trailers driving the biggest portion.
Despite recent monthly unit shipment decreases, it should be noted that RV shipments for 2018 totaled 483,672 units, representing a slight decrease of -4.1 percent from 2017’s record-setting year. Something to keep in mind when monitoring sales trends is how current economic factors, including metals, fabric, electronic components, and other manufacturing materials tariffs, will impact 2019 sales.
Given this perspective, the RV Industry Association sees room for growth based on three key factors:
- Record-level RV ownership — More than nine million households now own an RV, which is the highest level ever recorded and a 16 percent increase since 2001.
- Population and demographic trends favor growth — Buyers aged 35 to 54 are the largest segment of RV owners, according to a 2011 University of Michigan study of RV consumers.
- Baby boomers entering retirement — RV sales are expected to benefit as baby boomers continue to enter the age range in which RV ownership has been historically highest.
Moderate growth forecasted: Over the next five years the RV manufacturing industry is expected to grow, however growth will be at a decelerated pace. RV demand is strongly correlated with consumer spending and disposable income levels. In the past five years disposable income has increased 2.3 percent annually, and, according to data from IBISWorld, is forecasted to increase just 1.4 percent over the next five years, driving down purchasing power for consumers.
Another determinant for RV sales is age based, with older Americans comprising a major share of purchasers. The number of people in the 50-and-older demographic is projected to total 123.9 million in 2019, up from 115.2 million in 2018. With disposable income continuing to rise and demand from baby boomers increasing, short-term growth is expected. However, anticipated increases in interest rates along with declining consumer sentiment will likely lead to demand slowing in the long term.
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 an RV inventory appraisal to determine the extent to which values are impacted by these buying trends. A high/low analysis, which illustrates values during peak and valley demand periods, may also help mitigate the risk involving businesses, such as RV dealers, with seasonal fluctuations.
Component parts vary in marketability: RV manufacturers’ inventories are composed 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: The chassis is the base frame of the vehicle along with wheels, engine, and transmission. In some cases, the chassis may include the cab and steering mechanisms as well. While one of the most significant portions of the cost of RVs, chassis are not 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 still in demand regardless of sales trending down year-to-date for Class A product. Lenders should be aware that modified chassis have limited value in a liquidation scenario.
Financing assumptions are important: With the exception of towables, most manufacturers are typically not making vehicles 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 manufacturer captive. Repayment terms are linked to the sale of the merchandise (pay-as-sold) or according to a schedule (scheduled pay). Gordon Brothers’ appraisers assume dealers would have access to those plans in a liquidation scenario or that alternative financing would be arranged by other lenders. In some cases, repurchase agreements are in place through which manufacturers will buy back unsold units at a discount if they do not sell within specific timeframes. Dealers accustomed to these terms will seek greater discounts in liquidation.
Lack of warranty lowers recoveries: Buyers of new RVs typically expect three- to five-year warranties. 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 associated liability. Because of this additional risk, dealers will expect steeper discounts when purchasing RVs in liquidation.