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Weathering the storm: Indiana's RV & boat builders.

Weathering the Storm Many say the marine and RV industries will begin to see recovery this spring, even as other segments of the economy continue to struggle.

The health of the recreational products industry is of great concern to Hoosiers, especially those in the northern part of the state, where scores of companies are headquartered and have factories.

Factors contributing to the hard times for Indiana's boat and RV industries are numerous--many peculiar to each of those businesses. Some reasons, though, are shared by both industries.

Lack of consumer confidence in the U.S. economy has sparked the recreational products slowdown more than any other factor. "When consumer confidence begins to shrink, you can bet that most businesses are going to feel a downturn sooner or later," says Thomas H. Corson, chairman and CEO of Elkhart-based RV giant Coachmen Industries Inc., whose sales for the first nine months of 1990 were down 11.4 percent from the previous year. "Both the RV and marine businesses are into products that aren't absolute necessities. People will discontinue spending for those items that involve their discretionary income during tough economic times."

The results have been painful for some recreational products manufacturers in Indiana. For example, Goshen-based RV and van conversion manufacturer Starcraft Corp. and three subsidiaries last November filed for protection from creditors under chapter 11 of the U.S. bankruptcy code. Leveraged buy-out debt had burdened the company since 1988, and consumer skittishness along with Mideast uncertainties compounded the problem.

Other companies have been more fortunate. In Nappanee, Mallard Coach Co. Inc. turned a profit of just under $2 million in the fiscal year that ended last October, about half the net income reported the previous fiscal year.

Manufacturers are quick to point a finger at the news media for exploiting softness in the economy. "All they do is preach gloom and doom," says Kim Slocum, general manager of Syracuse-based Rinker Boat Co. "You continually hear reports from 'experts' talking about a recession, the poor 1990 Christmas season and continuous speculation about the Persian Gulf. The news provides one more reason for consumers to sit on their hands and do nothing."

Fuel prices have had little to do with the slowdown in recreational product purchases. Beginning early last August, prices at the pump shot up, but most manufacturers will tell you that gas prices haven't been a big factor in the minds of consumers, because it's viewed as a temporary situation, not a long-term problem. "The biggest blow to the RV industry in regard to gas prices was when the price hit the $1 a gallon level," notes Mac Bryan, vice president of the Reston, Va.-based Recreation Vehicle Industry Association. "However, most consumers and RV owners don't relate to gas price as a long-term issue, like they do with the budget deficit situation or the savings and loan financial crisis." According to Bryan, during the gasoline-inspired economic problems of the early and late '70s, RVIA research showed that consumers weren't traveling less frequently, they simply weren't going as far.

Finally, most manufacturers agree that the nation's economy has been under strain far longer than most people realize and acknowledge. They also point out, however, that the current downturn isn't nearly as dramatic as the oil embargo recession of 1973-74, or the recession of 1979-1980.

Marine manufacturers feel their business has been in a recession since at least 1989. Ironically, 1988 was the best year ever for boat makers, in terms of units produced and dollars billed--the culmination of a growth period that started in 1982. The industry never had seen such a consistently upward trend like that over that number of years. Though many speculated the trend would continue indefinitely, the industry has proven to be cyclical, as it is in most businesses.

"Generally, we have three- to four-year up cycles, and one- to two-year down cycles in this business," notes Greg Proteau of the National Marine Manufacturers Association in Chicago. "It was difficult to see the downward trend coming because ours is such a fragmented market. It looked to many like the business was growing when, in reality, it was falling." Some companies continued building boats well into the decline, creating a major inventory surplus in 1989. With the 1991 selling season approaching, many dealers still have new 1989 boats in inventory.

"Now, however, the hatches are all more or less battened down," Proteau continues. Companies are now in the defensive mode. They've cut back work forces and taken additional steps necessary when economic trends are working against them. "The inventory situation is slowly working itself out."

In the RV business, inventory is not the problem it has been in past economic downturns. Most RV manufacturers saw the downturn coming. "We went into this one in a lot better condition than we did the previous two recessions," says Bryan. At the end of 1990, RV industry inventories were the lowest they had been since he started recording them in 1980. "I think it's the result of sound business practices," Bryan adds.

