As Forest River Inc. marks its best sales year since being founded in 1995 by Peter J. Liegl, the multi-divisional company anticipates hosting 2,800 people at its third annual dealer meeting, Sept. 29-30, at its corporate headquarters in Elkhart, Ind.
”I guess we are going to have a 40% increase this year in attendance,” Liegl told RVBUSINESS.com. ”The response has been phenomenally good.”
The show will feature Forest River, Coachmen, Palomino and Prime Time recreation vehicles along with buses, cargo trailers, manufactured homes, commercial vehicles, ice houses, pontoon boats and bathroom units manufactured by other divisions.
In an exclusive interview with RVBUSINESS.com, Liegl estimates that Forest River’s sales for 2010 will be in the range of $2.5 billion, up 74.2% compared to last year.
”We’ve never had a better year in our whole history,” Liegl said. ”We’re happy with that. But by the same token, we picked up a lot of pieces of the pie (market share) where other people went out of business.”
Soon to join Forest River’s lineup is the reincarnation of the Shasta brand in a new division under the direction of industry veteran Brad Whitehead that will build stick-and-tin travel trailers, minimotorhomes and laminated trailers and fifth-wheels. Shasta’s new lineup will make their debut Nov. 30-Dec. 2 at the 48th National RV Trade Show in Louisville, Ky.
”We won’t have anything from Shasta at our dealer showing, but there’s a need for a Shasta-type product and we’ll have it at Louisville,” Liegl said.
Although the recent proliferation of northern Indiana dealer meetings has raised some concerns within the industry regarding the ultimate impact on the Recreation Vehicle Industry Association’s (RVIA) Louisville Show, Liegl said that Forest River’s dealer show is meant to compliment the Louisville Show, rather than replace it.
”I think we need both,” Liegl said. ”No 1, Louisville is limited to RVs. By the same token, space is extremely costly there. I’ve got my show here in a field next to corporate headquarters. I can display more at no cost.”
Liegl, at the same time, said the Louisville Show by itself isn’t long enough to spend the time necessary with Forest River’s dealers. ”Our show just gives us more time to spend with our dealers communicating,” he said. ”That’s all Louisville is, communicating. But with our own show, we’ve got more time to do that.”
The Berkshire Hathaway Inc. subsidiary’s foray into staging its initial dealer meeting in 2008 with the theme ”Pick Your Partner” was spurred by the desire to ”let dealers know that financially, unquestionably, we were the strongest (RV manufacturer),” Liegl said.
”We wanted to make it known that they should make sure that their ‘partner’ was going to be here through thick and thin,” Liegl added. ”And obviously, it worked very successfully for us.
”In effect we were saying to dealers that they needed to know who they were doing business with because if your manufacturer goes out of business, you’ve got a problem, not only a problem getting your warranty, but a problem selling them and getting them financed.
“Every dealer out there understands that very well today when they look at the manufacturers that went out of business and the problems they had with the product that they had on their lots.”
Liegl said the theme for this year’s gathering will involve a ”thank you” to dealers for making Forest River the success it has become.
in the big picture, Liegl said a host of RV manufacturers holding dealer open houses and shows the same week in September is, in reality, boosting attendance at Forest River’s gathering.
Those other companies hosting dealers include Gulf Stream Coach Inc.; Thor Industries Inc. subsidiaries Keystone RV Co., Thor Motor Coach (recently created from the consolidation of Four Winds International Corp. and Damon Motor Coach), Breckenridge and Dutchmen Manufacturing Inc.; Monaco RV LLC; Livin’ Lite Recreational Vehicles; Dynamax Corp,; EverGreen Recreational Vehicles LLC; Sunnybrook RV; and Carriage Inc. Meanwhile, Jayco Inc.’s annual Master Sales Training Session for dealers’ sales staffs is partly slotted in the same time frame.
”Having the competition have their (dealer shows) at the same time has boosted our numbers,” Liegl said. ”We’re getting commitments (from competitors’) dealers that they are coming to ours too.”
Thousands of recreational vehicle retail personnel will be converging in late September on the RV-building center of Elkhart County, Ind., as more manufacturers turn to local 2011 product displays in the wake of the Great Recession and a prevailing cost-cutting atmosphere throughout the business world.
What’s even more interesting is that they’re doing it in unison – at the end of September in synch with Forest River Inc.’s big Sept. 29-30 dealer gathering, now in its third year. In fact, it appears that Forest River has reinvented the wheel to an extent by bringing in hundreds of RV, cargo and commercial trailer retailers to its home plant in late September for a closed gathering at which dealers are wined and dined and treated to expansive new model product displays.
The Berkshire Hathaway Inc. subsidiary’s second annual 2009 “Pick Your Partner” open house last year drew 600 to 700 dealers — a total of 2,000 people – to the grounds outside the Elkhart-based company’s headquarters where retailers were treated to a display of about 350 units plus live music and staff-delivered beer.
Although Forest River’s management hasn’t said much publicly about its plans yet this year, it’s a safe bet that they’re expecting more of the same at this year’s dealer meeting. “I assume it’s going to be as good as last year,” Forest River President and CEO Pete Liegl told RVBusiness. “We’re getting a good response so far. We just started sending out the invites last week.”
