The Centre

Left or right? Or somewhere in the middle?

There are some interesting questions that people post about their motorcoaches.

I follow the Newmar products closely and I subscribe to dozens of groups that focus on our brand of motorcoach, the Dutch Star.

Here are a couple of shots of our coach. This one was taken last night at our site in Canada.

We looked like this a mere six weeks back. Yikes.

This shot of our coach was taken back in 2016 shortly after we had taken delivery of our brand new Dutch Star. We were staying at what was then the Petoskey Motorcoach Resort in Michigan. Lovely spot.

If you look carefully at the shot of our coach, you will notice something a bit different from the shot of this person’s coach.

Did you notice anything off about the second Dutch Star? As in the Dutch Star logo not being in the center of the front hood?

Someone posted that picture on one of the social media feeds to ask this question:

Is the DUTCH STAR lettering on the front of your coaches centered or off to the left like ours is? It’s about to drive me NUTS!!!! I’m about to pull them off!!!!!!!

Answer? Centered.

Probable cause of the Dutch Star lettering being inserted off to the left? Inept body repair work.

They had bought the coach used. They now suspect that the coach had been involved in some kind of accident. Hopefully they did a more thorough inspection on the rest of the coach before they bought it.

Newmar Layoffs

Newmar laid off roughly 10 percent of its staff. Inevitable really. Class A motorhome wholesale shipments fell by 24 percent year over year. The prevailing view was that the RV industry had overestimated demand and that dealers were sitting on too much inventory. Perhaps. The entire market, towables and motorhomes, was down in 2019.

The RVIA, which needs to put a positive spin on what is happening in the RV market, made the following projection for 2020:

RV shipments are expected to stabilize in 2020, according to a new forecast prepared by longtime RV industry analyst, Richard Curtin, PhD, who is also a professor at the University of Michigan’s Survey Research Center.

In the Spring 2020 issue of the RV RoadSigns newsletter, Curtin projects total RV shipments will range between 420,200 and 380,300 units this year with the most likely final total being 410,100 units. That total would represent a one percent increase over the 406,100 units shipped in 2019.

Towable RV shipments are anticipated to reach 366,900 units in 2020. Motorhome shipments are projected to finish at 43,200 units by year end.

Curtin believes that steadying RV sales will be due to positive economic indicators, including job and wage growth as well as low interest rates and inflation. The upcoming presidential election and potential impact of the coronavirus are uncertainties that will likely impact the market in the second half of 2020.

Ignoring the towable market, the 2020 RVIA forecast for all motorhomes, at 43,200 units shipped, is less than the 46,629 units shipped in 2019.

I was not surprised to come across this news item from RV Business:

WSBT Report: Newmar Conducted Late Week Layoffs
By: RVBusiness|Published on: Feb 29, 2020|Categories: Today’s Industry News|

Nappanee, Ind.-based motorized RV manufacturer Newmar Corp. has reportedly laid off a number of employees, according to a Friday evening (Feb. 28) report broadcast on WSBT TV, a CBS affiliate in nearby South Bend, Ind.

WSBT indicated that about 10% of Newmar’s workforce was involved, although those numbers, from all RVB could gather, may be overstated. RVBusiness was unable to confirm any details, however, because company officials were unavailable for comment.

Newmar, in response to WSBT’s inquiries, said it does not comment on specific details concerning staffing or production issues, but it did say it continually monitors and adjusts activities to reflect business needs and stay competitive.

When Newmar was acquired on Nov. 8 by Winnebago Industries Inc., the builder of Class A and Super C motorhomes employed 1,060 people at its manufacturing and customer service facilities in Nappanee.

The reaction on social media is that the layoffs are related to the sale of Newmar to Winnebago.

The market data indicates that demand for Class A motorhomes fell in 2019 and it will fall again in 2020.

The economic fallout from the coronavirus will have an impact as fear and uncertainty has reduced consumer confidence.

Newmar had little choice but to adjust the supply side. I suspect more layoffs ahead for Newmar.

