By Timothy Aeppel
June 15 (Reuters) - Coley Brady in late March cut production from five days a week to four on most of the assembly lines at his sprawling complex of five recreational vehicle factories in Elkhart, Indiana, after it became apparent spring sales were fizzling.
The U.S.-Israeli war on Iran was barely a month old at the time, but the disruptions it caused to global energy markets had already sent American gasoline and diesel fuel prices up by 33% and 43%, respectively.
"Clearly the war
and higher gas prices are the easiest things to point to," said Brady, co-founder of Alliance RV, which makes high-end fifth-wheel trailers and motorhomes.
The RV industry - which produces more than 80% of the rigs sold in the U.S. in northern Indiana - can often signal the direction of the nation's economy. Inflation-adjusted consumer outlays on recreational goods and vehicles fell in April for a fifth straight month, according to Commerce Department data, the longest slump in real spending on the category since the height of the Great Recession in 2008.
RVs are expensive discretionary purchases easily put off when uncertainty grows over the economic outlook. U.S. consumer sentiment fell to a record low in May before picking up slightly in early June, according to the University of Michigan’s Surveys of Consumers, and inflation running at its hottest in three years continues to pick away at household budgets. It doesn’t help that interest rates remain elevated. Most consumers finance purchases of RVs and the average rate on those loans is 7.53%, according to LendingTree.
Jeff Hirsch, CEO of Campers Inn, which runs a network of 50 RV dealerships in 22 states, said more-affluent baby boomers are still buying, but many other more cost-conscious consumers "just don't feel this is the right time to make an investment."
Sales of RVs usually perk up in the spring, as consumers plan summer outings to national parks and other far-flung attractions. But a key metric - registrations of RVs by consumers - has been on the decline since last summer, according to Statistical Surveys Inc., including a nearly 22% dive in March and a nearly 17% drop in April compared with year-earlier levels.
RV makers shipped 13.5% fewer units to dealers in the first four months of this year compared to last year, according to the RV Industry Association. The RVIA on June 1 cut its projection for shipments for the full year to a range of 300,000 to 328,100 units, far below last year's 342,200 units.
"Economic headwinds and tightening household budgets are weighing on consumer demand and contributing to a more cautious outlook for RV shipments in 2026," Craig Kirby, president of the RVIA, said in a statement alongside the reduced projection.
TAKING IT IN STRIDE
The RV industry has struggled in recent years. Early in the COVID-19 pandemic, business exploded as people sought ways to travel without flying or staying in hotels. Shipments hit a record of just over 600,000 in 2021. But sales collapsed in the aftermath of the crisis, and the industry was stuck with a huge overhang of inventory that has taken years to work down.
Gregg Fore, a former manufacturer of RV components who now works as an industry consultant, said the war in Iran and high gas prices "killed whatever speed there was" in the market going into this spring. Now many manufacturers are running limited production schedules. Some are consolidating plants.
Alliance RV's Brady is optimistic business will improve later in the year, possibly even this summer if the war in Iran is resolved, though analysts believe gasoline prices are likely to stay high for a while even if tensions subside.
"The stock market is strong, and I think that'll ultimately be good for business," he said. And some trends should give RV sales a boost. Soaring airfares are a reminder that even if the cost of travel to Europe and other destinations starts to ease, road trips can still be a more economical and attractive option. "Mexico has had issues with cartels and violence," while cruise lines have been hurt by reports of illnesses, Brady said.
"You'd think all of that would guide back to RV use," he said.
Alliance produced 8,200 RVs last year and expects to surpass that this year, though Brady said that "depends on the market." He estimates the cutback on some lines reduced his output by 10% since March. "We're scheduled through July, but if the summer goes well, we have the ability to go higher (with production) in August," he said.
Michael Hicks, an economist at Ball State University who tracks the RV business, said there are factors working in the industry's favor. He noted that most people buying RVs are in their 50s and 60s, many of them with secure retirement savings. "They've lived through high gas prices before, they've bought homes at higher interest rates," he said. "Those are the ones that the industry really counts on."
Michael Provost is one of them. The 69-year-old Rhode Island retiree has owned three RVs over the last two decades and sees no reason to cut back on his normal pattern of traveling to Cape Cod in the summer and Florida in the winter in his motor home with his wife Cheryl.
He shrugs at the surge in gas prices. "This year, we went to Florida and when we came back, it was a dollar more (a gallon)," he said. "You kind of take it in stride."
(Reporting by Timothy Aeppel; Editing by Dan Burns and Andrea Ricci)
