Buffett Banking That RV Business Will Recover
As investor Kirk Kerkorian was selling off the last of his shares in the U.S. auto industry, another elder American investor was easing into the business.
According to Edmonds Auto Observer, Warren Buffett’s Berkshire Hathaway Inc. recently reported to government regulators that it had purchased $40 million in recreational vehicle maker, Coachmen Industries Inc., based in Middlebury, Ind.
Berkshire Hathaway’s strategy clearly is buying low in businesses that are at rock bottom. Sales of recreational vehicles by U.S. makers, including big names like Winnebago Industries Inc., Fleetwood Enterprises Inc. and Thor Industries Inc., are expected to fall to a 12-year low as 2008 draws to a closer and likely will tumble even further in 2009.
University of Michigan researcher Richard Curtin, who directs consumer surveys, told Bloomberg News earlier this month that RV sales likely will be 248,000 vehicles in 2008, down from 266,000. That would be the lowest since 1996 and a 30% drop from last year, according to the Recreation Vehicle Industry Association (RVIA). Curtin forecasts 2009 sales will drop to 186,800 units, the lowest level since 1991.
The RV industry has been clobbered by tight credit, fluctuating gas prices that hit $4 a gallon last summer, rising unemployment, a tumbling stock market that is eroding the consumer’s sense of wealth and a generally deteriorating economy.
As a result of slumping sales, RV makers are struggling:
Jackson Center, Ohio-based Thor, the world’s largest maker of recreational vehicles, reported income dropped 87% in the most recent quarter.
Fleetwood of Riverside, Calif., and the third largest U.S. RV maker, said its losses in the most recent quarter widened to $56.7 million. It was Fleetwood’s ninth loss in the past 10 quarters. The company has closed eight plants, eliminated 13% of its work force – or 760 jobs – and is cutting costs.
Motorhome maker Winnebago, Forest City, Iowa, reported a higher-than-expected loss of $9.6 million in the quarter, with sales plunging 68% in the period. It was its second consecutive quarterly loss.
Buying into the RV industry isn’t Buffett’s only venture into the auto-related business. Earlier this year, Berkshire Hathaway announced it had purchased a stake in China’s BYD, a battery maker recently turned automaker.
Buffett’s MidAmerican Energy Holdings paid $230 million for a 10% stake in BYD to support its “green” technologies, the company said. The deal gives MidAmerican a foothold in the Hong Kong-listed company, which is developing electric-hybrid cars it expects to start selling in China later this year, Europe and Israel by 2010 and North America thereafter. It gives the Chinese company a much-needed boost in funding for further development and credibility.