Fed’s Rate Cut Could Bolster Industry’s Sales
The RV industry should profit from the Federal Reserve’s half-point cut in the federal funds rate, helping to nudge potential buyers off the fence as the move effectively lowered the prime lending rate to 7.75%.
“The cut will help the overall industry, but benefit motorized products the most,” said Kathryn I. Thompson, director/ senior equity analyst, Avondale Partners LLC, Nashville, Tenn. “Historically, any type of rate cut has been positive. Depending on the impact on floorplan rates and consumer rates, costs go down on either end.”
Roger Martin, vice president of sales and marketing for Forest City, Iowa-based motorhome builder Winnebago Industries Inc., said the impact may not be immediate. But he thinks there likely will be a second – and possibly a third – quarter-point rate reduction that will help tap into pent-up demand. “I think the larger impact on the RV industry will come once a trend is established,” he said.
Sales of travel trailers and fifth-wheels are also likely to benefit from the rate cut, while folding camping trailers – typically purchased by lower income buyers more affected by higher food and fuel prices – may not see as much of an upshot.
Regionally, the West – and particularly California – had been the fastest-growing area for RVs. It was also hardest hit by the credit tightening and “liquidity” dry-up, noted Larry Huttle, chairman of Airstream Inc., Jackson Center, Ohio. He said the company’s Midwest business, while not as robust, has been steadier.
Accordingly, the rate cut could have a bigger impact on West Coast sales. Huttle said that if it has been “psychologically well received” as potentially increasing liquidity, it “could stem the tide in favor of higher market demand.”
The potential bump in towable sales is well-timed as RV dealers have been cautious in restocking their inventories this year, indicated by the disparity between retail sales and wholesale shipments. During the first seven months, retail sales of towables were up 1.3%, according to Statistical Surveys Inc., while the Recreation Vehicle Industry Association (RVIA) reported towable shipments to dealers were down 14.4%.
“Retail demand for towables has been pretty consistent, surprising a lot of people,” said Tom Walworth, president of Grand Rapids, Mich.-based Statistical Surveys. “I and other industry people think that, with dealers having adjusted inventory down, they should be in a good position to order new product and take advantage of incentives at shows like Pomona, Calif., and Louisville, Ky.”
Avondale’s Thompson noted, “With towables, the comparisons are easy. Once you get into October, we’ll see an improving trend in shipments.”
In terms of specific categories, retail sales of travel trailers were up 9.6% in July while wholesale shipments were down 7.5%. It represented the fifth consecutive month that travel trailers sales were up and the largest increase since January 2006.
The fifth-wheel retail market, while down 4.4% in July, was still stronger than the 13.2% decline in wholesale shipments for the month. Similarly, folding camper sales were down 2.5%, but still stronger than the 3.3% decline in wholesale shipments.
The motorhome market, on the other hand, has typically endured less peaks and valleys than the towable sector this year. Motorhome demand was generally flat, with retail sales down 3.6% through July and wholesale shipments up 0.9%.
Earlier in the year, wholesale shipments did increase, largely as a result of dealers buying up all the older diesel engine models they could in advance of complex and costly 2008 model chassis requirements to meet stiffer emissions requirements.
“Dealers stocking up on the older chassis definitely hit the wholesale numbers early in the year,” Walworth said.
Diesels have been taking a steadily larger part of the market. They accounted for 49.2% of motorized sales in 2005 and 51.3% in 2006. During the first seven months of this year, diesel sales are up 2.6% from a year ago.
Looking toward next year, University of Michigan economist Richard Curtin sees RV sales, led by conventional travel trailers, beginning to increase after the first quarter of 2008.
Curtin expects conventional travel trailer sales to benefit from an anticipated growth in jobs and wages, as well as increased monetary liquidity. Accounting for half of all RV sales, they will pull the whole market up, Curtin said.