RV Weekly

Wasn’t it just a few months ago that we were looking at $3 gas and scratching our heads wondering why that was so? Yesterday, analysts predicted we’ll soon see gas selling at $4 per gallon. Here in Wisconsin a gallon of regular unleaded already costs $2.84 — and we’re just now crawling out of our ice caves getting ready to launch our summer travel plans.   

Increasing gas prices is not good news for an industry where motorhome sales had just started to rebound in recent months. It’s so frustrating to look back on American history over the last 30 years to see how this nation is constantly held hostage by two groups of radicals whose methods may differ, but for whom they share the same agenda: to enslave America to foreign oil.

Of course I’m referring to the militants in the Middle East and the environmental supremacists disguised as ”friends of the environment.”   Everyone beyond the fourth grade in Iowa knows the price of gas is controlled by the law of supply and demand. But, in the rest of America, many people think “Big Oil” is responsible for setting prices worldwide from the confines of a single smoke-filled boardroom on the 111th floor of some office building somewhere where a portrait of George W. Bush likely hangs on the wall.  The facts are, indeed, simple to understand. Worldwide supply is just barely able to keep up with demand. At any one time, we have less than 120 days of oil “in the pipeline.” As India and China become more developed, those countries require more oil. Therefore, they are willing to bid up the price of fuel to ensure they get their share. Because little has been done to increase the supply of oil in the market, higher demand will keep prices higher due to the limited quantity.  RV Trade Digest published a story last September in which an analyst noted enough oil has been discovered (ie: we know where it is) to meet current worldwide demand for oil for 150 years. He even said the world will never come close to exhausting the supply of oil. But, getting it out of the ground is the problem.  

It doesn’t help when suits trading oil futures get spooked by the most trivial of news stories anywhere in the world.  ”Oh my, Franklin, did you see that a pickup truck backed into a gas pump at the Texaco station in Frog Pond, N.C.? That’s going to disrupt the oil supply to that part of the country for the next week, we better jack up our selling price just in case.” “I agree, Tyler, I saw on the news tonight there’s a 10 percent possibility a strong wind will blow across Texas next Thursday. It might knock out refinery production for 20 minutes while people take cover.”  Don’t forget our friends, the environmentalists, upon whose shoulders the entire burden of high gas prices rest. Because of their influence with our elected officials, our country hasn’t built a new refinery in decades. We aren’t even allowed to drill for oil in places we know the oil exists, nor can we look for oil in places we suspect it may be.  Nope, despite the fact America has huge reserves of oil in Alaska and in the Gulf of Mexico, we must continue to enrich dictators in third world countries. In addition to that, how many years will we have to endure a market confined by the requirements of the EPA that one specific blend of fuel be used in one community, but an entirely different blend of fuel must be sold in another community 90 miles away?  Contrast America’s cowardly approach to fuel independence to that of Canada. The western provinces of Canada are awash with oil as the nation taps into is rich oil sands to break its dependence upon foreign oil. It’s amazing what will happen when people finally get fed up with spending $1.50 per liter for gas to appease the “nattering nabobs of negativity,” to quote Spiro Agnew.  

Today, the Canadian economy is booming. But, in America, we’re more outraged and more concerned about the comments some insignificant shock jock says on the radio than we are in ending our dependence on foreign oil.   

Let’s drop the wells and pump up as much oil as we possibly can in the next 50 years. There is no question technology is advancing rapidly to the point that we will have vehicles running on hydrogen within the next 25 years. In the meantime, let’s fully utilize all the resources we have to take care of our own country first.

How does this work? You own three companies. You sell one of the companies you own to another company you own and you pocket $131.8 million in the process. But, now you own two companies instead of three.  Hmmmmm. That’s pretty much what happened yesterday when Affinity Group announced it had “sold” Camping World to Freedom Roads. Affinity Group’s latest annual report shows that Stephen Adams owns 1,407.2 shares or 97.41 percent of the company’s common stock, and Adams’ family members own another 37.5 shares or 2.59 percent of the company. In announcing the sale, Affinity Group said it would use the $175.8 million it received from the sale of Camping World to pay off all the debt Camping World owes to Affinity Group. Once that the debt is paid off, $131.8 million remains. That means Adams will pocket $128.39 million and his family will net $3.41 million. Nice! The deal calls for Affinity Group to receive nearly $132 million in cash at closing with the rest to be paid under a promissory note at 11.5 percent interest, or about $5 million per year in interest alone. At least that’s slightly better terms than a payday loan with Check Into Cash. 

