ANALYSIS-U.S. boat, RV makers face another tough year
By James B. Kelleher
CHICAGO, Jan 17 (Reuters) - It's not unusual for there to be a chill in the air when recreational vehicle manufacturers and retailers convene each January here for the annual Chicago Boat, RV and Outdoors Show.
But as they meet this week, the frost is likely to be felt inside the normally comfortable convention center where the deteriorating U.S. economy has turned an already challenging retail environment into a nightmarish one that might last through the second half of 2009 for the boating industry.
Boat and RV-makers were already contending with consumer belt-tightening tied to the slump in the U.S. housing market whose ups and downs are highly correlated with boat, all-terrain vehicle and motorcycle sales.
"People are concerned about 2008," said Thom Dammrich, the president of the National Marine Manufacturers Association, which represents about 1,700 boat builders, engine manufacturers, and marine accessory manufacturers.
"I think most are projecting that the year would be flat to slightly down over 2007 ... I think most manufacturers would be very happy with an '08 that was flat."
But with a bevy of recent reports sparking fears of a recession, including Thursday's report showing housing starts at a 16-year low, many Wall Street analysts predict an even more pronounced pullback in spending on the industry's pricey toys -- one that could persist for boat makers in particular long after the housing market starts to stabilize.
"Consumer spending will be weaker in 2008 than in 2007," says Robert Simonson, an analyst at William Blair & Co. As a result, Simonson recently cut his earnings estimates for a host of leading industry players, including Harley-Davidson Inc (HOG.N), the No. 1 maker of heavyweight motorcycles, and Winnebago Industries Inc (WGO.N), the No. 1 maker of motor homes. Shares in both stocks were hovering around their 52-week lows on Thursday.
On the plight of the motor home industry, which he believes could be headed for its fifth consecutive year of declining industry shipments, Simonson asks: "If consumers aren't buying houses on foundations, will they buy house on wheels?"
Tim Conder, the managing director of leisure industry research at Wachovia Capital Markets, is just as bleak about the boating industry, which is the biggest player at the Chicago show.
Although sales of the very biggest boats -- those over 50 feet with price tags above $500,000 -- continue to chug along nicely, thanks in part to overseas demand, sales of smaller boats are down sharply. "That's the heart of the market," Conder says, "and things are very, very tough."
And things could stay that way for awhile. Earlier this month, the National Association of Realtors reported that pending home sales fell again in November and predicted sales would only begin to pick up in the second half of 2008 at the earliest.
That's bad news for the RV industry, especially the recreational marine segment because motorcycle and ATV unit sales rise and fall almost in unison with existing home sales; boat sales lag them by 12 months, according to Conder.
If there's an upside to the downturn for the RV business it is this: As the U.S. Federal Reserve responds to the slowdown by slashing official interest rates and sending consumer borrowing costs lower, it helps set the stage for a rebound for the industry because many of the purchases are on credit.
Craig Kennison, an analyst at Robert W. Baird, recently contacted nearly 160 RV dealers to take the temperature of the business. He found the motor home market had deteriorated and would probably force RV companies to increase promotional spending in the coming months to clear showrooms.
With the outlook for discretionary spending "bleak," Kennison says he is "cautious on industry fundamentals."
Still, he adds, "it is hard to see how valuations deteriorate much further if interest rates continue to drop."
And Dammrich at the NMMA sees another bright sign. The decline of the U.S. dollar has, he says, significantly increased overseas sales for boat makers.
"Exports to Europe by U.S. boat manufacturers have been surging," he says. "For a lot of builders, that has nearly offset the drop in domestic sales."
The Chicago Boat, RV and Outdoors Show runs at Chicago's McCormick Place North Convention Center from January 16 through 20. For more information: www.chicagoboatshow.com.
(Reporting by James B. Kelleher, editing by Leslie Gevirtz)
(( Reuters Messaging: james.kelleher.reuters.com@reuters.net; email: james.kelleher@reuters.com; +1 312 408 8130) Keywords: LEISURE/
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