The trend toward Elkhart County dealer open houses took a big step forward earlier this month when four Thor Industries Inc. subsidiaries, Keystone RV Co., Damon Motor Coach, Four Winds International Corp. and Breckenridge, announced plans for a combined dealer open house Sept. 28-30 at the RV/MH Hall of Fame Museum in Elkhart, Ind., for which they’re expecting 500 dealers. As many as 100 2011 models will be on display on the grounds surrounding the Hall of Fame.
Now, the latest to join the fray is Thor’s Goshen-based Dutchmen Manufacturing Inc., which has notified its dealers of its first-ever Sept. 27-30 open house at the former Azure boat manufacturing facility at the corner of C.R. 6 and Marina Drive not far from the Indiana Toll Road and the RV/MH Hall of Fame.
Dutchmen President Don Clark says his company’s open house will take place both inside and outside the facility, and will be highlighted by a Sept. 27 dealer party featuring live entertainment and some eye-catching 2011 product displays.
“We’re going to have some surprises that have yet to be viewed by any dealer,” Clark told RVBusiness. “We’re going to have not just one new brand, but several new brands that we will be selling at our open house. And it will be a good precursor for what the dealers will be seeing at Louisville (RVIA’s annual National RV Trade Show, Nov. 30 to Dec. 2 in Louisville, Ky.). We’re going to have our new sales management staff on hand, and it gives dealers an unharied time to get to know them better.”
Other companies are expected to announce their own “open houses” and “showcases” in the near future. Although details were still being worked out, Carriage Inc. Vice President of Sales Ed Kinney says his Millersburg, Ind., firm will hold a Sept. 28-30 open house in Millersburg. “We’ll have a nice display, show some new things we will show at Louisville, give some plant tours and have a good casual time,” he said.
Gulf Stream Coach Inc. also is joining in the September rush with an event scheduled for Sept. 27-30 at which the Nappanee firm will show 45 towable and motorized units.
Meanwhile, Jayco Inc.’s own annual Master Sales Training Sessions for dealers’ sales staffs is partly slotted in the same time frame.
Jayco, headquartered in nearby Middlebury, plans to bring in approximately 500 people for intensive sales training at its complex in Middlebury, Ind. The sessions run Sept. 20-23 and Sept. 27-30 and will involve sales training and extensive factory tours, reports Marketing Director Sid Johnson.
Jayco did not sponsor these sessions last year due to the economy, but traditionally holds the event at the end of September every year, Johnson reports. “Dealers pay for transportation. We pay for everything once they get here,” said Johnson, noting that the cost to Jayco is in the neighborhood of $200,000.
The whole emerging sequence of events, in turn, is beginning to prompt questions about just how many hotel rooms there are in the region to house an influx of business people of this magnitude. Elkhart County, in itself, has 2,591. And while it’s got to translate into a positive in terms of facilities use at the Hall of Fame, located along the Indiana Toll Road east of Elkhart, it’s also posing questions among some industry observers about how this emerging trend might ultimately affect the viability of the Louisville Show.
That said, some of the players in this emerging scenario like Clark and Keystone President Bob Martin seem to be keeping their focus on Louisville as well. Martin called Keystone’s September product display “a little preview of Louisville” that would include some – but not all – of the products his company would unveil at the national show in late November.
‘It’s a good opportunity to get in front of your dealers in the fall,” said Martin, whose agenda will include seminars and training, vendor booths and meetings with customer service representatives and retail and wholesale financing sources. ”It a good draw for Keystone with a couple of motorhome lines and Breckenridge (which builds park trailers). All the divisions are working on plans together. There will be a lot to see.”
“This is an absolutely exciting event,” said Tim Howard, president of Breckenridge,“ whose Nappanee-based firm participated several years ago in a Thor-only dealer show in Elkhart County, “because the way we did it before, it was far-flung. The companies who did it in unison did so at their own locations. This will be at one location.”
Howard said the Thor event was not specifically designed to coincide with Forest River’s “Pick Your Partner” event, but it makes sense. “I don’t think it was discussed as that,” he said, “but it is logical, It makes perfect sense for a dealer to have the efficiency of killing two birds with one stone.”
Dan Shea, Gulf Stream towables president, said the September event makes a lot of sense, giving dealers, especially Canadians, a chance to place their orders early.
“It’s a good opportunity for dealers who need product quicker,” said Shea. “There is a lot of reason for dealers to step up and buy product this October, November and December.”
Although late September dealer shows take some of the luster off Louisville for Gulf Stream and others, Shea added, “Louisville will still be a big show for us.”
Warren Buffett was spared from giving a deposition in the lawsuit brought by a former executive who said he was wrongly dismissed by the recreational vehicle unit of the billionaire’s Berkshire Hathaway Inc., Bloomberg reported
As first reported on Wednesday (Aug. 4) by RVBUSINESS.com, U.S. Magistrate Judge Christopher Nuechterlein in South Bend, Ind., made the ruling Aug. 2 and said Berkshire CFO Marc Hamburg may be questioned by lawyers for the plaintiff, Brad Mart.
Mart said he was fired from the Elkhart, Ind.-based Forest River Inc. after bringing allegations of fraud to executives, including to Buffett in six phone conversations. Mart had requested Buffett’s deposition to combat Omaha, Neb.-based Berkshire’s claim that it should be dropped from the lawsuit for lack of jurisdiction.
