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Sept. 28, 2023

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#Vanlife trend hits speed bump

Demand for RVs slows; industry faces testing period of declining sales

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An RV porter moves travel trailers into place as General RV prepares for their sales event as customers prepare for another camping season, in Wixom, Mich., March 15, 2022.
An RV porter moves travel trailers into place as General RV prepares for their sales event as customers prepare for another camping season, in Wixom, Mich., March 15, 2022. (Todd McInturf/The Detroit News) Photo Gallery

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 boom.

Buyers are balking at soaring prices, forcing U.S. 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 motor home.

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 Inc.’s North American RV order backlog shrank 80 percent in the year to Jan. 31 and revenue slumped 39 percent in the fiscal second quarter, forcing it to cut full-year sales guidance. Forest River Inc.’s first-quarter revenue also declined 39 percent, which the Berkshire Hathaway Inc.-owned business attributed in part to “rising interest rates, inflation and other macroeconomic conditions.” Overall RV shipments to dealers declined 52 percent 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 Inc. Chief Executive Officer Marcus Lemonis told investors last month, noting that customers are looking to the used market as an alternative.

So far there haven’t 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 aging 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 Inc., said the RV dealer was advertising “significant discounts” while this month Jason Lippert, the boss of RV-equipment 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 percent 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, very limited inventories may prevent prices falling as much as RV fans might hope.

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 like Morelo (owned by Knaus Tabbert AG) and family-owned Volkner Mobil GmbH 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 3 million euros ($3.2 million).

“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 AG also remains bullish on the “glamping” trend and recently 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 U.S. 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 SA 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 Inc. report fiscal third-quarter earnings next month.)

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