Baird Dealer Survey: Q1 Demand Encouraging

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April 10, 2013 by   Comments Off on Baird Dealer Survey: Q1 Demand Encouraging

Editor’s Note: Robert W. Baird & Co. recently partnered with the Recreation Vehicle Dealers Association (RVDA) to contact 110 RV dealers regarding demand during the first quarter. The following is a summary of the results.

Early-season trends were strong, despite a later start to spring and slower traffic in cold-weather markets. Retail demand improved nicely, up 9% to 10% in both motorhomes and towables. Dealers consider motorhome inventory lean and towable inventory balanced. With dealer confidence soaring, higher absolute inventory levels are fine.

“We remain bullish on fundamentals and would look for a market correction to provide an opportunity to become more aggressive,” Baird concluded.

Solid retail despite later start to spring. Demand for motorhomes and towables improved roughly 9% to 10% in Q1, despite slower traffic in some cold-weather markets. (Raw survey results indicated 18% growth in motorhomes and 26% growth in towables, but we believe a number of multi-location dealers skewed preliminary data). Big picture, we continue to believe that negative equity among RV consumers has begun to evaporate, driving cyclical recovery. The passage of time (the market peaked in 2004) and better used RV values – along with better home prices and a strong stock market – all play a role.

Inventory appears lean-to-balanced. Dealers appear comfortable with inventory levels. Motorhome inventory appears lean as several dealers mentioned unfulfilled orders (consistent with production constraints manufacturers have reported). Towable inventory appears balanced. Recall that towable manufacturers offered large discounts to protect share on dealer lots, a bet that could pay off if retail remains solid. Based on the number of days of inventory reported, motorhome (113 days vs. 102 days) and towable (115 days vs. 106 days) are up.

Dealer sentiment still lofty. Sentiment remains near record highs as dealers anticipate a recovery. One dealer noted, “if sales continue to follow early trending, this could be one of our best years ever.” After a difficult recession, dealers that survived are enjoying better retail, fresh inventory and easier credit. Indeed, just 5% of dealers reported tighter retail credit trends – and no dealer reported tougher access to wholesale credit. Net, the surge in dealer sentiment helps explain the desire to accumulate inventory – a natural re-stocking effect.

Bullish on fundamentals. We remain bullish on RV fundamentals as a solid cyclical recovery unfolds. We believe that negative equity is evaporating, fueling spending in previously dormant markets (RVs, boats, motorcycles). Meanwhile, dealer inventory is lean-to-balanced, supporting a potential restocking effect and better earnings power. Investor momentum has begun to fade, which could provide an opportunity to be more aggressive.

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