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Platt v. Winnebago

Pure joy. Legendary construction standards. You can read all about the amazing features of the 2016 Class B Winnebago Era in this brochure.

However, as most buyers of new RVs quickly find out, pure joy is fleeting and legendary construction standards are legendary for a reason.

The Platts, a couple from Colorado, purchased a Winnebago Era in 2016. The Era is a Class B motorhome built on the Mercedes-Benz Sprinter chassis. Back in 2016, it looked like this:

Not surprisingly, the Era had a number of annoying defects which included screens falling off the windows, inoperable furnace, inoperable GPS and a number of other issues. Pretty standard fare for most of us that own and operate RVs.

This was our initial warranty list of issues that we had to resolve after we picked up our coach back in 2016:

  • Kitchen Sink Leak: drain pipe leaks where drain meets down pipe immediately underneath the sink.
  • Loose Fabric Trim: fabric trim by pantry drawer leading into bedroom has come loose in a couple of areas.
  • Cracked Floor Tile: cracked floor tile driver side behind the recliner that is closest to the kitchen galley.
  • MCD Day/Night Shades: MCD Day/Night Shades over dining area appear to require reprogramming. Day shade inoperative over main dining area window and night shades over main dining area window and small dining area window out of synch.
  • Winegard Rayzar Digital TV Antenna: Unit is producing an E3 error during operation (motor movement error).
  • Sofa Bed Latch: Latch for inflating sofa bed doesn’t stay closed when inflating.
  • Passenger Side Basement Door: When door side slideout is open, first basement door rubs bottom of slideout (door out of alignment).
  • Front Wheel Vibration: At highway speed, roughly 100km and above, front exhibits a vibration that is characteristic of unbalanced wheels.
  • Driver Side Fuel Cover: Missing clearcoat
  • Engine fault light triggered by outdated engine firmware
  • Driver side tire bulge

So many more items were added to our issues list over the following years. It comes with the experience of pure joy and legendary construction standards in the RV industry. The issues get resolved and we take them in stride. For some people, issues become pure agony. And others go to court.

The Platts brought their Winnebago to Camping World for service seven times to deal with warranty repairs. Apparently Camping World was unable to resolve all of the repair issues and the Platts scheduled an appointment with Winnebago in Forest City, Iowa.

For whatever reason, they decided that they would cancel the factory appointment and sue Winnebago under the Colorado Consumer Protection Act. Winnebago had told the couple that they would fix all of the outstanding defects at no cost. The Platts claimed that Winnebago had sufficient opportunity to correct the problems and had failed to do so. They lost faith in Winnebago.

The U.S. Court of Appeals for the 10th Circuit did not rule in favour of the Platts:

The Platts purchased a 2016 Winnebago Era RV on January 18, 2016. This purchase was subject to Winnebago’s New Vehicle Limited Warranty, which required the Platts to bring the RV for repairs to an authorized dealer and then, if those repairs were insufficient, to Winnebago itself before they could bring an action against Winnebago.

The RV suffered from a litany of defects and the Platts took it in for warranty repairs to Camping World of Golden, Colorado (Camping World), an authorized Winnebago dealership, on numerous occasions for numerous separate defects within the first seven and a half months of their ownership. When the Camping World repairs did not resolve the Platts’ issues with the RV, they scheduled an appointment for repairs with Winnebago in Forest City, Iowa, but they subsequently cancelled the appointment. Instead, they sued Winnebago for breach of express and implied warranties under both the Magnuson-Moss Warranty Act, 15 U.S.C. §§ 2301–2312, and Colorado state law, and also for deceptive trade practices in violation of the Colorado Consumer Protection Act (CCPA), Colo. Rev. Stat. § 6-1-105.

Winnebago filed a motion for summary judgment which the district court granted, dismissing all of the Platts’ claims. The Platts appeal, and we affirm.

Winnebago did not violate consumer protection laws through its warranty with the Platts, the U.S. Court of Appeals for the 10th Circuit ruled yesterday. You can read the full case here.

“Winnebago did not breach the warranty because the Platts failed to provide it with an opportunity to perform repairs,” wrote Senior Judge Stephanie K. Seymour for the circuit panel.

Losing faith in a manufacturer is insufficient grounds to sue a company for failing to comply with a warranty.

The Platts did contend that the brochures describing the Era as “pure joy” with “legendary construction standards” were a deceptive marketing practice. Although the legendary bit is likely accurate. It all depends on how you interpret the word legendary.

