Great Recession Survivors, Pt. 1
Editor’s note: This article marks the first installment of a two-part series looking back at the 2008-09 Great Recession’s impact upon RV dealers. The second installment can be read here.
Ten years ago, the U.S. economy fell off a cliff.
The housing market bubble burst, the stock market nosedived, the unemployment rate shot up, big banks and car companies suddenly and desperately needed a bailout, and consumer confidence plummeted.
Perhaps no single segment of the economy felt the impact of that downturn more than the RV industry, which saw a number of high-profile manufacturers shutter their doors, several prominent banks exit the RV market and hundreds of dealerships close for good.
While the Great Recession officially began in 2008, it hit its peak in 2009. In recognition of that defining event and its impact upon dealerships, RV PRO sought out dealers who survived the economic downturn to find out how it impacted their respective businesses, to chronicle their strategies for staying in business and to share their success stories.
All Seasons Acts Fast on Inventory
Father and son Ernie and Darrel Friesen of All Seasons RV were attending the RVDA Convention/Expo in October 2008 when impacts from the stock market and housing meltdowns began to reverberate across the economy.
The two realized they needed to act fast.
“When Darrel and I flew home after that meeting, we had our own meeting on the airplane,” says Ernie Friesen, All Sea- sons’ CEO. “I said to Darrel, ‘we need to reduce our inventory by at least a million dollars in the next 60 days.’
Darrel Friesen, president of the Yuba City, Calif.-based dealership, took that message to heart – and slashed the dealership’s inventory by $1.5 million.
While the dealership shaped up from an inventory perspective, the Friesens couldn’t have anticipated other major challenges that followed, which included losing the dealership’s flooring company and having three of its manufacturer partners – representing roughly 85 percent of the inventory All Seasons carried on its sales lot – shutter their doors.
“At the same time, we were trying to (sell off) old products and find good products to carry, we also found ourselves looking for a flooring company,” Ernie Friesen recalls.
Fortunately for All Seasons, the dealership was able to pay cash to buy a small mix of towable and motorized units at a steep discount when a large California competitor closed all six of its dealerships and liquidated its inventory.
At the time, All Seasons’ management team would have liked to have purchased even more inventory from the failing dealership. However, as it turns out, not buying more units was a good decision because the business avoided overextending itself.
“It truly was a blessing in disguise, because at the time, we didn’t have cash to buy any more product,” Darrel Friesen says now.
The RVs that All Seasons purchased kept the Friesens flush with inventory until they were able to identify a new flooring company in Bank of the West. The father-and-son team also found a local credit union to manage the retail side of their financing.
“One of the biggest lessons we learned,” Ernie Friesen says, “is not to put all of our eggs in one basket. Going into the Recession, we had only one flooring company. From now on, we’ll always have a fall back.”
California was particularly hard hit by the Great Recession.
The Golden State lost more than 1 million jobs from the peak of employment in July 2007 to the end of 2009 – the largest absolute drop of any state. Meanwhile, personal and business bankruptcies grew by 58 percent in 2009, compared to a national increase of 32 percent, according to data from the American Bankruptcy Institute.
The impact upon the RV dealerships in California was devastating. Before 2008, All Seasons was one of 78 dealers in the state. By the end of the Recession, the total number of dealers was reduced by more than half, to just 34, according to Darrel Friesen.
While All Seasons kept its doors open, it had to make some difficult decisions, including reducing staff.
“Our sales manager became the finance manager and salesman,” Darrel Friesen says. “Everyone was doing two or three jobs – and there were some great techs we had to let go.”
Fortunately, the U.S. economy rebounded a few short years later – but that presented All Seasons with a new set of challenges.
“During the Recession, dealers, manufacturers and suppliers laid off a lot of people,” Ernie Friesen says, somberly. “When the market turned – and it turned quickly – we couldn’t get product fast enough to meet the demands of the consumer.”
In hindsight, as tough as it was to go through at the time, the Friesens say the Recession was good for the industry in a way, because it eliminated some weaker players and reinforced the fundamentals of running a business. Ernie Friesen says some of the lessons his northern California dealership learned include securing back-up flooring, taking a conservative approach to inventory and keeping adequate cash in reserves to weather future economic cycles.
