Leaner Fleetwood Eager to Please Buyers
Sometimes things are so bad, it seems they can only get better. That’s how it was two years ago for RV makers, the Fort Wayne, Ind., Journal Gazette reported.
At the depth of the recession, most consumers were too worried about losing jobs and homes to consider spending thousands of dollars on a recreational vehicle. So Northeast Indiana felt the shockwaves of the RV industry’s collapse as well-paying manufacturing jobs evaporated.
This is the story of one company – Fleetwood RV Inc. – that rose from the ashes to create a leaner organization with updated product designs and an improved way of filling orders.
The business is smaller than its bankrupt predecessor, Fleetwood Enterprises Inc. But CEO John Draheim said the reorganized Fleetwood is more stable.
“We’re still dealing with a flat retail market,” he told The Journal Gazette, “but we’ve restructured our company to be profitable at the current (sales) volume level.”
A fresh start
In June 2009, New York-based American Industrial Partners Capital Fund IV LP paid $53 million for Fleetwood Enterprises’ brand, the Decatur operations and some equipment in the company’s California plant.
The company consolidated in Decatur, where Fleetwood has eight buildings: two for motorhome production, one paint shop, three for fiberglass production and two for service and parts.
When Fleetwood Enterprises filed for bankruptcy in March 2009, it simultaneously closed its travel trailer business and began steps to close its motorhome plant in Riverside, Calif. The company still operated one motorhome production plant in Decatur and had 12 manufactured housing plants in 10 states.
Fleetwood Enterprises’ total employment, which was once 2,000, dwindled leading up to the bankruptcy filing. A company spokeswoman didn’t have a definitive number for how low it dropped.
With the sale, Fleetwood Enterprises ceased to exist. As spokeswoman Heather Everett explained, Fleetwood RV is a 16-month-old company with a 60-year-old brand legacy.
The new owners consulted Draheim on how to structure the company before closing the deal.
Draheim has worked in the RV industry since 1997. Before joining Fleetwood, he worked for Monaco Coach Corp., National RV Holdings Inc. and Thor California Inc.
The workforce now has grown to 1,200, but the corporate staff still includes only four positions: chief executive officer, chief financial officer, vice president of operations and vice president of engineering.
Corporate staff members own a stake in the company. The remaining employees are in business units, which are responsible for their own profits and losses.
A new structure
Although the name switch might seem like a minor technicality, the ownership change carried major implications. Fleetwood RV had no debt and no employees when it was formed; 450 were quickly hired for service, parts and warranties.
Former employees who hired on with the new, consolidated operation accepted 10% pay cuts and started over earning vacation time and other benefits. The owners estimated that hourly employees would make as much as they did before the wage reductions, however, because work would be steady rather than punctuated by the layoffs that happened frequently at the former company because of insufficient customer demand.
The company also started from zero when it came to selling its products.
Fleetwood RV had to sign up independent dealers because it doesn’t own any and couldn’t use agreements negotiated by the previous company. Many dealers left the industry in 2009. The smaller group that remains is stronger financially, Draheim said.
With a sales network in place, the company had to recreate a supply network for parts needed to build motorhomes and campers. The previous one, Draheim said, was “fractured” by the recession.
Various suppliers couldn’t keep their companies going when orders dried up. Fleetwood RV had to find reliable suppliers who make the necessary RV components.
A slim operation
Fleetwood RV has a “lean” culture, which means the company actively eliminates waste and inefficiency while stressing continuous improvement, Draheim said.
“We’re able to produce more than we could a year ago,” he said. “If it weren’t for lean, we wouldn’t be where we are today. We wouldn’t be a profitable company.”
Just how profitable, he won’t say. Fleetwood RV also doesn’t release sales figures, but the amount is “substantially higher than a year ago,” the CEO said. And the company still has zero debt, he said.
Statistical Surveys Inc. (SSI) data from October found that Fleetwood RV ranked third in the industry in overall retail sales.
Because of lean business practices, the company is now taking ideas to market in just a few months, Draheim said.