Here are some interesting facts regarding this “deal” and Camping World in general:  

• Freedom Roads just paid $2.476 million for each of the 71 Camping World stores currently in the franchise. 
   

• Last year, Affinity Group generated $290.4 million in retail sales, 71 percent of which came from the 63 Camping World stores it owned at the time — or $3.27 million per store. The rest of its retail sales came from catalogs, the Internet, service work and supplies. 
   

• It looks like Freedom Roads may have made a great buy, except that same store sales were down 3.5 percent in 2006. 
   

• Camping World owns a proprietary mailing list of about 2.4 million RV owners, all of whom have made a purchase or requested a catalog from the store in the past 5 years. 
   

• Camping World distributed 8.9 million catalogs in 2006 which generated 317,000 catalog orders with an average sale per order of $116. In other words, only 3.6 percent of customers who received a Camping World catalog last year placed a $116 order. 
   

• None of Affinity Group’s executives or senior managers own ANY stock in the company, as of Dec. 31. That means nobody but Adams and his family have an ownership stake in Camping World, Freedom Roads, TL Publications, Woodalls, Coast to Coast, RV.net, Good Sam or any of the other firms that make up Affinity Group. 
   

What strikes me most about this deal is the appearance that Steve Adams may have finally found a way to cash out of the RV industry. At 69 years of age, Adams certainly has his eye on retirement. He may have retired earlier, but in 2003 he lost a considerable sum of money when Holiday RV Superstores went bankrupt. For years people speculated that Adams was aggressively looking for a way to recover the millions of dollars he lost in the Holiday venture. I would get reports about AGI executives traveling to Wall Street in what everyone thought was an attempt to take Affinity Group public so Adams could parachute out of the RV business.  Apparently, that idea was unable to gain any traction within the financial community. Then Affinity Group tried to sell RVs at its Camping World locations, which was met with widespread opposition within the industry. So, AGI developed a new plan to wedge its way into the RV market by purchasing existing dealerships and opening a Camping World retail outlet at every location. Thus, Freedom Roads was born. The RV industry was formally introduced to the plan at the 2003 National RV Show when AGI, in an RV Business “exclusive” article with the owner of their company, admitted it was “buying up a number of large U.S. RV dealerships in an effort to build a national retail network unlike anything the industry has seen before.” 

Basically, Freedom Roads bought out some of the best run RV dealerships in the nation, giving cash to the entrepreneur and allowing him to lease the property back to Freedom Roads. The company retained the entrepreneur on “staff” for anywhere from a few weeks to a few years, before replaced him with a manager. Freedom Roads currently owns 58 dealerships covering 117 locations. Since the Freedom Roads concept was introduced, people have speculated on what would happen when the entrepreneurial spirit and “ownership” mentality at the bought-out dealerships was replaced with salaried managers and a “managerial” mentality. That business model certainly hasn’t worked in this industry before as Holiday RV World, Fleetwood and Coachmen all discovered a few years ago. In fact, other than convenience store chains, I don’t think it has worked well in any other industry. Almost immediately, several entrepreneurs started resenting being corralled into a management position and a few were even fired from their own dealerships. In fact, several former Freedom Roads dealers have started or are planning to start dealerships to compete with their former companies. Today, the Freedom Roads/Camping World business model is as fragile as many people imagined it would be. Both entities are now under the control of 33-year-old Marcus Lemonis, who serves as president and CEO. According to the Affinity Group’s annual report, “From 2001 to 2003, Lemonis served as president, chief executive officer and chairman of the board of directors of Holiday RV Superstores, Inc.  Holiday RV Superstores, Inc. filed for bankruptcy on October 18, 2003.” 

With Holiday RV Superstores, all power was consolidated under a 30-year-old with lots of book smarts but little practical experience in running a multi-faceted business. The result was disastrous. Now the same guy is in charge of single entity that controls 117 dealership locations and a $290 million retail empire where same store sales are declining — and the parent company’s only stockholder and truly vested owner just cashed out nearly $132 million by combining the two companies.  With $132 million in his pocket and $5 million coming to him every year in interest, does Steve Adams really care what happens to the company he controls or the impact it can have on this industry? Look for a formal retirement announcement soon.  Then, with the entrepreneurial spirit and “ownership” mentality at AGI replaced with a managerial philosophy and an unproven business model, who knows what will happen.  