“Even Mart’s own recount of the conversations reveal that Buffett communicated that he did not get involved in personnel matters and that Mart should seek an audience elsewhere for relief,” the judge wrote.
Buffett, Berkshire’s CEO, isn’t accused of wrongdoing. His deposition was requested to help determine facts of the case. Buffett didn’t respond to an e-mailed request for comment sent to an assistant.
Berkshire, the parent company, doesn’t do business in Indiana and shouldn’t be subject to courts in that state, it said in the June 1 request for dismissal. Mart said Berkshire’s control over Forest River submits the firm to Indiana law and Buffett’s statements could help show that.
Hamburg’s deposition was requested by Mart “to probe the full extent of the parent-subsidiary relationship,” Nuechterlein said. “The court considers it appropriate to grant Mart’s request.”
Berkshire had previously offered a deposition with Hamburg in exchange for Mart’s renouncing his request for depositions of other executives including Buffett.
Buffett, 79, bought Forest River in 2005 and left its CEO, Peter Liegl, in charge of the unit. Mart, who helped arrange the $800 million sale to Berkshire, was fired last year after he went to Buffett and accused Liegl of fraud, according to the April complaint. Liegl’s lawyer, Jeanine Gozdecki of Barnes & Thornburg LLP, denied the charges and is seeking a dismissal.
Liegl required Forest River to buy parts at inflated prices from a company he owned and appropriated cash from factory vending machines, Mart said. Liegl also reneged on a promise to make Mart CEO, according to the complaint. Mart alleged in the suit that Liegl threatened his life.
“There is no legitimate basis to the allegations of the threats or the fraud,” Gozdecki said last month. “We will vigorously defend these claims on behalf of the company and on behalf of Pete Liegl.”
Mart’s request to depose Jeff Rowe, Forest River’s director of human resources, was granted by the judge. An application to question Forrest Krutter, Berkshire’s secretary, was denied.
“It appears that this request is more likely to lead to an impermissible fishing expedition than targeted, jurisdictional discovery,” Nuechterlein said of the request to depose Krutter.
Krutter had no comment. Stephen Kennedy, a lawyer for Mart, declined through an assistant to comment.
Berkshire Hathaway Inc. was sued by an ex-manager of its recreational vehicle business who said he was fired after bringing allegations of “millions of dollars” of fraud to executives, including Chairman Warren Buffett, according to Business Week.
Brad Mart said in an April 5 complaint that Buffett “took no action to correct the deficiencies” at the RV maker, including the removal of cash from factory vending machines for deposit in a personal account of Forest River CEO Peter Liegl. A representative for Berkshire said Mart never told Buffett, in three conversations, about unethical behavior, and that a company probe found no illegal activity.
Mart is seeking the Forest River CEO post, which he said he was promised, according to the complaint in federal court in South Bend, Ind. He also asked for damages including reimbursement for his loss on the sale of his home in Illinois when he purchased a new property in anticipation of getting the promotion. He accused Elkhart, Ind.-based Forest River Inc. of breach of contract and said Liegl threatened his life.
“Because Mart followed the Berkshire Hathaway Code of Business Conduct and Ethics and reported known or suspected violations of the code by Liegl and Forest River to Warren Buffett, Mart lost his job,” according to the complaint. Liegl “fared much better, retaining his position as CEO of Forest River and keeping the millions of dollars he bilked.”
Mart was fired early last year after helping to arrange Berkshire’s 2005 deal to buy Forest River for about $800 million according to the complaint. Mart said that he was named general manager of the company’s financing business after it was bought by Berkshire and then told in 2007 he would succeed Liegl as CEO. Mart said he reported violations to Buffett in six separate phone conversations.
“Mr. Mart did not alert Mr. Buffett to any unethical, fraudulent or illegal activities” at Forest River, said Berkshire Secretary Forrest Krutter in an interview. Krutter said Buffett asked him to conduct a review of RV maker related to “business items.” “In the course of the investigation, these allegations came to light,” Krutter said of the fraud claims. “My investigation did not identify any fraudulent, unethical or illegal activities.” Krutter said he’s seen “no evidence or indication” that the allegations of death threats are valid, and that the reasons for Mart’s dismissal aren’t related to his claims.
Berkshire’s code says the company will “uphold the highest level of business ethics” and that retaliation is prohibited against employees who report violations in good faith. Buffett told Congress in 1991 that he had given employees of Salomon Inc. a message after a bond scandal: “Lose money for the firm and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.”
Mart said that Liegl required Forest River to buy parts, at inflated prices, from a company he owned and demanded that the RV maker’s staff use his airline-charter service for business travel. Liegl’s conduct also included “appropriating hundreds of thousands of dollars in cash from factory vending machines,” according to the complaint.
Liegl also used “ghost payrolling” so that former employees could receive salary or benefits from Forest River in a “fraud upon Berkshire Hathaway’s shareholders,” according to the complaint. Buffett oversees a collection of more than a 70 companies from Berkshire’s Omaha, Nebraska, headquarters with a staff of about 20 people. Berkshire’s subsidiaries include insurers, shoe manufacturers and power producers. He seeks companies with strong management and entices business-owners to sell their firms by promising not to interfere in day-to-day operations.