The RV industry seems to be optimistic, too. The National RV Trade Show, held in Louisville at the end of November, pleasantly surprised most in the business. Manufacturers and dealers showed up not knowing what to expect. "There was none of the normal 'gloom and doom' that tags along with the industry in an economic downturn," notes Jean Janc of Holiday Rambler Corp. in Wakarusa and co-chairman of the Louisville show. "However, dealers were very intent on spending their time efficiently at the show--it wasn't the typical, casual, tire-kicking crowd." Though attendance at Louisville was down slightly from previous years, manufacturers were pleased with the results of the show.

"We had a very good show--one of the best shows in our history--in a bad market," says Victor DeRose, president and CEO of Gulf Stream Coach Inc. in Nappanee. "We wrote sales in all the different areas."

January and February boat shows are the main indicators for the marine business. A lot of product is sold during the shows, which are held primarily in metropolitan areas throughout the country. As manufacturers now tally up and analyze show results, most are hoping the business will perk up with the normal upsurge in buying that happens in the spring.

Many also realize a boat-buying upsurge could be a double-edged sword. "If the market does break in the spring, a lot of dealers are going to come up short because they aren't going to have anything to sell," says Mark Wiese, president of Sun Chaser Marine in Elkhart. Manufacturers aren't stockpiling boats. Dealers are being ultraconservative in replenishing their inventories as they sell units. "It could be a real problem if all dealers wake up at the same time and need boats for the spring selling season." With so many boat builders cutting back operations during 1990, it would be hard for most to gear up to meet such increased demand.

But that's a given in the recreational products business, be it boats or RVs. "What we're doing right now is creating a lot of pent-up demand for the future," says Coachmen's Corson. He feels that as consumers wash past concerns from their minds, they'll reward themselves for their diligence and hard work. "They'll regain confidence and start making buying decisions again, in bigger numbers." Corson admits he's an optimist and thinks this trend will begin with the normal spring selling season.

How have recreational products manufacturers coped with softening business?

Some are fortunate enough to have other businesses to fall back on. Donald Ulrich, president of Muncie Metal Spinning Inc. in Muncie, says pontoon boat building is just one segment of his metal products business. "We just move people around to where we need them in our metal-forming operations.

The majority of Hoosier boat and RV makers, though, have a single-product focus. For them, having the right product for the market is the secret to survival in tough economic times.

Aggressive marketing strategies, advertising and product styling that boat buyers want is key to the success of Rinker Boat Co. The firm prides itself in the ability to react quickly to fast-changing styling trends.

According to Slocum, the company is "in a heck of a position" to take advantage of a turnaround when it comes. Rinker had its best year ever in 1989, when the bottom began falling out for many boat makers. 1990 held relatively steady for Rinker, with about an 11 percent decrease from the previous year. That necessitated only minor throttling back in production. "We can weather any storm. We've been here for 45 years with the same ownership--and we're not leveraged in any way. We're excited about the future," Slocum says.

"We've been very aggressive in our product development," says J. Patrick Kerich, chairman and CEO of Nappanee-based RV manufacturer Mallard Coach Co. Inc. He notes that some new Mallard products were in the works before the market took a downturn. "We knew that was how we were going to be able to continue to grow in a marketplace that already was challenging."

Kerich says Mallard will introduce two new products in the next few months, one of which he called a "cutting-edge" product totally new to the industry. The products, he says, should help Mallard gain market share. "We think that as we move through this we will fare better than some of our competitors in a difficult market, and when the market rebounds, we'll have fresh products that will put us ahead."

DeRose says Gulf Stream also is counting on new products to help ease the way through the downturn. "We're coming in with very aggressive, up-to-date products, and we've increased our business. I'd say we're doing better than average." He points out that sales of Class C recreational vehicles--which are mid-priced RVs built on van chassis--are down substantially for the industry as a whole, but they were up for Gulf Stream in 1990.