Stay tuned folks! This tale promises to turn into a cataclysm.

The 2006 results are in for National RV and the news is not good. The company posted a 14.3 percent decline in net sales and a net loss of $24.3 million. Since 2001, this company has lost nearly $93.4 million on $2.16 billion in sales.

National RV sold off its cash cow, Country Coach, a few months ago in a sale valued at $38.7 million. Yet, after $24.5 million in outstanding bills were paid, the company netted only $14.2 million to fund current operations. According to its annual report, that amount won’t even cover its general and administrative expenses.  The annual report data posted at the Securities and Exchange Commission’s website yesterday noted that National RV Holdings entered into an agreement with Wells Fargo to reduce its credit facility from $40 million to $15 million. 

“While we do not anticipate any events of default, in such an event, the lender could restrict our borrowings under the line of credit which could restrict or limit our ability to react to changes in market conditions and acquire properties or businesses and if we were unable to obtain a waiver on the line of credit from Wells Fargo Bank, the underlying assets could be called by Wells Fargo Bank. If our debt were to be accelerated, there is no assurance that we would be able to repay it. There are no guarantees that we could obtain sufficient financing resources as an alternative to the line of credit, which could have a material negative impact on our financial position, results of operations and cash flows,” the report read.

In addition, provisions in National RV’s charter documents and in Delaware law (where it is technically incorporated) make it difficult for a third party to acquire the company. As a result, it could depress the company’s sale of its common stock. While the stock briefly fell to $1.96 per share 12 days ago, it is currently trading at $2.15 per share — well below its $5.97 share price one year ago and considerably less than its all-time high of $33.67 posted in 1998. 

“Certain provisions of our Certificate of Incorporation and By-laws, as well as Delaware corporate law, may be deemed to have anti-takeover effects and may delay, defer or prevent a takeover attempt that a stockholder might consider in its best interest. Such provisions also may adversely affect prevailing market prices for the common stock. Certain of such provisions allow the company’s board of directors to issue, without additional stockholder approval, preferred stock having rights senior to those of the common stock. In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.” 

Although the company appears to be handcuffed to some extent in its ability to get out from under its current situation, National RV noted that it has a plan for returning to profitability that includes seven points: 

• New product and floor plan introductions in 2007 

• New dealer additions to fill open market areas or replace under-performing dealers 

• Decreases in overall sales incentives by tailoring programs that provide the maximum value to the company 

• Reduction of material and related obsolescence costs 

• Improvement of manufacturing efficiencies 

• Further reductions of manufacturing and other overhead costs 

• Decreases in the costs of warranty 

The last point should concern dealers to the point they may want to set aside some money to cover warranty repairs in case of a company default or in case claim approvals are tightened. 

What if the firm’s seven-point plan fails? The report suggests that if management is unable to achieve its operational profitability plan or unforeseen events occur and its existing line of credit is insufficient to allow National RV to meet its obligations, the company may need to implement alternative plans that could include: 

• Long-term financing collateralized by real estate 

• A possible sale and leaseback transaction involving its Perris, Calif. facilities 

• Pursuit of several strategic opportunities, 

• Obtaining additional debt financing 

• Additional reductions in operating costs 

• Deferral of capital expenditures 

• Deferring the introduction of new products 

• Scaling back its operations to further reduce its working capital 

This weekend, I had a chance to talk with several people representing a broad spectrum of firms involved in the RV industry. The overall consensus was that National RV isn’t likely to survive the year without a dramatic change in leadership that signals to stockholders, creditors and dealers that the firm is serious about completing a turnaround. Perhaps the company even agrees. According to its annual report, “The company has performed an evaluation of its ability to continue as a going concern and believes it has sufficient financial resources to fund its operations through at least March 2008.” I must commend National RV shareholders for their patience and faith in the company. Bradley Albrechtsen has served as president and CEO of National RV Holdings, and Doy Henley has served as its chairman since September 2001 — and the company has yet to turn a profit. Since both are still in place following January’s annual shareholder meeting, I can only assume that shareholders are pleased with the direction of the company. In fact, Henley was re-elected to his position on the board at that gathering.

Ironically, the company’s 2001 Annual Report noted, “2001 was a year of transition, as (the) company took decisive action to secure National RV Holdings’ future performance.”  I wonder, did Albrechtsen and Henley get the memo?

