When Economy Revs Up, So Do RV Sales

When Economy Revs Up, So Do RV Sales
by: Matthew Patane, The Des Moines Register (www.USAToday.com)

DES MOINES, Iowa — Consumer confidence and GDP numbers are one way to gauge the direction of the economy. Another is to count how many recreational vehicles leave the Winnebago plant in Forest City.

RV sales are “a great indicator of the health of consumers if they are willing to spend 70, 80 grand … on a second or third home that’s on wheels,” said David Whiston, an analyst with investment research firm Morningstar.

Both motor home sales and consumer confidence levels have been on the rise. That bodes well not only for RV sellers, but for the nation’s economy as a whole, economists say.

Winnebago Industries has seen its profit climb 50% in the first nine months of its fiscal year, compared with the same period last year. Motor home sales are up almost 30%.

Other signs of a recovering economy emerged this week. On Wednesday, the government estimated that the economy grew at a fast 4% annual rate in the April-June quarter. That compares with a 2.1% drop in the first three months of 2014, when a severe winter disrupted several industries and pushed consumers away from shopping malls and vehicle dealerships.

In March, Winnebago blamed the winter for production delays, which raised expenses and limited earnings growth. But the company bounced back in June, when it reported a 48% increase in earnings and an 18% rise in motor home deliveries over a year ago.

Another positive signal: An index measuring consumer confidence hit a milestone Tuesday, reaching its highest level since late 2007.

Lynn Franco, director of economic indicators for the Conference Board, said the index’s improvements indicate economic growth will continue into the remainder of 2014.

Consumer-confidence levels are important for Ron Lichtsinn, owner of Lichtsinn Motors, a Winnebago dealer in Forest City. Lichtsinn said he will track consumer confidence, housing sales and other economic indicators to figure out where his business should go.

“If I see a trend to a higher consumer confidence index, I’ll stock more inventory and make sure I have (more) people on staff,” Lichtsinn said.

While Lichtsinn uses the economy to figure out where the RV industry is going, others do the reverse. Analysts and economists will follow RV sales because they tend to follow the same path the economy takes.

In 2007, for example, the RV industry sold 55,400 motor homes during the year, which Whiston and others said used to be the norm.

Sales plunged, however, during the recession to about 13,000 in 2009. Since then, motor home sales have increased slowly, but steadily, just as the U.S. economy has been recovering.

Winnebago shares a similar story as the economy and overall RV industry.

Before the recession, in 2007, Winnebago posted a profit of about $41.6 million, according to U.S. Securities and Exchange Commission filings.

Two years later, the company posted a loss of $78.8 million. CEO Randy Potts described the recession as “the worst of times for the motorized RV industry.”

“Many of our competitors did not make it through the recession,” Potts said. “It was very tough for us to make it through. Thanks to a lot of tough decisions going into and during the recession, we did make it through.”

Just as the economy has recovered, so has Winnebago, reporting about $45 million in profit for fiscal 2012 and about $32 million for fiscal 2013, which ended in August.

Like the economy, while there has been some recovery, the RV industry and Winnebago still face challenges and have yet to reach pre-recession highs.

Winnebago’s stock has soared in the last five years, up 153%, but it is down year to date by 12%.

“It has been a slower recovery … the market size still is not what we would call normal, so there’s still a lot of growth opportunity ahead of us,” Potts said.

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