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.