Tuesday, June 10, 2008

RV - Winnebago and Tho industries

It is no secret that high gas prices, high food prices and slow economy results in reduced discretionary spending. Recreational vehicles are purchases that can definitely be delayed or even avoided during a slow economy. So why am I interested? One word, prices. Lets look at other aspects of this business.

Business or competitive advantages:

WGO produces motorized homes.

1. WGO owns leading market share in Class A and Class C combined (18.8%). Second higherst market share in Class A (21.6%) and next only to Fleetwood which is 23%. Highest markets share in Class C (24.5%).

2. Has good brand equity and name recognition in the industry. WGO has received Quality Circle awards for past 11 years. Quality is achieved by state of art technology and manpower.

3. The leading market share, brand name, high product price and quality points closer to franchise type business rather than commodity type business. Since many of WGO customers are well to do and since the product prices range higher than $60,000 price is not the only consideration during purchase. It is a luxury item and does not lend to competition on price alone.

4. RV Business will have a need as long as people take vacations. While fuel prices and slow economy can be a damper in the short run, people will continue to take vacation 5 or 10 years from now. If fuel prices increase, it will increase transportation cost for all means of transport and RV will likely be comparable to others. Plus the high end customers that WGO targets are less affected by gas prices than the average Joe.

5. Company is not unionized and hence can shutdown plants to remain profitable during soft markets.

Growth drivers:

1. The demographics is in WGO's favor. The 50 year and older market is increasing and every year and this segment is the one most likely to choose RV. The current baby boomer population is between ages 44 to 62 years.

2. Fragmented market: The current market is weak and WGO is profitable even in soft 2007 market. 2008 will also likely be soft. Many other competitors are weak. This can lead to their going out of business or being acquired resulting in lesser competition when economy turns around.

3. Company has leading market share in Class C which is smaller and more likely attractive under higher gas prices.