RV Weekly

When it comes to the formaldehyde issue, it’s hard to know what’s right, what’s wrong, what’s hype and what’s fact. On Monday, the RV Industry Association took the proactive step of bringing the issue to the forefront of industry discussion during its annual membership meeting in Las Vegas.

The association brought in a hired gun to bring manufacturers, dealers and suppliers up to speed about the issue which has garnered media attention to the point some consumers wonder whether they’ll be poisoned in their RVs, as some media outlets have contended. The bottom line is that the media hype is groundless and it is up to us to educate consumers about the formaldehyde fuss.

For the most part, the formaldehyde issue is yet the latest hit job by what Rush Limbaugh calls the drive-by media – reporters acting like gang members who spray bullets into a crowd causing mass panic and hysteria only to calmly drive away unscathed and unnoticed as the gangsters look for their next victims.

Dr. Lee Shull is a professional toxicologist who works as the corporate risk services director for Environmental Resources Management in Sacramento, Calif. He was invited by RVIA to expose the fallacy of the formaldehyde issue. Monday morning, he did an excellent job putting the issue in its proper context. Here are a few bullet points you can use to reassure customers that RVs remain safe.

• Formaldehyde is one of the most naturally occurring organic compounds in the universe
• It is not unusual for people to be exposed to formaldehyde daily through clothing, carpeting, building materials and even food
• It is often used as a disinfectant and antimicrobial solution
• It is fed to livestock
• It is found in soap and cosmetics
• It is used in the food industry to process fish, cheese and juice
• It has been used for 70 years to create exceptionally strong glue that securely bonds one material to another

When wood products are manufactured using glue, virtually all the formaldehyde is consumed in the process. In fact 99 percent of the compound used is chemically bonded into the materials. Less than 1 percent is considered “free formaldehyde” which is released over time as a gas. The news media, on the other hand, frequently suggests that 100 percent of the formaldehyde used in the manufacturing process is available as an “off gas” which is harmful to humans, Dr. Shull said.

Air samples were taken daily on 96 FEMA trailers over a 14-day period. Two groups of trailers were sampled. Group A turned on air conditioners and left the bathroom vent open. Group B shut off the air conditioner, opened the windows and left the vents open. The goal was to see whether the concentration of formaldehyde could be altered below 0.3 parts per million (ppm), the point at which exposure may result in discomfort and irritation.

Group A, the users who shut the windows and recirculated air through the air conditioner, experienced irritating levels of formaldehyde gas 12 of the 14 days. But, Group B, which opened the windows as recommended, recorded less than 0.3 ppm after the fourth day. What a surprise.

Dr. Shull said there were other factors in the Gulf Region contributing to higher formaldehyde levels — factors the drive-by media chose to ignore, including:

• The trailers were recently constructed and it takes time for the 1 percent of free formaldehyde to escape from wood products in order to be off gassed
• The trailers were shut tight due to hot humid weather
• Formaldehyde was also released from nearby rotting wood associated with downed trees and broken homes
• People were also smoking indoors and tobacco products release their own formaldehyde
• Gas cookers were often involved and they, too, produce formaldehyde
• People were also exposed to cleaning agents and personal care products, like cosmetics, which release formaldehyde

Dr. Shull noted the Occupational Safety and Health Administration, Department of Housing and Urban Development, Environmental Protection Agency, the Agency for Toxic Substances and Disease Registry, Consumer Product Safety Commission and World Health Organization all have different standards as to what is and is not an acceptable level of formaldehyde concentration. As expected, the media picks the lowest level of “acceptable” concentration adopted by one of the agencies and portrays that number as undisputed fact.