If I understand the news out of Wyoming last week, the legislature lifted a long-time ban on out-of-state dealers selling RVs in the Cowboy State. Bureaucrats said the measure was designed to make it easier for the state to attract big RV rallies. But if you read between the lines, the whole deal was created to help a government-financed business essentially compete with the RV dealers who financed the event center project from the get-go. “The benefit locally and statewide is in the tax revenue generated by those attending,” said state Sen. Michael Von Flatern, R-Campbell County in a story appearing in the Gillette News Record. Of course it is. Why else would a government of the people launch headstrong into a business arrangement in which they fill their coffers over a seven-day period by taking money out of the pockets of local RV dealers who, for the next seven years, will have to clean up the mess and pay even more taxes?“The sales tax in the local area rises dramatically for that week, but equally important is that the whole state sees a boost in sales tax through campground use, groceries and fuel purchase, etc., and admission to our state and national parks,” Von Flatern added. How noble. What a surprise that Von Vlatern represents the same county in which the Cam-plex is located. He should be put on the center’s board of directors. Gee, I wonder if the state could have experienced all those benefits by allowing just licensed Wyoming dealers to sell RVs? They have in the past. In 2000, the Cam-Plex center in Gillette hosted 5,406 units at a single rally. This year, they’ll host 1,200 and another 1,500 in 2008. FMCA must have laid down the law and announced they won’t return to Wyoming until their loyal out-of-state sellers can participate. 

But, apparently, there aren’t any RV dealers in Wyoming capable of selling units at rallies. Wyoming dealers are probably too focused on quality long-term customer service to generate the amount of tax revenue Campbell County officials need to pay for the $42 million rally complex. Rally sales requires a special ability to swarm into an area, set up a display, price units to undercut local business owners, accept a check and move out of the area before the first service work needs to be done. The new law does require out-of-state dealers to pay $500 for a permit, $50 for two demonstration license plates and $5 for 10 temporary permits to be issued to buyers. I wonder how that compares to the costs Wyoming dealers incur annually for various licenses, fees, taxes, charges and assessments in order to support those seeking to undermine the dealers’ ability to grow profitable businesses. I also wonder if those fees are waived for local dealers who paid for the complex and now want to participate in the rally. I doubt it. A similar bill failed when it was introduced in the Senate a year ago because of its effect on in-state dealers. But it was assigned for study to the Transportation Interim Committee, on which Von Flatern served. So, in response to concerns about the impact on dealers, the state assigns the legislation for further study to the same elected officials who sponsored the measure in the first place. That’s great government. 

“Over the interim, we listened to the opposition and supporters and crafted a bill that was fair to all concerned,” Von Flatern said.  The “protections” created by the state include limiting out-of-state dealers to just three permits per year. That should help the locals. If big rallies can be organized at the start of the selling season, in the middle of the vacation season and when snowbirds are getting ready to leave the state, then Wyoming’s dealers will have all winter to sell RVs to their hearts content. Yes, a provision gives Wyoming dealers the first right of refusal. Local dealers can say “yes” to “buying” a spot on the rally grounds before the option is given to out-of-state dealers. Here’s how this works. Cam-plex officials call some of the biggest rally sellers in the country and give them warning that a big rally is being planned. Then they ask the dealers how much they are willing to pay for seven days of intensive selling. The out-of-state dealers offer a price. The dutiful bureaucrats increase that by 25 percent and set “the price” for participation. Local dealers are given the opportunity to pony up at the excessive rate. When they decline, the bureaucrats return to the out-of-state dealers who will grumble, but pay the higher rate. But, if too many outsiders grumble, then the officials can lower the price for them. But the officials will have fulfilled their legal obligation by first offering it to the townies. Remember, it’s all about tax revenue, not business development or loyalty. What surprised me most was the willingness of local dealers to fall on their swords over this issue. According to the Gillette News Record, Phil Stahla, owner of Eastside Motors and RVs, viewed the legislation as both good and bad. “The negative is that you have out-of-state dealers come in and sell their units in our territory,” he said. “But it is good for the county because it brings in revenue for the county. It brings us business, too, because we do a lot of parts business.” Phil appears to be willing to give up profit from the sale of units in order to keep his county taxes down. Besides, he’ll make $10 on a parts sale to a customer who ventures away from the rally site. He must not realize some of the out-of-towners have started bringing trailers full of high-margin accessories to set up temporary parts stores at the rally displays in hopes of keeping buyers near their sale units a while longer.    