The economic downturn hasn't rained on Gulf Stream's growth plans, according to DeRose. The company has expanded its plant that produces towable RVs, and Gulf Stream plans to create another assembly line to accommodate higher-end motorized RVs. If all goes as planned, some 200 to 250 jobs could be created.

Having the right product at the right time also has been a shot in the arm for Middlebury-based RV manufacturer Jayco Inc. The company's new low-priced Eagle series was created to fill a niche in the marketplace for reasonably priced travel trailers and fifth wheels. Introduction of the products in July 1990 turned out to be ideal timing for the company.

"I don't know if it was foresight or luck," says Allen Yoder, president of Jayco. "But if sure helped us through the fall and winter." He notes that retail sales are still doing well in the marketplace, but that consumers are very price sensitive. If the company hadn't had a price-sensitive product for that market, it would have been hard to compete and to keep production going. "We've been very lucky in that we haven't had to lay off any workers. We've just moved people from slower lines to faster-moving lines. We hope that continues through 1991," Yoder says.

In the boat business, offering the right mix of products has helped Godfrey Marine in Elkhart weather the storm. The company is strong in pontoon, deck-style and specialty boats that haven't been as affected by the downturn as runabouts and cruisers. "We've been able to supply the kinds of boats consumers want, when they've wanted them," says Jim Gallagher, national sales manager. "When economic times get tough, but consumers still want to get on the water--even with limited budgets--they find that a pontoon or deck boat will do a lot of the things a fiberglass runabout can do for a lot less money."

RV manufacturers often are able to scale back production more easily than manufacturers of other over-the-road vehicles because the operations are less capital-intensive, with less expensive machinery. "There's a certain flexibility to adjust to market conditions," notes Gulf Stream's DeRose. Many manufacturers have made such adjustments.

Kerich of Mallard adds that running on reduced capacity can help in the push to gain market share. "If the market had been robust, we'd have a difficult time gaining market share because when we were at full production early last summer we had our facilities taxed. There'd be no way we'd be able to gain market share. But now, like everybody else, we've got lots of capacity. The key is to gain market share."

Manufacturers also are tapping export markets. Sales of units to Europe in particular are booming.

Marine industry export markets are holding up nicely, according to Proteau. The NMMA helps manufacturers exhibit at foreign boat shows and provides other sales-promotion tools. The hot export markets now are Canada, Europe, the Far East and South America. "It seems that people around the world recognize the innovation and quality of the American boating product," Proteau says.

Currently, export doesn't account for a large part of the RV market, but many manufacturers see much potential there. A few years ago, the RV export business was nil, Bryan says. Now, more and more manufacturers are sending products overseas. "Our business is growing steadily there, especially in Germany," says Perry Yoder, vice president of marketing and sales for Carriage Inc. in Millersburg. "American-made RVs are very popular over there because the products are so far ahead of European-manufactured units. I'd say American RVs are 20 to 25 years ahead of units over there in terms of convenience and features."

Kerich says Mallard's Euro-Lite line is geared toward the export market, and he expects at least one of the new products that will be introduced this spring to do well overseas. "I think it's going to enlarge our business overseas and domestically."

Generally, be it the boat or RV business, manufacturers are getting closer to dealers, who are doing likewise with their customers. "Times like these cause manufacturers to take a back seat now," notes Wiese of Sun Chaser Marine. "We have to work more closely with dealers, which has been a tough lesson to learn for some larger companies." It's also necessary for dealers to become better sales and service people, notes Wiese. They have to take better care of their customers than they have in the past--especially now, when those customers are extra cautious. "Dealers have to do the extra, little things that keep those customers coming back, things that many thought weren't necessary in the past, when it was a seller's market."

While Indiana's boat and RV manufacturers generally are weathering the storm quite well, they're looking forward to the latter half of the year, when experts foresee better economic weather. "We believe we will come out of it strong," says DeRose of Gulf Stream. "Typically, RVs are real leaders out of recession. They usually pick up as the recession winds down."
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Title Annotation:recreational vehicles
Author:Pethe, Gary
Publication:Indiana Business Magazine
Article Type:Cover Story
Date:Feb 1, 1991
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