A total of 28 different epidemiology studies of factors contributing to illness have failed to show a correlation between formaldehyde and any evidence of nasal cancer. Yet the media is all hyped up about the issue because studies have shown that high levels of formaldehyde did cause cancer in laboratory rats. What the media didn’t mention are these inconvenient facts about the study in which rats were exposed to various levels of concentration for six hours a day, five days a week over two years:

• Of the 159 rats exposed at a concentration of 2 ppm, none of the rats contracted cancer
• Of the 153 rats exposed to a concentration of 5.6 ppm, only two rats contracted cancer
• Of the 140 rats exposed to a concentration of 14.3 ppm, 94 of the rodents developed cancer

Remember, the level of human exposure in the tested FEMA trailers was 0.3 ppm — enough to cause irritation, but nothing else, even among sensitive individuals. It was nowhere near the concentration to which the lab rats were exposed. The heart of the controversy, according to Dr. Shull, is that science has clearly demonstrated there is a point at which a dose of formaldehyde causes no observable problems. But government agencies can’t let facts stand in the way of a good regulation. 

You see, because a rat exposed to high levels of formaldehyde can contract cancer, the government assumes there is a one in a million chance that a human could get cancer from the same substance — even at levels 1,800 percent lower than that known to cause cancer. And that assumption forms the basis for regulatory intervention and growing the size of government to protect us all. Whenever we see the government concerned about that special one-in-a-million person, you can bet that scores of attorneys will find thousands of potential victims in our country of 301 million people, of which 8 million use RVs. Just follow the money. 

Last week, Arizona firm Charter Equity released its business plan indicating it intended to purchase RV dealerships in hopes of consolidating them into a nationwide network similar to the one embraced in the auto industry by AutoNation. In fact, Charter Equity, has already acquired its first dealership in California and have another four or so on the hook?

I applaud their effort and their desire to offer RV dealers a business model for succession that doesn’t involve selling out to Affinity Group. In fact, as a publicly traded company, Charter Equity probably has even more financial resources to get the job done than AGI, which must borrow money for its acquisitions at double digit rates.

Yet, I have mixed feelings about yet another attempt to consolidate dealerships. We already have Affinity Group buying up dealerships and renaming them under the FreedomRoads brand so the company can build more Camping World stores. This group is trying to muscle the entire RV industry in two ways. First, by building big box retail stores that offer little in the way of personalized service, but lower prices that reduce margins for everyone. And, second, by removing all vestiges of entrepreneurialism from its dealerships in favor of a management structure with multiple layers of bureaucracy. Someday, will someone explain why this group bought a dealership in Elkhart only to shut it down a few months later?

We also have REDEX and Route 66 consolidating independent dealerships under a common brand that doesn’t involve selling out. These groups provide the framework for increased buying power for the dealers, increased brand recognition and better customer service with their “I’ll take care of your customers, you take care of mine” approach. It’s a voluntary association that still relies on entrepreneurial spirit to move each business forward, and thus the entire network.

The ability of equity companies, like Charter, to offer RV dealers a way out of their business is a plus for the industry. RV dealers work too hard building their businesses to wonder if they will ever be able to enjoy the fruits of their labor. They need a way to sell out without selling out to everything they’ve fought against throughout their careers. Dealers still need the means of escape when they don’t have children willing to take over the business or lack key employees with the entrepreneurial drive necessary to make the sacrifices required to run the business.

Selling out to an equity company may be the avenue they are looking for. It eliminates anxiety for employees who may feel their careers will come to an end with the dealer’s. It gives dealers money upfront to grow their businesses or improve their infrastructure so the dealerships can run more profitably and efficiently in their absence. By tapping into the equity firm’s ability to tap into other people’s money, dealerships can “go public” without being burdened themselves with all the silly paperwork that goes with it.

Consolidation by the right companies may prove to be just the ticket for swinging manufacturer/dealer relationships more toward the dealer – where it belongs. Because equity companies are in business to generate a return on investment for their shareholders, their owners and managers won’t be in the mood for excuses from manufacturers over quality issues and parts delivery problems.

Because dealers are responsible for moving products and generating income the entire RV industry relies upon, as well as creatively coming up with new ways to grow their businesses, equity firms can be a good source for funding growth plans provided the dealers can offer sufficient proof that the investment will yield a satisfactory return.

