Running on Empty?

Relaxing vacations may be hard to come by this season. With Wall Street in a funk, rentals in the Hamptons and Nantucket may wind up empty. The weak dollar makes a summer jaunt to Europe unaffordable for many. The second-home market is being destroyed by the credit crunch. And sky-high plane fares will crimp internal travel. Summer 2008 will be all about trading down: Forget the grand tour of Italy, and think about a road trip to the Four Corners.

This belt-tightening ought to be good news for a sector of the vacation industry that has enjoyed solid growth in recent years: recreational vehicles. RVs are cheaper than a vacation home, help travelers save on hotels and appeal to those who prefer leisure and economy over glitz and speed. A study by PKF Consulting, posted on the Recreational Vehicle Industry Association's Web site, notes that "typical RV family vacations are on average 26 to 74 percent less expensive than other types of vacations studied."

But instead, the RV industry is in trouble. Americans seem to lump recreational vehicles into the same category as powerboats: discretionary big-ticket purchases that guzzle too much gas. RVs vary widely in size and cost, from folding camping trailers ($4,000 to $13,000 new) to Type A motor homes (from $58,000 to $400,000 new). According to RVIA spokesman Kevin Broom, Type A homes get anywhere from 6 to 12 miles per gallon, while smaller Type C vehicles can get between 15 and 18mpg. He notes that three quarters of the market is comprised of towable trailers, which tend to cost less than motor homes. Back in 2006, we described how rising energy prices and a slowing economy were swamping the power boat industry. Now, as The Wall Street Journal noted earlier this week, the RV industry has fallen off the side of the road.

The RVIA provides excellent historical data and information on recent shipments. And the yearly sales data shows reasonably tight correlation to the business cycle. Sales grew rapidly during the recent expansion. Last year, however, RV shipments fell 9.5 percent to 353,400. For 2008, the industry expects that thanks to a combination of higher gas prices, a slowing economy, and a reluctance to extend credit--essentially the same factors that are hurting sales of everything from homes to appliances--sales will fall to 305,000, a 30 percent decline from 2006.

RV manufacturers are feeling the pain. National RV Holdings filed for bankruptcy last November. Fleetwood Enterprises, which makes manufactured homes and RVs, reported a dismal quarter on May 1: "February and March motor home shipments were down 21 percent and 27 percent, respectively, from the prior-year period." Sales of the fancy Class A homes were off 36 percent in both months. Coachmen, which likewise makes RVs and modular housing, in April reported that revenues at its RV unit were down 13.1 percent from the 2007 first quarter. In March, Winnebagoreported that quarterly revenues and earnings were off 17.5 percent and 66 percent, respectively, from the comparable quarter in 2007. This is the ugly one-year chart of the Fleetwood, Coachmen and Winnebago stock prices compared to the S&P 500. And it's likely to get worse. Much of the carnage of the past 12 months happened when the economy was still expanding, when gas was cheaper than it is today, and when credit was available on better terms than it is today. On May 1, GE Money, the consumer finance unit of General Electric that is a major lender to RV purchasers, announced it was going to exit the sector.