RV Weekly

An individual who works for one of the RV industry’s manufacturers alerted me to a situation he said is changing the way RVs are sold and straining OEM and dealer relationships.

Apparently, sales of RVs have fallen so much in the last year, that some manufacturers (at least one) are shipping units to dealers on consignment. The dealer doesn’t have to carry the unit as official “inventory” because the title remains with the manufacturer. But, the manufacturer doesn’t get paid until the sale is made. When the sale is made, the dealer keeps a percentage and the rest goes back to the manufacturer.

Consignment has been in place for years with the sale of used RVs — and many dealers have reported tremendous success doing so.  Having consignments on the lot builds traffic for the dealer. The seller doesn’t incur any expenses in trying to advertise the RV or any hassle in making lots of appointments to show the unit. The dealer can make money on financing, insurance and add-on parts and accessories. Some dealers also make money by getting the used RVs into saleable condition and buyers have more peace of mind purchasing an RV from a dealer than a private party. So consignment works for everyone.

But when it comes to selling new units on consignment, this sounds like a new development for which I can see pros and cons for manufacturers and dealers.

For dealers, the big advantage is that they wouldn’t have to pay floorplanning costs for units sold on consignment. They could stock their lots with many more RVs without having to make a huge investment. Plus, they could still enjoy all the other advantages associated with selling F&I and add-on products with the new units. For states that tax inventory as part of property taxes, I suspect consignments wouldn’t count in that regard and that would save dealers even more.

For manufacturers, one advantage to consignment is that they keep their shipment numbers up, which would keep investors, analysts and board members happy. Another advantage is that they can keep assembly lines operating by building the spec units. Rather than risk laying off good workers who never return, the manufacturer can keep them busy and give them a paycheck.

But that all sounds risky to me. A manufacturer must pony up the cost for materials and labor to build an RV, then pay to ship it to a dealer. If the OEM doesn’t get paid until the unit is sold, where does the company get the money to buy more materials and pay for laobr to build new units? Are banks financing these types of arrangements? Some RVs can languish on the lot for months or even a year before the right buyer comes along. Is there enough profit built into the units that a manufacturer can afford to wait 120 to 180 days for payment?

But, if a manufacturer works out the deal so that it gets a higher percentage of profit off a consignment sale than it would a traditionally financed sale, perhaps there is some added incentive for OEMs to move units through consignment.

Yet, if a dealer doesn’t have any “skin in the game,” is he sufficiently motivated to move consignment units at a speed comfortable to a manufacturer which bears most of the risk?

Perhaps these are arrangements in which dealers get something like “30 days free financing,” so if the unit isn’t sold in a month, then the dealer has to take out a floorplan loan.

The manufacturer who alerted me to this problem also noted his firm has seen an increase in the number of consumers sent to the plant to walk through units that haven’t been dispatched to the dealership. By becoming the de facto salespeople and making features and benefits presentations, the OEM staff is tasked to “sell” a unit that may not be in presentable condition. What if the buyer wants to see additional models? How much time should factory reps spend doing sales jobs with potential buyers?

Most manufacturers encourage factory tours. They want to show off their ability to produce quality units and help build relationships with end users. Some manufacturers even allow consumers to take a factory delivery for sales worked out at dealerships.

But this appears to go beyond that and it may be a byproduct of allowing dealers to sell units on consignment. Now, rather than stocking and selling units himself, a dealer can send prospective customers to the manufacturing facility, have them walk through a consignment unit and get a features and benefits demonstration on-site from a factory rep. Then, when the customer is ready to buy, the unit is basically shipped to the dealer for titling in the new owner’s home state and the dealer collects a consignment profit.

This whole issue could evolve into some type of franchising system where dealers basically become delivery sites for a manufacturer’s corporate stores. I doubt anyone in the industry would want to see that happen.