But, working for an equity company isn’t all wine and roses either. Some equity firms are greedier than Philadelphia loan sharks in their ability to push employees to the brink of physical and emotional exhaustion seeking ways to cut more expenses, develop more income and drop as much money as possible to the bottom line. They’ll set unrealistic expectations for business performance and terminate middle managers who don’t willingly sacrifice their families and marriages to meet those expectations. Even if the business makes more money than it did the previous year, chances are good middle managers will be looking for work if they fall 90 days behind in meeting the double-digit growth expectations the equity firm set for them. Here’s the dirty little secret. When a business owner invites an equity firm into his business, he becomes the middle manager.

Investors are often a fickle bunch, just ask any CEO of a publicly traded company. Equity firms often have a tendency to combine the fickleness of stockholders with the payback demands of paycheck loan companies – you know, those firms that let you borrow money this week and pay it back with your next paycheck for 2,100 percent interest.

Equity firms often force their managers to spend so much time looking for nickels in the dirt that the managers miss the C-notes fluttering overhead. And should a manager net an idea that could yield significant return in five years, equity firms sometimes don’t give the green light because the project with wind up costing money to launch. Dealers looking to sell out to those type of equity companies had better be ready to leave their business within a few years just to maintain their sanity.

I don’t know what kind of business people the folks at Charter Equity are, but I hope to find out soon. Because the right type of equity pumped into the right dealerships at the right time by the right company could set this industry on fire.

As new model year units start appearing on dealer lots, some dealers get anxious about stale units from the previous model year. Often manufacturers will discount a unit to help the dealer move it off the lot. But, apparently, some OEMs take a more desperate approach when things get more desperate.

About a month ago, a manufacturer’s rep alerted me to a problem he believes is highly unscrupulous. I researched the topic and quietly asked a few other sources about the likelihood such a “transaction” could take place. Although it would be highly illegal for an RV dealer to attempt the same trick, apparently manufacturers are able to get it done. And that’s the concept of “rebadging” units.

Here’s how it works.  A dealer in Texas receives a 2007 model in the fall of 2006. The manufacturer’s 2008 models come out mid-year. But, in September when the Texas dealer still can’t sell the 2007 model, he triggers a buy back under the terms of his dealer agreement.  The 2007 model winds up back on the manufacturer’s lot.

Unable to move the model to anyone else and unwilling to discount it further, the manufacturer eventually brings the unit into the shop, pulls off the VIN, reissues the number and presto, a new 2008 model is born. New paperwork is issued and the unit shipped to an unsuspecting dealer.

My source said he has only seen this happen a handful of times in the past three or four years, so I suspect it’s not a widespread problem. However, if most of the units arriving on a dealer’s lot from a particular manufacturer come with X miles on it, and one suddenly shows up with double or triple that number, dealers have every right to question the unit’s validity, especially if the paint schemes, floorplans and interior colors have not changed significantly from the previous year. 

The OEM source said that when dealers question the manufacturer about the higher-than-normal mileage, they are told the unit was driven to some RV shows before it was shipped to the dealer lot.

I googled the concept of vehicle manufacturers rebadging units, converting VIN numbers and the like. There is little information out there about the practice, so I don’t believe it happens that often. Or it simply means that nobody has been caught, yet.

The deception of such a maneuver bothers me. Not only are dealers being deceived, so are the unsuspecting customers. It makes me wonder how such a trick affects warranty issues for interior components. And if a manufacturer is willing to go to that level to sell a unit, what else is the company doing to cut corners?

I can understand why a manufacturer would take such a measure to retain profitability, especially if the OEM has had a tough year or two. But other options also remain including selling it at an auction or online, donating it to charity and writing off the entire cost, or lending it to RVIA for the vehicle loan program for a year, then selling it as a used unit and writing off the depreciation.