‘A Remarkable Entrepreneur’
Mart said he introduced Buffett and Liegl. According to Buffett’s annual letter to Berkshire shareholders published in 2006, Liegl previously sold Forest River to a leveraged- buyout firm and subsequently quit the firm because of a disagreement on strategy. Forest River then went bankrupt and Liegl repurchased it, Buffett said. “Pete is a remarkable entrepreneur,” Buffett said in the letter. “You can be sure I won’t be telling Pete how to manage his operation.”
Forest River has about 5,355 employees, according to Berkshire’s 2009 annual report. The unit sells restroom trailers and pontoon boats in addition to RVs, according to the company’s website.
Angelica Schultis, a lawyer for Mart, declined to comment.
RVBUSINESS.com reported in October 2008 that Mart had been named president of Forest River. “Brad is a very competent manager,” Liegl said. “Making this move, we can maintain doing what we are doing.”
Liegl told RVBusiness that he will, in turn, focus on acquisitions. “The times are right to be aggressive in this area,” Liegl said. “There are some people struggling out there. It hasn’t been the greatest of times for everybody in the RV business, but, by the same token, it hasn’t been the worst for everybody, either.”
The announcement of Mart’s promoton came in a company memo dated Oct. 1, 2008.
RVB: So, Mike, how things are going for the new Coachmen at this point?
Terlep: We are streamlined and simple and far quicker to market. Our focus is on the product, the customer and sales. And just as we frequently look into the review mirror in driving a car, we are keeping abreast of the competitive landscape. The new Coachmen is gaining market share and, yes, we are once again profitable. We’ve been profitable the last nine months and we generated a profit for 2009.
RVB: But Coachmen’s RV business generated big losses while part of the former Coachmen Industries Inc. How do you explain this turnaround?
Terlep: You eliminate all the commotion, the waste, the excess. You streamline the process, eliminate the processes you don’t need and you get to the market on a timely basis with a great product.
RVB: Would you call this a seamless transition or were there bumps along the way?
Terlep: I’d love to say it was seamless. The Forest River organization has a lot of great people in it and we had a lot of help from a lot of great people. So, I think the integration was about as seamless as you could have orchestrated with the merger as large as it was. We had a few bumps in some areas. But in the eyes of the (RV) owners, the dealers, the suppliers and employees, I think it went remarkably well. I believe anybody you talk to would reinforce that.
RVB: Tell us about your management team.
Terlep: The management team is made up of a diverse, dynamic, talented and motivated group of individuals that have one thing in mind: winning. There is tremendous chemistry in our team and we enjoy working together. We are having fun and we are putting W’s in the win-loss columns. Our management team is empowered and very focused.
RVB: How much carry-over exists in your team from “Old Coachmen” to “New Coachmen?”
Terlep: Quite a bit, especially in the plants. In the management team and sales team there is a blend of those that had been with Coachmen and some new blood. I believe that through the transition and integration of Coachmen into Forest River we rebuilt a team of “all stars,” the best of the best. There are six divisions within the new Coachmen, each headed by a general manager with a dedicated plant, sales team, and each operates under its own profit and loss. There are no vice presidents in our divisions. No layers, only doers. Dave Miller heads Class A’s, Mike Bear the Class C’s, Don Medd the fifth-wheels, Bob Dumm the laminated travel trailers, John Babcock the conventional travel trailers and Gar Warlick the folding camping trailers. Sandy Marschke oversees our support plants. They report to me and I report to Mr. Liegl (CEO Pete Liegl).
RVB: We’re told that there are fewer product lines today bearing the Coachmen brand name. Why is that?
Terlep: We streamlined and rationalized our product offerings. Any product line that could not stand on its own was eliminated. Any product that was not generating the results at retail that our dealers and we need and expect was eliminated. We have limited the number of floorplans within each product line with the view of improved product turns at the dealer level. It is difficult to generate three to four turns a year if you have 40 floorplans to choose from.
We placed a moratorium on the number of floorplans each division can generate. If they want to bring another floorplan to market, they need to eliminate a weaker floorplan. This reduces lead times on products, improves turns, improves quality by increasing repetition in our plants and keeps the best product in the market.
Every product line underwent vast improvements to elevate its competitive position in the market and we introduced six new product lines targeting what we believed to be the largest market segments and growth opportunities of the market: the Catalina travel trailer, Freedom Express travel trailer, Apex travel trailer, Brookstone fifth-wheel, North Ridge fifth-wheel and Encounter Class A.
The carry-over product lines that have been vastly redesigned include the Chaparral fifth-wheel, the Freelander, Leprechaun, Concord and Prism Class C’s, the Mirada, Cross Country and Pathfinder Class A’s and, of course, our Viking and Clipper camping trailers. We are experiencing market share gains in all of our products and fully expect and intend on building upon these gains throughout 2010.
RVB: How did dealers respond at your first Louisville Show?
Terlep: Excellent. We wrote business and signed a lot of new dealers.
RVB: What changes has your dealer body undergone in the past year?
Terlep: Our dealer body remains the lifeline of our company and our success. We can only be as successful as our dealers are, so we want to make them as successful as we can selling our products. The make-up of our dealer body, just like all distribution bases, has changed through the recent recession due to attrition. We continue to value many long tenured relationships with dealers that have been with Coachmen for as many as 40-plus years and we have added a number of new dealers to the Coachmen dealer body that have brought new energy and volume to our company.”
RVB: If you could capsulize it into a few words, what is your philosophy at the new Coachmen?