Fleetwood has changed the production process and flow at least six times in the past 16 months, Draheim said. Changes have freed up floor space, leaving the manufacturer enough room to more than double capacity on a single shift, he said.
Making those changes has been a joint effort.
Draheim has read about lean practices, visited other lean plants and completed lean training. The vice president of operations has lean experience. And the equity firm lends expertise in financial and engineering matters, Draheim said.
The most significant change has been in how the plant builds RVs. Previously, workers manufactured in batches, making 10 identical motorhomes before switching to make 10 of a different model.
The process led the company to build more of some models than needed. Fleetwood Enterprises used to pressure dealers to take models they didn’t really want as a result. But Fleetwood RV, the new company, can switch models with each individual RV it builds, Draheim said.
Fleetwood RV builds more than 50 different floor models.
One major challenge is designing those models to fit consumers’ wants and needs.
The company keeps up with the changing marketplace by doing year-round grassroots research. Fleetwood staff goes to more than 200 RV retail shows to conduct focus groups, gathering feedback. The manufacturer recently surveyed more than 2,000 owners and one-third of its dealer network.
The company also seeks input from the more than 4,000 members of its RV owners club.
Customer feedback prompted Fleetwood to launch a product that combines aspects of a Class A design with a Class C. Class As have a front that looks like a bus, carry more water and have more towing capacity. Class Cs have a front that looks like a van, sleep more people but have less water capacity.
“Both products have their strengths and weaknesses, so we created a crossover,” Draheim said.
The resulting RV costs from $80,000 to $100,000. The vehicle sleeps four to eight people, depending on whether they are adults or children. The breakfast dinette converts to bunk bends, and a “hide-a-loft” is a platform that pulls down from the ceiling and holds an air mattress. The idea for the loft came from the sales staff. Fleetwood engineering group made it work.
The model is shorter and gets better fuel economy than other models that sleep the same number, Draheim said.
“That’s one of our highest-volume products over the last year,” he said.
Mac Bryan, vice president of administration for the Recreation Vehicle Industry Association (RVIA), said several RV makers are offering more stripped-down models to appeal to money-conscious shoppers.
RV sales grew 45% industrywide in 2010, “but, obviously, from very low levels,” he said.
The Virginia-based industry group expects sales will increase 6% to 8% this year, a more sustainable level of growth for models that can range from $5,000 to $500,000. Luxury options include gas fireplaces, Jacuzzis and patios that slide out 3 feet above the ground with canopy overhead and a railing around the sides.
“It’s almost like anything your imagination can conceive, they can build,” Bryan said.
The association expects RV sales will grow faster than some other discretionary spending because, as Bryan put it, “Many people are passionate about the lifestyle. We build family memories.”
The recession was devastating for the RV industry.
October 2008 though June 2009 was the 100-year-old industry’s toughest stretch since major oil embargoes in the 1970s, Bryan said. He expects it will take longer for the industry to recover this time because unemployment rates will probably take longer to fall than gas prices.
Getting a loan
Lending is a major factor in the sales equation. Some prospective buyers have had trouble getting approved for loans, Draheim said. But that’s starting to ease, with some lenders once again approving loans for consumers and dealers, he said.
During the recession, some people ended up buying smaller RVs because that’s all they could get loan approval for or that’s all they felt comfortable spending. But that’s changing. In the past six months, they’ve started buying bigger models. Draheim thinks these owners are rewarding themselves for making it through the recession.
When Fleetwood Enterprises was selling 50,000 to 60,000 units a year, most of the sales were in the mid-priced range, he said. Now, with the market at less than 20,000 units a year, most of Fleetwood RV’s sales are split between the top and bottom of the market.
RV demand is picking up, however. Statistics from www.gorving.com verify increased interest. Traffic to the website has increased more than 40% this year, spokeswoman Christine Morrison said. The site is run by the industry trade association.
Some consumers who postponed purchases during the recession are now looking to buy, Draheim said. He thinks the company is well-positioned for when the market recovers.
Until then, if Fleetwood RV sells more vehicles, it has to take market share from a competitor.
Draheim plans to continue innovating and running a lean operation.
In the short term, he said, “We’re just going to keep doing what we do.”