Dodd RV Scrutinizes Costs, Focuses on Winning Floorplans
The Recession brought many sleepless nights for Jamie Dodd, owner of Dodd RV in Yorktown and Portsmouth, Va.
“As the head coach, when you’re not scoring any points, it’s extremely frustrating – especially when we came off a great year in 2007,” says Dodd, who manages the family-owned dealership with assistance from Dodd RV Operations Manager Brian Doss and Mike McNeil, general manager of RV of the Peninsula. “2008 was a great year for us until the end of the year – when the banks and automotive manufacturers were filing for bankruptcy.”
On the other hand, 2009 was when Dodd says he and his team began to see the writing on the wall. Dodd says the dealership had the best team it had ever assembled and its best brand lineup ever.
“Suddenly, we would go to RV shows, and we hardly sold anything, versus a year or two earlier, when we would walk away with a large stack of buyers’ orders,” Dodd says, adding, “It was stressful.”
When Dodd and his team returned to the dealership and kicked off spring events in 2009, he says attendance was terrible.
“We were spending the same amounts for advertising, and the return was awful,” he says. “We heard much of the same thing from other RV dealers at the time. Some of them were in states that were really affected by the mortgage crisis.”
While Virginia was not nearly as bad off as states like California or Nevada, the state had seen more than its fair share of foreclosures and large manufacturers shutting down. Locally, Dodd says one of the challenges his business faced was the shutdown of a Ford F-150 plant that employed a large contingent of workers – prime RV customers.
Meanwhile, Dodd watched financing for customers dry up, as lenders throughout the country tightened their requirements.
“We had people with good credit who wanted to buy, and in many cases we could not get them a loan with the national or regional lenders. That was quite frustrating,” Dodd says, adding, “It crushed our sales.”
Dodd says his team learned to turn to local credit unions for customer financing. To address cash flow, he says he began to study his model selection more closely.
“Before the Recession, we could afford to take a chance on some floorplans that were not top performers,” he says. “During the Recession, we were strictly focused on getting the right floorplans and turning them as quickly as we possibly could.”
Travel trailers, Dodd says, maintained solid demand throughout the Recession and have continued to be Dodd RV’s No. 1 segment. So, the dealership continued to invest in those units.
As Dodd took a shrewd approach to inventory, he also had to make the tough decision to downsize staff.
“It was difficult with the relationships we had with many of our employees and their families,” he says, estimating the dealership’s head count was reduced by about 40 percent in a relatively short time frame.
One area the dealership didn’t cut was its service and parts department, as customers who previously traded in their RVs every three to four years prior to the Recession began holding onto their units longer and needed to get them serviced. Dodd also made a decision for customer relations reasons to continue making uncompensated warranty repairs on RVs for manufacturers that had closed their doors, even though those units were no longer eligible for warranty reimbursement.
“It was a decision we felt was the right call,” Dodd says, “but it was tough, because we still had to pay our techs to perform that work and buy parts from our suppliers.”
Throughout the Recession, Dodd says he and his team felt blessed that his father has continued to be a coach, mentor and advisor to the business.
“Throughout the Recession, he reinforced to us to always speak the truth in everything that we did,” says Dodd. “He said when this ship turns around, some players will be gone, but the ones still standing will be swamped. And, he was right.”
Mid-State RV Downsizes, Leverages Relationships
When Lee Pickard reflects on the three years prior to the Great Recession, he says he feels a sense of déjà vu.
“The economy we’re in today reminds me of the years prior to 2008,” says the co-owner of Byron, Ga.-based Mid-State RV. “Our revenue is in a similar place.”
Pickard and his wife, Mid-State RV co-owner Tina, had experienced their share of economic ups and downs over the years, but the Great Recession was entirely different in its magnitude. When the Recession took hold in 2008, the dealership’s yearly revenues shrank from $40 million to $12 million.
To survive, the dealership – located about 90 miles south of Atlanta in the central part of the state – closed one of its two locations and downsized from a staff of 110 to 28 employees.
For Mid-State RV, the warning shot for the Recession was Wachovia’s exit from the retail lending market. (Wachovia was the fourth-largest bank holding company in the U.S. in 2008, before a government-forced sale to Wells Fargo to avoid its failure.)