Terlep: The philosophy of Coachmen is really quite simple – perform! Generate results! Win!! As for business principles, they remain the same as those on which Coachmen was founded: Our word is our bond. Practice the golden rule. And business goes where it is invited and stays where it is well cared for. Coachmen is managed as a stand-alone division of Forest River. There is no effort to cross-promote or align or not align with Forest River dealers. We believe the best product at the best dealership will win in the marketplace. This is what keeps Forest River so strong.
RVB: Although the Coachmen RV business is still part of a publicly held company, you’re much lower on the food chain as a unit off a larger company, Berkshire Hathaway Inc. Does that change in any way your accountability to shareholders.
Terlep: The accountability of Coachmen to perform is just as prevalent now as it was under old Coachmen. There was never an absence of accountability. However, under the current structure we are able to focus our energies on running the business, and we have far fewer distractions that accompanied being higher up on the food chain, as you put it.
There are many stakeholders in the game and they all have expectations of us. We need to meet the expectations of all stakeholders starting with Berkshire Hathaway and Forest River Inc. all the way through to the end consumer. In any event, the goal is to quiet the critics and generate results. Under Forest River Inc. and the leadership of Mr. Liegl, I believe that we are doing just that.
The business model of Forest River has permitted us to simplify and focus our energies on the key fundamentals of the business.
Let me be clear on one point: old Coachmen was a great company and grew to be an industry leader over a very long 46-year history, much longer than the average life of a company and certainly much longer than the average life of a publicly held company. It was time for a change and the change was a good change for Coachmen — the brand, the dealers and the consumer — and I believe that the addition of Coachmen to Forest River has provided the value that Mr. Liegl saw in the opportunity. Coachmen is a great brand that has been in a sense, reborn. But let’s not forget that the equity and value in the Coachmen name lies both in its history and in its future.
Forest River Inc. last week filed a civil suit alleging copyright infringement in federal court against Heartland Recreational Vehicles LLC.
It is the third copyright infringement suit Elkhart, Ind.-based Forest River has filed against Heartland in the past two years.
In this latest suit, filed Jan. 7 in Northern Indiana District Court in South Bend, Forest River alleges that the floorplan for Heartland’s MPG travel trailer, unveiled at last month’s National RV Trade Show in Louisville, is an exact copy of Forest River’s copyrighted RP 176.
In other promotional brochures distributed at the show, Heartland displays images of the Geico gekko, a promotional character used by Geico, an insurance company owned by Berkshire Hathaway Inc., parent company of Forest River.
“This was not an innocent mistake; they targeted us,” Ryan Fountain, attorney for Forest River told RVBUSINESS.COM.
He said Forest River complained to Heartland, but the company did nothing, so the suit was filed.
In previous lawsuits, Forest River alleges that Heartland copied the Forest River Cedar Creek floorplans and that promotional materials for its North Country included false advertising.
Litigation between the two companies began after the October 2008 “hotel incident” in which Forest River alleges that Heartland attempted to lure Forest River dealers during Forest River’s dealer show held in Elkhart.
The first two suits are pending in courts in Fort Wayne and Hammond, Ind.
The latest suit seeks no dollar amount.
Most of the nation’s recreational vehicle makers, whose factories are clustered in northern Indiana, crashed in the recession. But not Thor Industries Inc., owner of Four Winds, Airstream, Dutchmen and seven other units that sell nearly 50 RV brands in all, according to the Wall Street Journal.
After months of slashing jobs and closing factories, Thor is hiring again, and it expects to open two new factories before the end of the year. “The nadir in this industry is definitely behind us,” says Richard Riegel, chief operating officer of Thor, the nation’s biggest RV maker by sales.
Fierce, fast cost-cutting and a structure dominated by many small factories that were easy to open and close almost overnight helped Thor avoid the financial disasters that led to bankruptcy filings by its two big rivals. Those companies — Fleetwood Enterprises and Monaco Coach Corp. — had accounted for half of the industry’s preslump shipments.
Thor’s turnaround is helping to resuscitate the region, where unemployment reached 20%, making it a favorite destination of President Barack Obama as he pushed for economic-stimulus dollars. More than a dozen RV start-ups have emerged — most of them rising from the ruins of companies that went under — in northern Indiana, where about 70% of U.S. RVs are made and the RV Hall of Fame and Museum is housed.
Sales of RVs — ranging from simple, tow-behind trailers to land yachts outfitted with flat screens and full kitchens — peaked at more than 390,000 units in 2006, aided partly by a surge in hurricane-related sales. But they started to stall even before the recession because of $4-a-gallon gasoline. The industry’s problems quickly snowballed as consumer confidence evaporated and banks stopped lending for big-ticket purchases, including RVs.
Riegel recalls driving along Elkhart County’s back roads in the predawn cold last winter. “It’d be dark, it’d be nasty, and I’d see these fathers standing at the end of driveways with their kids waiting for the school bus,” he says. “I knew many of them were our workers” who were suddenly jobless.
This year, analysts predict sales will be 150,000, a 60% decline. But business is looking up as credit loosens and dealers restock inventory-drained showrooms. Shipments of RVs have increased in the last two months, and analysts now expect them to be up 25% next year.