Buyer’s remorse is a tough thing. However, even a little bit of online research will quickly help a buyer to understand the quality issues that impact the RV industry. If you know that you will experience issues, that it is normal to experience issues, that it is normal to take the RV back to the manufacturer to resolve warranty issues, then you will experience pure joy from time to time.

After the initial shakedown, which might take a few years, things are not so bad. You get used to the idea that something is always going wrong in an RV. You inevitably get pretty handy at fixing things. Or you pay someone else to fix them. And you move on.

NewWinnie Q4 Results

What’s up with the Newmar Winnebago deal lately? Winnebago shares. WGO is up, way up. There is a lot more to share about Winnebago and Newmar but let’s take a look at how the shares have performed since the beginning of the year:

At the beginning of the year, the stock was trading in the low 20s. And now? 49.24 at the close of market yesterday.

Shareholders have been well rewarded by Winnebago this year.

I listened in to the analyst call for Winnebago’s latest quarterly report. Aside from all of the financial blah, blah — which I expect is of little interest to most — there were a few interesting comments from President and CEO Michael Happe.

First up was a comment on Winnebago’s motorhome segment.

Revenues in this segment? Down almost 18 percent from last year.

Turning to the Motorhome segment; reestablishing a premium leadership position in this business remains a key priority for us and the launch of new products and designs continues to provide customers with an enhanced lineup of high quality innovative products. For the full year, revenues were down 17.9% from fiscal 2018, in line with the industry, and adjusted EBITDA margin of 3.9% contracted by 20 basis points.

Second, on the transition of Class-A diesel from Oregon to Iowa. Note that this is yet to include the Newmar acquisition. There is another way of saying the company negatively “affected both product availability and gross margin” — we screwed up. But, with high stock prices comes happy shareholders. Management gets cut some slack.

The Motorhome team has dedicated a considerable amount of energy and resources to positioning the business for sustained profitability. One source of market and financial pressure for the Motorhome segment has come from the Class-A Diesel category where our manufacturing and supply chain challenges surrounding our Oregon to Iowa assembly transition affected both product availability and our gross margins.

Where does Newmar fit into Winnebago’s plan to consolidate and centralize the diesel business? Not clear right now. The move to consolidate the Winnebago brand appears to be focused strictly on operational efficiency.

Executing on our plan to consolidate and centralize the Winnebago brand diesel business will improve our overall efficiency and financial strength. Additionally, the acquisition of Newmar, which is the fastest growing brand of Class-A Diesel RVs, aligns with our strategy to reenergize our Motorhome business by enhancing our position and capabilities in the motorhome market and building on the progress we have made driving growth and innovation across our offerings.

Looks like executing on this plan has not gone well. Struggling is the key word here. Happe did not clarify what he meant by the phrase “because of what we’ve done to ourselves” so we can only imagine what that might mean.

The Class A segment is where we have been struggling in part because of what we’ve done to ourselves with the diesel transition from Oregon to Iowa. It will come online with our new production of diesel in May or June of this 2020-year.

As for Newmar? Winnebago will be having “significant” conversations between the two lines of business. My read is that they intend to establish a new product line across Winnebago and Newmar. Perhaps Winnebago will be selling only “entry” coaches and Newmar will be selling only “luxury” coaches. Interesting comment.

As you can imagine as we integrate the Newmar brand, we will be having significant conversations between our Newmar business and our Winnebago business about how we can complement each other in the Class A category with those two brands. Newmar has momentum, but is a luxury line; Winnebago does not have momentum in that particular segment. It is working on some things to improve that, but we will work very carefully to try to create the right mix across both of those brands in the Class A category. So that we can remain competitively relevant going forward.

I expect that we will see some interesting outcomes from these significant conversations between the Newmar and Winnebago business lines.

Let’s hope that the new management team does not do to themselves whatever it was they did to themselves before when they tried to improve their Class A motorhome segment.

Winnebago Horizon

“Looks like a city bus on the outside and an airport lounge on the inside.”

That was one of the comments I came across when reading reviews about the Winnebago Horizon.

The styling is a bit different from most coaches and not to my taste.

I came across a video review, shot on location at Outdoor Resorts in Indio, California, that was produced by Winnebago. The video opens with this couple, Don and Terry Cohen, described as the owners.

