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Baird: OEMs Making Deals During Open House

Robert W. Baird & Co. conducted a survey of 115 RV dealers to assess recent trends. The following offers a summary of the results.

Elkhart deals stimulate orders. Traffic is mixed, yielding better towable (+5-7%) than motorhome (-5-7%) demand. Inventory is in decent shape, but dealers would not be inclined to take on more RVs except for some aggressive promotions in which wholesale floorplan interest is paid by manufacturers (esp. Thor Industries Inc. and Forest River Inc.). We consider RV stocks oversold and see a strong backlog exiting the Elkhart show, but consumer fundamentals remain weak.

Retail mixed while debt remains taboo. Traffic was mixed in Q3 (July/Aug. flat; Sept. down), but dealers tell us consumers remain under water and afraid of debt. Retail towable volume improved 5% to 7%, according to dealers, with lower price points (less financing) selling best. Motorhome volume fell 5% to 7%, with lower-priced gas units outselling diesel.

Inventory OK – but finance promotions drive orders. Inventory is in decent shape, but dealers might have been inclined to destock heading into winter if not for aggressive deals at the Elkhart show – especially in towables (Thor and Forest River). Dealers report 111 days of towable inventory (down from 114 days last year) and 101 days of motorhome inventory (down from 109) – yet more dealers consider inventory “too high” than in June. Dealer towable order plans, however, are up 8-10%, supported by Elkhart promotions.

Wholesale credit easing as competition intensifies. Credit has eased at the wholesale level as banks compete for business. Both “GE and Ally have never been so doggone nice,” according to one dealer. Meanwhile, Thor and Forest River partnered with GE to cover floorplan interest for the winter, which are “hard not to take advantage of” according to another dealer. Retail credit remains tough, especially with trade-ins still under water.

Dealer confidence rebounds, but election cycle looms. On the bright side, dealer confidence recovered to 49 (50=neutral) after plummeting during the summer. Still, a number of dealers are wary of the looming election cycle, when brutal negative ads tend to weigh on the consumer psyche. Others point to November 2012 as a catalyst, but that is more than a year away (to state the obvious).

Fundamentals weak, but stocks oversold. Fundamentals remain soft – driving a cautious if not pessimistic mood among dealers. We consider RV stocks oversold and anticipate a strong backlog exiting the Elkhart show – leaving us to see an opportunity for patient/value investors.

Note: Contact your Baird representative for a complete copy of the 42-page dealer survey.


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