Soaring prices stall US sales of motorhomes
After two years when it seemed everyone hit the road to live their best #vanlife or explore the outdoors in a larger motor home, some of the air is rushing out of the recreational vehicle (RV) boom.
Buyers are balking at soaring prices, forcing US RV manufacturers to temporarily shutter production and dealers to discount inventory. The industry faces a testing period of declining sales and earnings, but a renewed commitment to more affordable camping options will ensure its long-term prospects.
Demand for RVs rocketed in 2020 and 2021 as consumers constrained from flying overseas found a safer way to satisfy their wanderlust. Instead of working from home, RV owners could toil from a national park instead.
With dealer lots emptied out, frenzied buyers were sometimes forced to pay more than the recommended retail price and spend well in excess of $100,000 on a motorhome.
Though manufacturers faced higher costs, they were still able to boost gross margins via price increases and sales of more high-spec vehicles. However, the bubble has now begun to deflate.
Airstream producer Thor Industries’ North American RV order backlog shrank 80% in the year to January 31 and revenue slumped 39% in the financial second quarter, forcing it to cut full-year sales guidance. Forest River’s first-quarter revenue also declined 39%, which the Berkshire Hathaway-owned business attributed in part to “rising interest rates, inflation and other macroeconomic conditions.” Overall RV shipments to dealers declined 52% in the first four months of this year, according to the RV Industry Association.
A sales pullback was inevitable in this cyclical industry — many people who wanted an RV now have one — yet the level of retail buyer caution appears to have caught the industry by surprise.
“There has been a little bit of sticker shock from consumers when they see the increase of new RV prices and the interest rates that are associated with financing,” retailer Camping World Holdings CEO Marcus Lemonis told investors last month, noting that customers are looking to the used market as an alternative.
So far there have not been a glut of first-time purchasers dumping their vehicles and quitting the RV life. However, some recent buyers may discover they have negative equity — meaning they owe more than their depreciating vehicle is worth — making it harder for them to trade in their old rig for a new one.
Dealers are wary of holding too much new inventory — in part because their own borrowing costs have increased — and some are having to cut prices to shift ageing stock. So now might be a good time to buy a new RV, providing you have the cash.
In April, John North, CEO of Lazydays Holdings, said the RV dealer was advertising “significant discounts” while this month Jason Lippert, the boss of RVequipment
supplier LCI Industries, said consumers should be able to obtain “a much lower price on product than what they would have got six months ago.”
Two-thirds of the 40 North American dealers surveyed recently by Truist Securities are discounting 2022 model year inventory by 30% or more from the manufacturer’s suggested retail price. “Affordability — unit inflation and higher financing rates — remains the single largest impediment to consumer demand,” its analyst, Michael Swartz, told clients this week.
However, if the industry’s production discipline continues, limited inventories may prevent prices falling as much as RV fans might hope.
DEALER INVENTORIES
For now at least, the European RV market remains in much better shape because production severely constrained by a chassis shortages has kept dealer inventories fairly low.
Luxury manufacturers such as Morelo, owned by Knaus Tabbert, and family-owned Volkner Mobil have full order books and wealthy customers who are less affected by inflation. Volkner’s bespoke land yachts with space to carry a Ferrari or Bugatti in the vehicle underbelly can cost up to €3m.
“Two decades ago people would start out with a tent or smaller camper before trading up. Today we have customers who’ve never owned a mobile home before and insist on one of our luxury vehicles,” co-owner Stephanie Volkner told me. “Our clientele aren’t just older people, we have 30-year old customers with small kids.”
Mercedes-Benz Group also remains bullish on the “glamping” trend and last week announced a new line of luxury electric camper vans.
However, after attracting so many Gen-Z and millennial converts recently — the median age of a first-time RV buyer in the US has fallen to 32 from 41 — manufacturers can’t afford to neglect entry-level customers.
Camper vans still offer good value compared with the soaring cost of flights, rental cars and hotel stays, and RV owners are able to generate extra income via peer-to-peer renting platforms. Yet along with higher loan payments, insurance and campground entry have also become much more expensive lately.
In a nod to these pressures, French manufacturer Trigano said last week it would soon launch new vehicles that “appeal to budget-conscious consumers.”
“Mindful” of the impact of inflation and rising interest rates on consumer affordability, Thor said in March it is “working with our suppliers to lower input costs and introducing new product offerings at value price points.” (Thor and rival Winnebago Industries report financial third-quarter earnings next month.)
About 12-million Americans were expected to go RVing on the Memorial Day weekend, but the freedom that RVs offer shouldn’t just be the preserve of the rich. Focusing on affordability can ensure the pandemic RV boom isn’t a flash in the pan.