That has helped Thor, as well as the new ventures that have emerged. Truck maker Navistar International Corp. bought parts of Monaco, creating a new RV division. Portions of Fleetwood were bought by New York-based American Industrial Partners Capital Fund IV LP, a private-equity group.
Evergreen RV, in Middlebury, Ind., is a start-up that took over a factory formerly owned by Coachmen Industries Inc., which sold its RV business to Forest River Inc., a unit of Warren Buffett’s Berkshire Hathaway Inc., in late 2008. Evergreen, which touts an “eco-friendly” trailer made of recycled and light-weight materials, now has 60 workers.
Doug Lantz, Evergreen’s chief operating officer, says that when word of the factory reopening spread, job seekers lined up. “We had hundreds showing up and blocking the doors and the parking lot,” says Lantz, who posted a sign on the road saying applications weren’t yet being accepted.
For Thor, which is based in Jackson Center, Ohio, hardship created opportunity. Ron Fenech, president of Thor’s Keystone division, which is based in Goshen, figures he gained at least 1.5 percentage points of market share as competitors faltered, giving his division more than 22% of the market.
“There were six months when the whole industry was in lockdown,” he says. But Keystone, which shed nearly 30% of its 3,000 workers in the last year, has hired back 400 since the summer.
The company, which makes towed trailers, is opening four production lines in its two new factories in Goshen. Trailers are generally less expensive than motorhomes, and sales in the segment have revived faster.
Thor’s secret is speed. The company is willing to expand or contract rapidly, lengthening or trimming shifts daily. Two factors have made that possible: the relatively small size of its factories and the production incentive offered to its workers. By contrast, its failed rivals took on debt, and some built sprawling, expensive plants.
In Goshen, Keystone operates a network of 16 factories, most of them no larger than 75,000 square feet, which is somewhat smaller than 1½ football fields.
The process uses a basic platform bought from an outside supplier that is pushed on a dolly to groups of skilled craftsmen. At different stations, plumbers, electricians and carpenters install pipes, wiring and cabinets.
Many employees are Amish craftsmen who ride bikes to work or are transported from nearby farms by hired drivers.
The workers are paid slightly more than minimum wage, but they still covet the jobs and the productivity bonus. It’s not unusual for RV workers to earn as much as $60,000 a year, Fenech says.
George Graber was unemployed for three months this year after the shutdown of an RV plant in Elkhart County, Ind. Now, he’s building $15,000 travel trailers at startup Heritage One RV Inc.
His job-hunting luck reflects a rebound in RV demand that may signal the end of the worst U.S. recession since World War II. In the last four domestic cycles, Winnebago Industries Inc. and other RV makers foreshadowed the economy’s decline and heralded its recovery, government and trade-group data show, according to Bloomberg.com.
“The RV industry is always the first in and the first out, and there’s already been a noticeable beginning of it coming out of the current recession,” said Dave Hoefer, 66, an adviser to Earthbound Recreational Vehicles, which was founded this year on the site of another bankrupt maker in Middlebury, Ind.
Elkhart County builds more than half the RVs sold in the U.S., making it the center of a $14 billion domestic market. Evidence of a turnaround is showing up in new companies like Heritage One sprouting from the remains of failed manufacturers, and in no-vacancy signs at a motel favored by RV-hauling truckers.
Analysts watch RV sales because motorhomes and travel trailers are discretionary purchases that consumers defer in an economic slump. Industrywide deliveries may rise in 2010 to end a three-year decline, said Richard Curtin, director of consumer surveys at the University of Michigan.
Sales in July, the latest available, ran at the strongest annual rate since October, according to the Recreation Vehicle Industry Association (RVIA). By year’s end, those shipments should show their first monthly gain since October 2007, predating the onset of the recession in December of that year, said Curtin, who analyzes data for the Reston, Va.-based trade group.
Rise and Fall
Wholesale deliveries to dealers averaged 355,000 over a six-year period that ended in 2007, then tumbled to 237,000 last year as the recession took hold, according to RVIA data.
Showroom visits and consumer-loan approvals now are rising for the first time in more than a year, said Steve Smith, a Heritage One partner who recently drove 5,000 miles through the Midwest and South as part of a company sales call.
“Customers’ interest is obviously rising, which is making the dealers feel better,” Smith, 47, said from the 30,000-square-foot building in Nappanee, Indiana, where Graber and about a dozen other workers were assembling so-called “stick and tin” trailers of metal sheets over wooden frames.
Three Obama Visits
Elkhart County needs that kind of news. Located along the Michigan border and home to about 200,000 people, the county has a jobless rate of about 17%, the worst in Indiana. President Barack Obama has visited the area three times to talk about economic hardship.
Ron Muhlenkamp, whose Muhlenkamp & Co. in Wexford, Pa., has invested in RV makers coming out of past recessions, said he isn’t yet buying the stocks in this cycle.
“We think the consumer might be slower to return this time,” he said. U.S. joblessness reached a 26-year high of 9.7% in August, the Labor Department said on Sept. 4. The so-called underemployment rate, which includes part-timers who would prefer full-time work and job seekers who have stopped looking, rose to a record 16.8%.
Before coming to Heritage One, Smith worked at Travel Supreme Inc., a maker of $160,000 trailers that shut its plants in January after another company bought out the operations. Nearby sit two vacant buildings owned by motorhome maker Monaco Coach Corp., which went bankrupt in March.