London Aire and Lemons

I love the London Aire. It is a beautiful coach and it sits a class above the entry level of Newmar’s luxury coaches. If you are going to buy into the luxury range of Newmar’s coaches, the London Aire is a compelling model.

A good friend of mine often tells me that it only costs a little more to go first class. In Canada, it can cost a lot more to go first class. A new London Aire would sell for north of $800,000 CAD once all of the discounts and taxes are factored into the final selling price. At that price point, one might expect a very high level of quality.

One might be disappointed.

You should get a good coach from Newmar with few issues but some of their coaches, for whatever reason, turn out to be rotten lemons.

I received a media release from Business Wire about a London Aire. The law firm of Markowitz Herbold just achieved an interesting court ruling. If you are not familiar with Markowitz Herbold, the home page of their website says it all:

From the media alert:

A Danger on the Road

In Roblin v. Newmar Corporation, the plaintiff sued Newmar under the federal Magnuson-Moss Warranty Act, the Oregon Lemon Law Act, the Oregon Consumer Warranty Act and the California Unfair Competition Law. The plaintiff alleged that their 2016 London Aire RV, purchased from Guaranty RV in Junction City, Oregon, had suffered numerous failures of its various systems, including the engine cooling system, the electrical system and the room extension slide-out system.

The RV’s flaws manifested in a pattern of repeated breakdowns, unsuccessful repair attempts and lengthy warranty service periods. The vehicle was presented to dealerships for repairs under various warranties approximately nine times between 2015 and 2017, and it was undriveable for more than 130 days.

The plaintiff also claimed that, during the sales process and in its corporate materials, Newmar emphasized a large service network populated with well-trained technicians, which became a significant selling point of the RV. However, personnel at the various authorized service centers, including service centers in both Oregon and California, continually demonstrated that they were not properly trained and lacked the expertise to provide the high level of service promised.

Newmar Laid Blame on Subcomponent Manufacturers

Roblin repeatedly attempted to obtain a refund from Newmar or have the RV replaced. Newmar and its agents declined to provide such remedies, placing responsibility on subcomponent manufacturers and arguing that the plaintiff did not meet all the conditions for repurchase under the Oregon Lemon Law.

Yes. Newmar often points to the subcomponent manufacturers. A problem with your engine? Call Cummins. A problem with the chassis? Call Spartan or Freightliner. A problem with your heating system? Call ITR. A problem with your inverter? Call Magnum.

I can understand why Newmar takes such an approach. Newmar basically assembles a motorcoach from a variety of supplier components.

The 2016 London Aire was purchased new from Guaranty RV in Oregon. The coach experienced multiple failures and it was literally unusable for over two years.

The owner made repeated attempts to obtain a refund or to have the coach replaced. Newmar declined, blaming subcomponent manufacturers for the issues.

The Judge in this case ruled against Newmar and held Newmar accountable for the issues that the owner had experienced. He ruled that under Oregon’s Lemon Law Act the end-manufacturer, not the subcomponent manufacturer(s), is responsible for recovery .

This decision protects an Oregon consumer from having to litigate against each subcomponent manufacturer and ensures that a final manufacturer, like Newmar, cannot contract around Oregon’s Lemon Law.

This interpretation of Oregon’s Lemon Law is consistent with recent decisions in other states.

Not yet determined in this case is the dollar amount to be awarded. A decision is expected soon.

In Canada, there are no Lemon Laws to protect consumers.

Buying expensive RVs can be risky.

RV SuperShow Day 2

I attended a session with the Newmar executive team yesterday.

Kevin Bogan, Vice President of Operations for Newmar, chaired the meeting. Other Newmar executives present included Matt Miller, now a Vice President at Winnebago Industries reporting to Michael Happe, CEO of Winnebago (Matt remains as President of Newmar Corporation), John Sammut, Vice President of Sales (Newmar), Matt Utley, Vice President of Service and Facilities Development (Newmar), Ron Stichter, Vice President of Engineering (Newmar) along with a few other folks.

Kevin opened the session and, as expected, spoke about the acquisition by Winnebago. Kevin provided the standard talking points about how everything will stay the same for customers. Even better for the future.