Except that they are not owners of a Winnebago Horizon. Don is a contributor with WinnebagoLife. Don and Terry spent two and a half months on a Winnebago funded livability test. It is not their coach. Winnebago let them use one specifically for marketing the unit. This is disclosed in the WinnebagoLife Horizon review:

My wife Terry and I felt like lottery winners when we were asked to take a brand-new Winnebago Horizon for a two and a half month livability test.

I suspect that if my good friends at Newmar paid me to spend two and a half months to live in one of their new luxury coaches in beautiful Indio, California, I might provide, well, a somewhat positive review of their product.

If the owners are paid actors then that really should have been disclosed in the video.

A Dealer’s Opinion On Winnebago and Newmar

I have to let it go. This Winnebago and Newmar thing. I want you to know that I have sought outside help and my therapist believes that I am making some progress but it will take time. Time to heal. Time to forgive.

Matt Miller, how could you do this!

Oops. Sorry. It comes out. The pain. The hurt. The betrayal.

I continue to read opinions on the deal even though, as far as I can tell, no one seems to have read Winnebago’s U.S. SEC Form 8-K to understand the specifics of the deal. And I get that. Not everyone wants to jump into that level of detail.

When a company borrows almost $300 million to make an acquisition and that company has to answer to shareholders, it is naive to think that the culture of Newmar won’t be impacted. It will. The only question is whether the impact is unduly negative, mildly annoying or downright positive.

Winnebago, Newmar and the dealer community understand that current Newmar owners are not very happy with the news. And that the negative reaction could really hurt future sales as a large percentage of existing Newmar owners are repeat buyers. And so the marketing of the deal begins.

The key messages?

Matt Miller is still running the company with the same executive team and the same group of employees. Newmar is still committed to its values around quality and customer support. The deal will help Newmar continue to grow and flourish.

Mount Comfort RV is very active on YouTube. Chris Anderson, in particular, is well known for his comprehensive video walkthroughs on Newmar coaches. I watched his video on a 2016 Newmar Dutch Star 4018 dozens of times while we were waiting for our coach to be built. The unit he showed was very similar to our coach.

This is the first video I have seen on YouTube that provides a dealer’s perspective on the Winnebago and Newmar deal. Ken Eckstein, the president of Mount Comfort RV, takes time to put out this video presumably to assure his current and future Newmar customers that all is not lost.

The spin from Winnebago and Newmar reminds me of what I used to deal with as a corporate executive. Whenever the senior team made a significant or controversial decision, we had to spend time on WSWSHH.

WSWSHH?

What Should We Say Happened Here.

The spin. The press release. How to manage the customer and employee response. We had a corporate communications group that specialized in crafting the specific FAQs and talking points all precisely documented in a comprehensive communication plan. All done before the news about the decision went public.

Just like the Winnebago and Newmar deal.

So, take it with a grain of salt. We will know within a year or two what kind of company Newmar will become after the acquisition. Better or worse? Again, we will know soon enough.

Here is another take on the deal by David Bott, a popular RV blogger with Outside Our Bubble:

My take has been captured in these posts:

Winnebago Acquires Newmar

NewWinnie

A Bit More On The Newmar Winnebago Deal

A Bit More On The Newmar Winnebago Deal

More on the Winnebago acquisition of Newmar? Yes indeed. A few more interesting details to put the deal in context.

I have been asking myself why Winnebago bought Newmar. Perhaps you have as well. Was this all part of a carefully mapped out business strategy from the Winnebago executives?

Let’s see shall we?

Saying it was part of the Miller family’s long-term plan, Newmar Corp. President Matt Miller said he first approached Winnebago Industries President and CEO Michael Happe in April this year to see whether the “Flying W” would be interested in acquiring the 51-year-old motorhome manufacturer based in Nappanee, Ind.

Great. So Matt had been shopping the company. Did he approach other companies? Likely. Newmar’s long-term plan was to sell out which, obviously, was never publicly disclosed. Winnebago just happened to be the company that said yes. Interesting that Newmar initiated the discussion.

For all of the people posting on Facebook that Newmar will stay the same, let’s take a look at a recent Winnebago news release.

FOREST CITY, Iowa, Feb. 04, 2019 (GLOBE NEWSWIRE) — Winnebago Industries, Inc. (NYSE: WGO), a leading outdoor lifestyle products manufacturer, announced plans today to shift Winnebago-branded Class A diesel motorhome manufacturing from its Junction City, Oregon plant to its manufacturing campus in Forest City, Iowa. The strategic manufacturing transition consolidates and centralizes product development, supply chain, and assembly operations for the Company’s diesel motorhome business to a single location. This decision will enable the Winnebago Motorhome business to improve its ability to efficiently and consistently supply dealers and end customers with a stronger line-up of high-quality, innovative diesel products.