Betting on Recovery
Earthbound, the company advised by Hoefer, is on the site of Pilgrim International Inc., which went out of business in September 2008. Earthbound has been working on $42,000 lightweight trailers since January and is betting on a recovery in time for a sales push in early 2010. Heavier trailers cut fuel economy for their tow vehicles.
“We feel the industry has a strong future,” said Bill Hughes, 58, an Earthbound investor who was a Pilgrim vice president of service and parts. In the past year, 15 new RV makers have begun operations, according to the RVIA.
Another sign of recovery is bookings at the Red Roof Inn in Elkhart, said General Manager Beth Ronzone, a 24-year employee. The motel is filled again on some nights with truck drivers who move RVs, a reminder of the industry heyday two years ago when rooms were sold out five or six times a week.
‘Seeing a Pickup’
“We started seeing a pickup in late April,” Ronzone, 57, said Aug. 24. By that evening, most of the parking lot was occupied.
Hiring is starting to pick up, too, said Dorinda Heiden-Guss, president of the Economic Development Corp. of Elkhart County
Keystone RV Co., a Goshen-based unit of Thor Industries Inc., the largest U.S. RV maker, announced last month it will add 200 workers to expand travel-trailer output, Heiden-Guss said. Jayco, in nearby Middlebury, is also recruiting, she said.
Among the investors betting on the industry is Warren Buffett’s Berkshire Hathaway Inc. Berkshire’s Forest River Inc. RV unit paid about $42 million for the RV business of Elkhart- based Coachmen Industries Inc. American Industrial Partners bought the motorhome unit of bankrupt Fleetwood Enterprises Inc. of Riverside, Calif., in June for $53 million.
Winnebago and Jackson Center, Ohio-based Thor are the only large, publicly traded RV makers still in the business and not in court protection.
Shares of Forest City, Iowa-based Winnebago and Thor have almost doubled this year. Since the recession began, Winnebago has tumbled 45% and Thor has fallen 26%, compared with a 31% decline in the Standard & Poor’s 500 Index. Coachmen still operates its bus and manufactured-home business.
At Sierra Motor Corp., a 22-year-old maker of interiors for horse trailers, 2008’s record-high fuel prices helped spur expansion into human transport.
The Bristol, Ind.-based company added a line of travel trailers weighing less than 1,750 pounds. They include amenities such as toilets, which aren’t common on models that small, President Michael Greene said.
That move also meant that Sierra Motor, which has about 45 workers, could keep about a dozen employees who would have been laid off as orders for equine vehicles flagged, Greene said. The labor force has exceeded 100 in busier times, he said.
“They are like family, you hate to have to let people go,” said Greene, 52, who was one of the company founders.
For Graber, 45, who had to sell his pickup for a cheaper model and take other belt-tightening steps after losing his purchasing job at Travel Supreme, the Elkhart recovery can’t come fast enough.
“People I know personally, a couple of them will get back every week now,” he said. “Three months ago, everyone was just down and they weren’t even taking applications.”
President Obama returns to Elkhart County, Ind., today (Aug. 5) at a moment when the county — so hammered by recession that Obama made it a symbol of the need for his stimulus plan — is finally getting some good news, according to Bloomberg.com.
Obama will announce Energy Department grants for electric-car development during a speech at a Monaco RV factory in Wakarusa, about 10 miles south of Elkhart.
That will follow Tuesday’s announcement by Sweden’s Dometic International AB that it plans to hire 241 people to make refrigerators for recreational vehicles in Elkhart, a city of 53,000 about 100 miles east of Chicago.
“There are signs that it is getting better,” said Wakarusa Town Manager Tom Roeder, 61.
Preparing for the president’s second appearance in six months, Elkhart County, with almost 200,000 residents, has become a symbol of Obama’s assurances that the economy, still facing tough challenges, is beginning to improve.
At the same time, indications that the economy in northern Indiana is coming out of its free fall are tentative, and balanced by signs that many people are still struggling.
Unemployment in the Elkhart-Goshen metropolitan area rocketed to 18.9% in March from 4.8% at the end of 2007. The jobless rate has eased for three straight months to 16.8% in June. Manufacturing employment, which hit an 18- year low of 44,900 jobs in March, inched up to 45,300 in June.
“Retail merchants tell me spending is up, there’s some slight improvement in housing starts and a few more vehicles are selling,” said Elkhart Mayor Dick Moore, 75, a Democrat who shared a stage with Obama on Feb. 9 when the president came to promote the stimulus.
Housing Market ‘Awful’
Still, in the automotive and housing industries, the economy around Elkhart hasn’t provided many encouraging signs.
The Elkhart area, which calls itself the RV capital of the U.S., lost more than 15,000 jobs in the past year as sales slumped at local RV and manufactured-housing companies.
“The housing markets are still just awful,” said Rick Lavers, president and CEO of Coachmen Industries Inc., which makes modular homes and sold its RV business last year to Forest River Inc. and Warren Buffett’s Berkshire Hathaway Inc.
Housing won’t recover until banks are more willing to make loans, Lavers said. “The cash has to get moving in this economy,” he said.
Since April 9, Coachmen’s shares have jumped to $1.32 from 25 cents.
Robert Wilson, president and chief operating officer of Supreme Industries Inc., a maker of specialized truck bodies and shuttle buses in nearby Goshen, said demand for trucks isn’t picking up yet.