Kevin then introduced someone else. Someone from Winnebago.

Ashis Bhattacharya.

This is how Ashis describes himself on LinkedIn:

I am a growth-focused business leader who has worked in multiple companies (Winnebago, Honeywell, Moog, Motorola Solutions, Bain & Co) and industries (Outdoor Lifestyle, Industrial Components & Machinery, Telecommunications) around the world. I presently work with Winnebago Industries, the world-renowned brand in RVs, heading strategy, acquisitions, advanced technology and I also head the Specialty Vehicles division of the company.

My approach to business starts with gaining a deep understanding of customers and markets, and using that knowledge to work with product development and marketing teams to develop differentiated offerings and marketing approaches. I am also a big supporter of customer insights research and human-centered design as a way to understand customers better.

At Winnebago, I have worked on closing 2 key acquisitions over the past couple of years, Grand Design RV and Chris-Craft. I work with the leadership and management teams to bring in a more strategic approach to business and growth. I have also led the introduction of an all-electric RV for short-range commercial applications. Digital customer engagement is an area of great passion for me.

From what I gather, Ashis is the point person from Winnebago to oversee the integration efforts with Newmar. Ashis is a peer to Matt Miller, as they both report to the Winnebago CEO.

It was interesting to me that Ashis felt compelled to speak to this group.

Don’t get me wrong. Ashis, although not as strong a communicator as Kevin or Matt, said all the right things. He came across as friendly and seemed focused on ensuring a good customer experience. But, at the end of the day, Ashis is just another MBA; a hired gun with no particular focus or passion about the RV lifestyle. He has been with Winnebago just over three years. He brings no prior experience or exposure to the RV industry. I doubt that he has ever spent any time using an RV.

Newmar is now part of a publicly traded business, accountable to shareholders. Things will change for the company. Hopefully for the better, but, knowing how public corporations work, especially those ones that are run by MBAs, I’m not so sure.

The format of the meeting was largely a Q&A session with the attendees. I did not learn much new except for Newmar’s plans to spin out a mobile service offering in a few select areas starting with Florida.

Later in the day, Lorraine and I spent time looking at the Newmar, Entegra, and Tiffin coaches. That was in between extended sessions talking with people.

In the Newmar section, we really loved the Essex. That was our favourite Newmar coach. In the Entegra section, well, let’s just say that Thor followed through on Bob Martin’s promise to decontent their high-end coaches (Bob is CEO of Thor). We would not buy an Entegra coach. Lorraine and I were really impressed with a 40-foot Tiffin Phaeton coach. Really well done with an expansive floor plan that seemed much larger than our coach. Nice bus. We also enjoyed walking through the Allegro Bus coaches.

We will be back to the show today. We will also be in a meeting with ITR, manufacturer of the OASIS heating system. I wonder if they have any spare pumps? I’ve already replaced two defective ones and I need to replace a third.

Third day dry camping. All good so far. We leave bright and early tomorrow morning.

Winnebago and Double-Digit Growth

Winnebago revenues are up. Way up. An increase of 19.2% for the Fiscal 2020 first quarter compared to the Fiscal 2019 first quarter. And organic growth of 12%. Impressive.

I’ve summarized the highlights at the end of the post if you have an interest.

I enjoy the earnings call. Both for the types of questions that the analysts raise and the careful wording of the responses by management.

Let’s check a few of them out, shall we?

We don’t talk about that.

Q. And then, I’m sorry, if I missed it, but did you talk about Newmar’s organic growth in the period that you own them or maybe even for the quarter, overall for the period?

A. No, we don’t disclose that. (Bryan Hughes, CFO)

The value side of Class A motorcoaches is a “struggle”?

Q. And then going forward in future calls, what are the markers that we could look forward and talk about some of the initial progress that will be made from having Winnebago and Newmar working together?