My OEM source said he was having a hard time sleeping knowing that this type of deceptive practice was taking place in our industry and in his company. He said the operation to change VIN numbers is done quietly and with the knowledge of senior managers, but the officials harbored a “what they don’t know won’t hurt them” attitude toward the dealers who receive the units and must sell them to others.

It’s a particularly sneaky maneuver if the new dealer’s business is in a state that doesn’t have a buy back rule. Should he be unable to sell the unit due to a defect or whatever, then the dealer must bear the full brunt of writing down the unit just to get it off the lot.

Manufacturers should police themselves against this kind of deception. Doing so would ensure their VIN numbers remain badges of honor, not devices of deception.

Another Labor Day has come and gone. How many people reading this have actually enjoyed a vacation themselves this summer?

I read some interesting statistics on the flight back from Fleetwood’s dealer meeting that can either raise the alarm for our industry or point to tremendous opportunity.  In America, vacations should go on the endangered species list. Consider this:

• The Families and Work Institute released a study showing that only 14 percent of Americans take two weeks or more of consecutive time for a vacation. That means the average American spends more time in the bathroom than on vacation.
• Compared to 1970, American managers are working an additional month per year, according to research conducted by Loyola University in Chicago. Forget that day off, your action plan and reforcasted budget must be submitted today.
• An Expedia.com consumer poll recently discovered that Americans are working more hours than any time since the 1920s. In fact, 63 percent of Americans log more than 40 hours per week at the office, and 40 percent log more than 50 hours per week. No wonder there is no time for weekend trips with the family.
• Most working moms can attest to this. According to an editorial posted by independent news organization Alternet June 30, 2003, the average middle-income family works four months more in total hours per household than it did in 1979.
• In 1999, the National Institute for Occupational Safety & Health Conference released a report titled, “Work, Stress and Health.” The report noted that within the span of a single generation, people work approximately eight weeks longer per year than in 1969, but for roughly the same inflation-adjusted income. Has the situation become better or worse for employees since 1999?
• A Boston College Survey discovered 26 percent of Americans take no vacations at all. That’s one out of every four people you work with, see at church or bump into at the mall.
• American workers get an average of 8.1 days of vacation after one year on the job, according to the Bureau of Labor Statistics, and 10.2 days after three years. Based on an average 2,080 hour work year, that means workers with three years on the job must spend 3.25 DAYS on their desks to get a single HOUR of vacation. Want to leave early on a Friday afternoon, you’ll need to put in 12.75 days on the job to generate that four-hour mini-vacation.

When it comes to vacation days per employee, America compares poorly to the rest of the world.  According to the World Tourism Organization, here are the average vacation days per worker by major industrialized countries:

• Italy = 42 days
• France = 37 days
• Germany = 35 days
• Brazil = 34 days
• Britain = 28 days
• Canada = 26 days
• Japan = 25 days
• USA = 13 days

As noted small business author Timothy Ferriss recently pointed out, “Is it any wonder the US Bureau of Labor Statistics tracks just about everything but worker satisfaction?”

The International Labor Organization, a United Nations agency, discovered that Americans work 137 more hours per year than Japanese workers, 260 more hours per year than British workers, and 499 more hours per year than French workers.

America needs the RV industry more today than ever before – they just don’t know it yet. According to survey calculations done by Expedia.com, employees hand their companies more than $21 billion in unused vacation days each year. Ironically, that’s nearly twice the size of the orchestrated effort of the entire RV industry with manufacturer, supplier, dealer and warehouse distributor output combined.

This week, when an anxious customer walks onto the lot with the crazed look of a zombie whose eyes dart nervously around the room and who is absolutely paranoid about being caught sitting down, give him a break. Take away his cell phone, Blackberry and pager. Dim the lights and play a DVD of a gentle campfire on your computer screen. Pop a CD of cricket and bird sounds into the CD player on your desk.  Guide him to a Coronado recliner/lounger, pour him a nice cool drink and massage his back.

As the stress melts away, I suspect he’ll be highly open to suggestion.