Elden Smith: Bankruptcy May Have Positive End
he Fleetwood brand name is likely to be around on motorhomes and manufactured homes after Fleetwood Enterprises Inc. emerges from Chapter 11 bankruptcy, presumably under new ownership, according to Elden Smith, chairman and CEO.
“There could actually be two very strong Fleetwoods continuing – one in the manufactured housing industry and one in the recreation vehicle industry, even more independent than what they have been under the overall Fleetwood umbrella,” Smith told RVBusiness.
Fleetwood Tuesday (March 6) filed for voluntary bankruptcy in U.S. Bankruptcy Court for the Central District of California, with assets of $558.3 million and liabilities of $518 million. The company said it had $23 million in cash on hand.
The bankruptcy came on the heels of a Friday announcement to dealers that the Riverside, Calif., company was exiting the travel trailer business in which it once held a third of the U.S. market. That resulted in the loss of 675 jobs in three plants in Oregon and Ohio and two service centers in California and Indiana – 225 workers immediately and the balance when Fleetwood completes existing orders.
Smith said that dealers with buy back provisions in their agreements with Fleetwood that were canceled by the company last week now are unsecured creditors under the bankruptcy proceedings.
Smith said that it is logical that new owners would keep the Fleetwood name, which has been around the RV industry for nearly six decades.
“I would be very surprised if new ownership in whatever form that came didn’t chose to use the Fleetwood name and most, if not all, of the brand names,” Smith told RVBusiness. “There is substantial equity there. There are strong dealer organ0zations behind those brands and that is one of the opportunities that any buyer would want to take advantage of.”
He also said the travel trailer division was closed down rather than scheduled to be sold because of declining market share and the general economy, which would not likely enable travel trailer sales to turn around anytime soon.
“We did not feel (the travel trailer division) was saleable as a business entity,” Smith said. “There are certainly assets that are very saleable – one is the facilities, the other could be the product brand names.”
Of greater value right now in Smith’s view is Fleetwood’s manufactured housing business and its motorhome division with such brand names as Bounder, Southwind, Expedition, Providence and American Coach.
In fact, despite daunting shipment numbers for the industry, Smith is convinced that the motorized sector – of which Fleetwood holds a 16% share – can recover.
The fact that several other motorhome manufacturers recently have vacated the markets contributed to Fleetwood’s decision to keep the motorhome division going into Chapter 11.
“Consolidation improves the opportunities of the survivors,” Smith said. “Because it’s a more difficult portion of the market to enter, it takes a lot more capital. There’s much greater risk to it. It does warrant the investment on the part of a company like ours that has a substantial market share position. The margins are strong on the motorized product, so we continue to believe there is tremendous opportunity for our motorhome unit in that segment.”
Although several towable division managers were let go this week, Smith said that Fleetwood’s day-to-day operations continue under existing motorhome division management.
Smith said that Fleetwood has enough cash on hand to last “a good period of time,” but that it also is negotiating with lenders for debtor-in-possession financing that often occurs during bankruptcy proceedings.
However, it’s too early to tell when publicly-owned Fleetwood might emerge from bankruptcy. “Obviously, our intention and our effort is to bring it to a very speedy conclusion and let these businesses move on without having to carry the debt that they currently do,” Smith said.
Smith, who retired from Fleetwood for 7 1/2 years before returning in March 2005 to attempt to bring the firm back to profitability, also said it’s too early to tell whether he and other key Fleetwood managers will remain.
“My commitment always has been for a five-year period,” Smith said. “It’s been four years. I would certainly like to take this to a successful conclusion and see these two businesses under strong, new, committed ownership. At this point, that is my primary objective.”
He added. “I believe I’ve enjoyed the best and the most challenging (times) in my career.”
Had the national economy not collapsed, the veteran executive maintained that Fleetwood would not be in Chapter 11 bankruptcy today. “We’ve made tremendous progress,” Smith said. “Absent of this credit crisis and general recession worldwide, we were on a very solid track for continued improvement if the markets had just leveled out.”
Smith told RVBusiness that the bankruptcy “can have a very positive outcome.”
“It has the potential for taking a great deal of weight off the back of this company, giving it the opportunity under new ownership with a different capital structure to be much more competitive than we’ve been,” he said.
But Smith said the first thing that has to happen for the RV industry in general to recover is an improvement in consumer confidence. “People have to start feeling better about the future,” he said. “The worry has to go away, and they have to feel comfortable going out and making discretionary purchases without threatening their future lifestyle.
“That realistically, probably will not happen until we see less uncertainty in the banking and lending community.”