A. The Class A business is obviously where the accretiveness from the Newmar acquisition will take hold in total. It will allow us to become more selective with the Winnebago brand about where we want to play with Class A gas and Class A diesel underneath our flagship brand. We continue to see the efficiency there on that segment versus the rest of the industry. I will tell you though, the entire industry is struggling on the Class A value side of the equation. (Michael Happe, CEO)

Er, only $5 million savings on a $1.2 billion cost base? Really??

Q. Okay, perfect. Thank you for that. And just finally, and I think, Mike, you talked about some of the teams from Newmar and the Motorized — the Winnebago motorized team are starting the integration work now, and at the time you made that acquisition you were looking for $5 million synergies over three years, has that picking changed at all, because if you look at these two businesses together you’ve got a $1.2 billion cost base and you’re calling out $5 million in savings, that just seems at the surface pretty low. Has there been any change in that thinking and any sense of when you might update that?

A. I will be very honest with you, we need to be able to exceed that number. (Michael Happe, CEO)

We have lots of Newmar coaches in stock!

Q. Okay. And then just more of a housekeeping item on Newmar, I think Bryan you gave us what the backlogs were excluding Newmar, but any sense of what the inventory — the inventory for Motorized at quarter end was with Newmar?

A. Sure. Yes. So Mike, real quick. So Newmar we had about 1,400 units, 1,420 units of field inventory related to Newmar. So our reported number was 5,169, of that 1,420 units were Newmar. (Steve Stuber, Investor Relations)

Let’s remain humble and paranoid.

Q. Good morning. Thanks for taking my questions. Just two quick ones here. So, can you talk about the integration of Newmar, how that’s been going? And maybe, have there been any issues or any early lessons that may have been learned?

A. So, very early in the process, we have strong aspirations, but we also need to remain both humble and paranoid that if you don’t keep your head down on an integration like that, that something could surprise you, but nothing to report as of late. (Michael Happe, CEO)

And this one isn’t about Newmar. It is about Winnebago’s Class B products.

B stands for Bumpy. Or maybe Bad (as in bad product quality). But let’s not call them out by name. We’ll just call them “the vendor”.

Q. And also with regards to incoming chassis, the quality issues, are we in the later innings of these issues?

A. As it relates to which inning might we be in, we’re working I’d say very productively with the vendor. I think that we’ve made progress with them. I think it will continue for the foreseeable future here as we work through issues with them. And so we’re not prepared yet to call that we’re in the late innings of this journey. Some of these issues are certainly deep-rooted or systemic, and like I said, we’re working very productively with them. But more work to be done, I would say. (Michael Happe, CEO)

Here are the highlights for the first quarter.

Revenues for the Fiscal 2020 first quarter ended November 30, 2019, were $588.5 million, an increase of 19.2% compared to $493.6 million for the Fiscal 2019 period.

  • Winnebago’s towable segment achieved a sales improvement of 16.5%, to $341.3 million, mostly from rising sales of the Grand Design RV brand.
  • Motorhome segment revenue increased by 24.6%, to $225.9 million, due to the acquisition of competitor Newmar Corporation on Nov. 8. Winnebago paid $270 million in cash plus 2 million of its common shares in the purchase. After removing Newmar’s impact during the first quarter, motorized sales advanced by 4.9%.
  • Adjusting for the Newmar acquisition, organic revenue between both segments rose by 12%, to $552.8 million, an impressive result given that dealer-inventory rationalization (i.e., the rightsizing of vehicles on dealer lots to meet the appropriate level of current retail demand) has continued industrywide during the second half of calendar-year 2019.
  • Total order backlog increased by 20.7%, to $627.1 million. Towable backlog dipped by 26%, while motorized backlog essentially doubled from the addition of Newmar’s unfilled orders and the introduction of new Winnebago-branded products.
  • The company’s gross margin declined by 100 basis points, to 13.4%, due to a change in product mix stemming from the Newmar acquisition, as well as purchase-accounting adjustments related to the transaction.
  • Adjusting for $10 million in Newmar transaction costs, operating margin slipped by 100 basis points, to 5.5%.
  • Also adjusting primarily for the impact of the Newmar purchase, earnings per share rose 4.3%, to $0.73.