This whole new cowboy rally law doesn’t make sense to me. A better law would have given local dealers the ability to give temporary sales licenses to out-of-town sellers who could make great commissions while letting the local dealer profit as well.  

Perhaps when all is said and done, Hollywood will come to Gillette to film a sequel to another wildly popular cowboy movie. They can call it Brokeback Rally, but this time local business owners will be the ones to get it in the end.

Last week the U.S. Supreme Court heard arguments in the case PSKS v. Leegin Creative Leather Products. The court’s final decision, due in June, could have long-ranging implications for RV dealers, manufacturers, suppliers and independent parts and accessories stores. At issue is the fairness of a 1911 high court decision that declared minimum price agreements automatically illegal on the grounds that it would lead to Americans paying far more for goods and services. Back then the justices believed that minimum prices would hinder competition by removing market forces that control supply and demand. 

Last week, U.S. attorney Theodore Olson argued that the nearly 96-year-old ruling was “outdated, misguided and anti-competitive.” He argued that minimum price deals can be beneficial for consumers because they come with better service and warranties. Opponents argued that minimum price laws protect small mom-and-pop operations that compete with big discounters who have their own market power. Normally, I am all for free enterprise.  But, in this case, I support the government’s position in seeking reversal of the rule that prevents manufacturers from setting minimum prices. 

Unlike 1911, today we live in a world where a single supplier operating an online cyber store can undercut even mass merchandisers, let alone mom-and-pop stores, with ridiculously low prices.  As I have noted in previous blogs, these cyber stores don’t even need to stock inventory.  They simply accept an electronic order and pass it on to a warehouse distributor that ships the product directly to the buyer. The cyber store collects a small fee, often below five percent, for orchestrating the transaction without having to pay any overhead. Reversing the 1911 decision will actually protect all business owners from this type of online predatory pricing. By allowing RV manufacturers to set minimum prices for RVs, legitimate RV dealers will no longer have to worry about a single cyber dealer selling a unit as cheaply as possible without completing a pre-delivery inspection, without orientating the customer to its operation and without having to provide even basic customer service. It will result in much fewer orphaned owners and increased customer satisfaction. 

Requiring a minimum price would protect all retailers against a hyper-aggressive retailer.  Imagine if the RV industry had an overpowering retail chain that sold RV parts and accessories online and in retail outlets throughout the country. Now imagine if that retail chain (we’ll call it Kamping Universe) attempting to strong arm a towing equipment supplier (we’ll call it Red Mule) into providing products to the chain at a razor thin margin. Red Mule Hitch Company balks at the tactics and tells Kamping Universe to take a hike. Now imagine that Kamping Universe is managed by a bully that sought revenge on the uncooperative supplier. It launches an aggressive campaign to put Red Mule out of business by selling a competitive product (perhaps a private-labeled product) at retail prices well below Red Mule’s wholesale price. Other dealers that carry Red Mule products throw up their hands and admit they can’t market the product and either unload existing inventory at unprofitable prices or return it to a wholesale distributor. 

Kamping Universe, which also happens to own most of the industry’s consumer publications as well as a major outdoor advertising company, shuts Red Mule out of the ability to advertise its products to consumers. It orchestrates a Google and Yahoo click campaign so that whenever anyone searched for Red Mule products, advertisements for its own branded products and retail stores appear – even before links to Red Mule itself. Unable to retain dealers or attract customers and hindered by a limited distribution channel, Red Mule eventually shuts its doors. That allows Kamping Universe to quickly increase prices for similar products confident they don’t have to worry about a competitor.  

RV suppliers and manufacturers should have the ability to protect their business partners, their customers and their reputations by setting minimum prices to prevent domestic or foreign predatory companies from undercutting them, even to the point the predators are willing to lose money in the process.  Justice David Souter worried would that big box discount retailers like Wal-mart would face closure if minimum prices were allowed. Hardly.  Getting a product in the Wal-mart chain is the crown jewel of merchandising. Few suppliers are stupid enough to kill their golden goose by setting a minimum price that keeps them out of Wal-mart stores.  

But, is there anything wrong with the suppliers telling all retail stores they can’t sell the same product at prices lower than the lowest price negotiated with the big box stores. If that price is fair for the big boxes, at least it will give other retailers a fighting chance.