Winnebago CEO: this summer crucial for RV industry

By James B. Kelleher

AMES, Iowa (Reuters) - Winnebago Industries Inc.'s (WGO.N) top executive said on Thursday the next few months would be critical for the RV industry, which has reeled for two years as rising interest rates and energy prices and a weakening housing market have kept buyers out of showrooms.

Bruce Hertzke, chairman and chief executive of the largest U.S. motor home company, also said in an interview the subprime mortgage market meltdown could hit the recreational vehicle industry if efforts by skittish lenders to tighten underwriting prolongs the housing slump and sours consumer confidence.

But Hertzke remained confident about the industry's fundamentals and said America's affluent baby boomers would not ultimately let anything get between them and their dreams of a rolling retirement in a motor home.

"The American public isn't going to want to stay home," he told Reuters. "They're going to want to go out and take vacations ... I've been in this business for 35 years and we've seen several downturns."

Hertzke acknowledged the current slump was not over. "The market's definitely down," he said. "But we feel we're performing quite well even in this down market.

"The next four or five months are going to really tell whether how well we come out of this. We're just going to have to wait and see."

His comments came as Forest City, Iowa-based Winnebago reported a smaller-than-expected drop in net profit, news that sent its stock up more than 10 percent.

"We've seen a lot of our competitors who have come in with their recent earnings and they've all been losing money," Hertzke said. "I think (investors) were impressed that Winnebago is still making pretty good money.

The RV industry has faced tough headwinds over the past two years, as rising borrowing costs weigh on consumer confidence and put a crimp on a broad range of discretionary purchases.

In January, the last month for which data is available, wholesale RV shipments fell 23 percent, according to Statistical Surveys.

And it could get worse before it gets better. Even before the U.S. mortgage industry's recent flameout, the Recreational Vehicle Industry Association said it expected Winnebago and its rivals to ship 341,900 motor homes and trailers in 2007, down 11.3 percent from 385,500 in 2006, and down from 384,000 in 2005.

With mortgage lenders now scrambling to tighten underwriting standards, the downturn in the housing market -- where double-digit equity growth helped finance RV purchases in recent years -- may be even more pronounced.

Hertzke acknowledged that any prolonged slowdown in housing market could "have some bearing" on the RV market. But he said Winnebago had reviewed its own loan practices in the past month and concluded it had not gone overboard granting credit to risky borrowers in recent years as some mortgage lenders did.

"The delinquency rates are very, very low for our consumers," he said.