Further along the news release, we read the following:

“While the strategic purpose of the Company’s decision to move diesel manufacturing to Junction City years ago was well intended as a means to acquire additional motorhome assembly capacity and tap into an experienced RV workforce in the Northwest, we have not achieved our targeted operating efficiency and profitability goals,” said Brian Hazelton, Vice President and General Manager, Winnebago Motorhome Business. “This difficult decision to relocate diesel manufacturing back to Forest City, Iowa and centralize our diesel business value chain geographically is necessary. It will enable more effective product development, enhance profitability through increased manufacturing efficiency and sourcing savings, and most importantly result in being a more reliable supplier to our diesel dealers and end customers.”

There it is. The management imperative. It was necessary to centralize their diesel business value chain geographically to achieve operating efficiency and profitability goals.

It will be interesting to see if Winnebago management takes a similar approach with Newmar. They could, I suppose, move everything to the existing Newmar production facility. Or they could have multiple production facilities which they had tried before without achieving the targeted operating efficiency and profitability.

My old company, the Bank of Montreal and BMO Capital Markets, was part of the deal. You can read the entire agreement on Project Sunrise here.

In connection with execution of the Purchase Agreement on September 15, 2019, Winnebago executed a commitment letter with Goldman Sachs Bank USA, Bank of Montreal and BMO Capital Markets Corp. (the “Commitment Letter”).

Looks like Winnebago will borrow a fair amount of money to do the deal. The debt appears to be up to $290 million. The Winnebago management team will be under a bit of pressure to make the deal work.

In connection with execution of the Purchase Agreement on September 15, 2019, Winnebago executed a commitment letter with Goldman Sachs Bank USA, Bank of Montreal and BMO Capital Markets Corp. (the “Commitment Letter”). As set forth in the Commitment Letter, which is attached hereto as Exhibit 10.1, it is intended that Winnebago will (a) obtain up to $290.0 million in gross cash proceeds from the issuance of senior secured notes (the “Senior Notes”) and/or (b) if Winnebago does not, or is unable to, issue the full amount of the Senior Notes at or prior to the time of the closing of the acquisition, a senior secured bridge facility in an amount up to $290.0 million minus any gross cash proceeds received by Winnebago from the issuance of any Senior Notes or other securities.

Nothing like a little bit of debt to look at “synergies” to “maximize operating efficiencies”.

I have access to a few analysts that cover Winnebago (WGO XNYS). Here is what one of them had to say:

We are raising our fair value estimate to $37 from $33 [a share] after incorporating the company’s Sept. 16, 2019 announcement that it will acquire premium motorhome maker Newmar for about $344 million. The increase comes from a 40-basis-point increase in our midcycle EBIT margin to 8 percent which reflects Newmar’s EBITDA margin of 8.4 percent being 430 basis points higher than Winnebago’s motorhome segment margins.

Translation? Newmar was making more money on its motorhomes and that increases the fair value of the Winnebago shares.

And the view on Winnebago’s ability to execute?

Winnebago expects immediate EPS accretion, as do we.

However:

Management is targeting a 10% operating margin by fiscal 2020 which we think may not happen by then due to cyclical risk beyond management’s control.

During 2008 and 2009, Winnebago’s revenue fell by 31 percent and 65 percent respectively. Their gross margin in 2009 was an incredible negative 14.5 percent! And this analyst believes that the cyclical risk, meaning a downturn for the RV industry, is coming soon.

A few other details about Winnebago. Michael Happe, a relatively new CEO hired from Toro, brought in eight of his nine direct reports as either new to Winnebago or new to the role. Winnebago has a 10-10-10 plan for fiscal 2020: increase the North American RV share to 10 percent via organic growth, realize an operating margin of 10 percent and obtain 10 percent of revenue from RV segments or other outdoor businesses that the company is not in presently.

I’m still not happy about this deal but it is what it is. Miller wanted to sell Newmar and he went looking for a buyer.

Winnebago has ambitions to reach some aggressive financial goals and that will have a significant impact on what was once Newmar.

Winnebago did not go into debt to buy Newmar simply to let it continue to operate as an autonomous entity.

They have their goals.

10-10-10.