Baird is Still Bullish on Industry After Louisville
Editor’s Note: The following are observations from an RV Field Trip conducted by Robert W. Baird & Co. during last week’s National RV Trade Show in Louisville, Ky. The following are excerpts from Baird’s report issued in a note to investors.
Notes from RVIA trade show: Retail remains strong and credit remains accessible — fueling dealer optimism. Dealer inventory appears lean in motorhomes and more balanced in towables – with more pent-up demand yet to be released in motorhomes.
Baird hosted meetings with industry experts from Airstream Inc., Bank of America, Drew Industries Inc., GE Capital, the Recreation Vehicle Dealers Association (RVDA), Thor Industries Inc. and Winnebago Industries Inc.. Highlights include:
• RVIA revised its shipment forecast during the show. Shipments are expected to increase 11% to 316K units in 2013 and increase 6.1% to 335K units in 2014. While the revised forecast reflects a downward revision in towable sales, RVIA expects motorhome sales to exceed the prior forecast.
• We believe the motorhome recovery is poised to continue, as negative equity is evaporating from these longer-duration assets. In contrast, towables are typically financed over a shorter period – recovering sooner than motorhomes – as negative equity evaporated more quickly.
• Discounting has abated – particularly in motorhomes – as robust retail demand coupled with supply constraints have created a strong dealer appetite for inventory.
• Overall, credit remains accessible, though lenders require larger down payments relative to historical levels – particularly in higher-priced motorhomes.
• There is concern among industry lenders that an inventory build or excessive inventory aging will result from manufacturer incentive programs that pay the interest component for dealer inventory carried over the winter months.
■ Some industry lenders voiced concern that dealers are ill-prepared to handle a rise in interest rates – and the corresponding reduction in margin.
Industry Outlook & Trends
• Attendance at the Louisville show has been slipping in recent years, as more dealers participate in the Open House which takes place in September. At some point, the two shows may need to merge.
• Dealer consolidation has continued to evolve as an important industry trend. While the dealer base decreased by 20-25% during the recession, the current number of dealers is still well below pre-recession levels, despite the current recovery. Net, Baird sees the dealer base continuing to consolidate as dealers use scale to obtain better purchasing leverage with manufacturers – a trend
• The industry contacts noted trends toward international expansion in the industry – particularly with respect to China. While Baird sees some potential for expansion into the Chinese market, it sees high barriers to entry prohibiting any meaningful penetration of the market in the near-to-medium term.