Date May 2019
Approximate net recovery on cost
By the numbers
- Total RV shipments were up 13.1% year-to-date through April 2018
- Towables represented the best performing subset of RV sales, increasing 13.6% for the same period
RV shipments up: According to the Recreation Vehicle Industry Association (RVIA), RV shipments for 2017 totaled 504,599 units, an increase of 17.2 percent compared to 2016. The growth for 2017 marked the eighth consecutive year of wholesale shipment growth since the industry bounced back from effects of the Great Recession. Growth for 2018 is off to a strong start as wholesale RV shipments had increased 13.1 percent through April 2018 over 2017. Population and demographic trends favor long-term RV market growth. Buyers aged 35 to 54 represent the largest segment of RV owners, according to a University of Michigan study of RV consumers commissioned by RVIA. Additionally, RV sales are expected to benefit as aging baby boomers continue to enter the age range in which RV ownership has been historically highest.
Seasonality a factor: Retailers preparing for the peak spring and summer sale season typically stock up on inventory during March, April, and May before the summer driving season. Lenders should consider a seasonality analysis when ordering inventory appraisals to determine the extent to which values are impacted by these buying trends. A high/low analysis, which illustrates values during peak and valley demand periods, may also help mitigate the risk involving businesses, such as RV dealers, with seasonal fluctuations.
Component parts vary in marketability: Manufacturers’ inventories are comprised primarily of parts purchased from suppliers. The value of these components is derived from their utility in the marketplace. Parts that are very specific to platforms such as awnings, extrusions, wiring harnesses, tables, windows, and doors typically have low recovery values. Other inventory such as carpeting and wall coverings that can be marketed to buyers outside the industry fare a bit better. Items that are more generic and widely marketable such as televisions, appliances, mattresses, and aluminum or fiberglass sheets are typically expected to have the highest net recoveries.
Chassis a major inventory category: A chassis is the base frame of the vehicle along with wheels, engine, and transmission. In some cases, the chassis may include the cab and steering mechanisms as well. While one of the most significant portions of the cost of RVs, chassis are not necessarily the most valuable category in liquidation. Appraisers must analyze supply and demand for each particular platform to estimate recoveries. For example, in the current market, Freightliner Class A chassis are in demand as sales are up 13.0 percent year-to-date for Class A product. Lenders should be aware that modified chassis have limited value in a liquidation scenario.
Financing assumptions are important: Most manufacturers are typically not making vehicles (with the exception of towables) to stock; rather they are making to independent dealers’ orders. This means that, in a liquidation, units would continue to sell through this channel. Dealers typically purchase units with floor plan financing. According to the Commercial Finance Association, this means a distributor or dealer accepts shipment of merchandise from a manufacturer by borrowing funds from a finance company, bank, or manufacturer captive. Repayment terms are linked to the sale of the merchandise (pay-as-sold) or according to a schedule (scheduled pay). Gordon Brothers’ appraisers assume dealers would have access to those plans in a liquidation scenario, or alternative financing would be arranged by other lenders. In some cases, manufacturers agree to repurchase agreements in which they will buy back unsold units at a discount if they do not sell within specific timeframes. Dealers accustomed to these terms will seek greater discounts in liquidation.
Lack of warranty lowers recoveries: Buyers of new RVs typically expect three- to five-year warranties. In a liquidation, however, manufacturers no longer honor these contracts, which means that units must either be sold without a warranty or dealers must assume the associated liability. Because of this additional risk, dealers will expect steeper discounts when purchasing RVs in liquidation.