“People are still worried about their employment, whether they’re going to find a job or keep their job,” Wilson said. “Until that changes, I don’t see the truck business getting any better.”
Obama is traveling to Indiana two days before the scheduled Aug. 7 release of unemployment figures for July. The national unemployment rate is projected to rise to 9.6%, according to the median estimate of economists surveyed by Bloomberg, from a 26-year high of 9.5%in June.
Other measures suggest the national economy may be touching bottom. Gross domestic product shrank at a 1% annual rate from April through June, after contracting at a 6.4% annual pace in the first quarter. The Standard & Poor’s 500 Index has risen almost 25% since Obama took office.
The Obama administration has prodded manufacturers to develop more efficient vehicles through a $2.4 billion grant program for development of batteries and related technologies that was included in the $787 billion economic stimulus legislation.
In addition to Obama’s trip, Vice President Joe Biden and Energy Secretary Steven Chu will travel today for events at other battery-technology developers in Detroit and Charlotte, N.C.
The factory where Obama will speak, formerly operated by bankrupt recreational-vehicle manufacturer Monaco Coach Corp., was purchased by Navistar in June.
Wakarusa-based Electric Motors Corp. will use a plant for a partnership with Nappanee, Indiana-based Gulf Stream Coach Inc. to develop an electric vehicle, Electric Motors CEO Wil Cashen said.
The company has applied for stimulus funds and would be “ecstatic” to get federal help, Cashen said.
If a local company gets an energy grant it “could be huge for our town,” said Wakarusa Chamber of Commerce President Nadine Lengacher, who owns J&N Stone, a family-run stone-veneer manufacturing company.
In Elkhart, projects funded by the stimulus, including sewer improvements and a $4.2 million airport-paving project, may have saved or created between 400 and 500 jobs, Moore said.
“We can see a light at the end of the tunnel,” said Bill Stevens, 41, vice president of Brooks Construction Co., of Fort Wayne, Ind., which rehired about 10 or 15 laid-off employees to work on a $10 million stimulus-funded construction contract on part of U.S. Highway 33 in Elkhart County. “It’s a matter of riding out the storm.”
While Lengacher sees some signs of recovery, she credits the “determination of the people who live in this county” and not Obama’s economic-recovery plan. “It’s a community that’s not one to sit back and cry because things are so bad.”
In Wakarusa today, Obama will counsel patience, said chief spokesman Robert Gibbs.
“It is going to take some time to move our economy from where we are, to get our economy back on track,” Gibbs said Tuesday. “The president will not be satisfied until we’re creating jobs.”
Coachmen CEO Lavers said many of his neighbors are getting tired of waiting.
“We’re eight months into 2009 and there’s no real perceptible turn on Main Street,” Lavers said. “I think people’s patience is about done.”
As investor Kirk Kerkorian was selling off the last of his shares in the U.S. auto industry, another elder American investor was easing into the business.
According to Edmonds Auto Observer, Warren Buffett’s Berkshire Hathaway Inc. recently reported to government regulators that it had purchased $40 million in recreational vehicle maker, Coachmen Industries Inc., based in Middlebury, Ind.
Berkshire Hathaway’s strategy clearly is buying low in businesses that are at rock bottom. Sales of recreational vehicles by U.S. makers, including big names like Winnebago Industries Inc., Fleetwood Enterprises Inc. and Thor Industries Inc., are expected to fall to a 12-year low as 2008 draws to a closer and likely will tumble even further in 2009.
University of Michigan researcher Richard Curtin, who directs consumer surveys, told Bloomberg News earlier this month that RV sales likely will be 248,000 vehicles in 2008, down from 266,000. That would be the lowest since 1996 and a 30% drop from last year, according to the Recreation Vehicle Industry Association (RVIA). Curtin forecasts 2009 sales will drop to 186,800 units, the lowest level since 1991.
The RV industry has been clobbered by tight credit, fluctuating gas prices that hit $4 a gallon last summer, rising unemployment, a tumbling stock market that is eroding the consumer’s sense of wealth and a generally deteriorating economy.
As a result of slumping sales, RV makers are struggling:
Jackson Center, Ohio-based Thor, the world’s largest maker of recreational vehicles, reported income dropped 87% in the most recent quarter.
Fleetwood of Riverside, Calif., and the third largest U.S. RV maker, said its losses in the most recent quarter widened to $56.7 million. It was Fleetwood’s ninth loss in the past 10 quarters. The company has closed eight plants, eliminated 13% of its work force – or 760 jobs – and is cutting costs.
Motorhome maker Winnebago, Forest City, Iowa, reported a higher-than-expected loss of $9.6 million in the quarter, with sales plunging 68% in the period. It was its second consecutive quarterly loss.
Buying into the RV industry isn’t Buffett’s only venture into the auto-related business. Earlier this year, Berkshire Hathaway announced it had purchased a stake in China’s BYD, a battery maker recently turned automaker.
Buffett’s MidAmerican Energy Holdings paid $230 million for a 10% stake in BYD to support its “green” technologies, the company said. The deal gives MidAmerican a foothold in the Hong Kong-listed company, which is developing electric-hybrid cars it expects to start selling in China later this year, Europe and Israel by 2010 and North America thereafter. It gives the Chinese company a much-needed boost in funding for further development and credibility.