“We began liquidating assets, but we couldn’t down cycle our business as fast as things were beginning to turn,” Pickard says. Soon, the Pickards saw lines of credit evaporating and an influx of customers returning their units due to their inability to pay their balances.
“The problem was that it wasn’t only one sector of the finance industry that we saw close down. You can survive if you have only one or two sectors affected – but if every sector is suffering, you have nowhere to go,” Pickard says.
The decision to lay off employees weighed heavily on the Pickards.
“I stopped sleeping nights for weeks in a row,” says Pickard, “thinking about how to keep our people employed. But we had no revenue or options to improve our current situation.”
One reason the decision to downsize was so challenging for the couple is that they had always operated their business conservatively, according to Pickard.
“We had set aside a great deal of cash,” he says. “We had a lot of equity and didn’t have much debt, other than a floorplan.”
Dealers struggled considerably in Georgia, where the dealership base dwindled from more than 60 stores in 2008 to just 16 in the beginning of 2011, according to Pickard. Meanwhile,
Georgia faced among the largest number of bank closures in the country during the Recession – making it especially challenging for business owners to access needed capital.
To stay afloat, the Pickards began reaching out to friends, manufacturers and to their flooring company, GE CDF.
“Especially with GE – once they saw that Tina and I were committed to the long-term success of our business, they were able to align some of their programs to help us continue and weather the storm,” Pickard says. “We were also able to get funding from independent investors.”
In the years that have followed the Recession, Pickard says Mid-State maintained its focus on what he calls the three “P’s”: people, processes and product. That meant keeping seasoned leaders in place at the dealership, ensuring his team’s continued ability to offer the best finance and insurance products, and meeting high standards in parts and service.
Thanks to following that strategy, Pickard says Mid-State has grown and prospered in recent years. It now employs 79 staff members and is again earning $40 million in annual revenue.
“This industry is a great industry,” Pickard says. “Just like with any business, you have to believe in it, and you have to be willing to get to the other side. Our philosophy was that we were going to invest in the business and get to the other side. We still believe that today.”
Today, Pickard says his team is on track to take Mid-State RV yearly revenues to $50 million, having recently completed a $2.5 million expansion of the dealership’s parts and services department and property. While business is good, Pickard says he and his wife continue to operate the business conservatively – perhaps even more conservatively than in the past – while remaining focused on building equity.
Greeneway RV Grows Its Service Ops
While the Great Recession proved to be a tough time for many dealerships nationwide, it did offer growth opportunities for some nimble retailers, like Wisconsin’s Greeneway RV.
“The biggest thing that happened was you just saw banks pulling away from the RV industry,” says Mick Ferkey, owner and sales manager of Greeneway RV. “It left a lot of dealers in a mess, where they either couldn’t get enough credit, couldn’t downsize quickly enough, or didn’t have the equity to survive.”
Ferkey says he was lucky in that he was aligned with a local bank that understood the RV business. Additionally, operating the business in a fiscally conservative manner and carrying little debt proved advantageous, he says.
Greeneway RV has been in business in Wisconsin Rapids, Wis., for more than 50 years, primarily retailing towables and park trailers. The city is located about 110 miles north of the state’s capital, Madison, Wis.
Ferkey says that, despite the turmoil roiling the national economy, he didn’t panic. Instead, he bought distressed inventory at discounted rates from banks and manufacturers as well as used RVs from customers who needed to sell their units.
At the same time, he added on 10 service bays, picked up and trained a handful of out-of-work service technicians, and expanded his parts operation. Ferkey says growing his parts and service business proved particularly fruitful at a time when customers were holding on to their aging RVs longer.
“Their income was slashed, or they had been laid off,” he says. “They couldn’t afford a new unit, but they still needed to have things fixed.”
The Midwest slogged through a long, slow recovery along with the rest of the country, but much of the region held steady, with unemployment rates of 5 percent or less, according to a 2011 report on Mainstreet. And neighborhoods in the Midwest fared much better during the foreclosure crisis that ravaged housing markets on the East and West coasts.
Today, with 32 employees and 17 service bays in its single location, Ferkey still believes in the value of being cautious and running his business efficiently.
“I think you have to really manage your business, keep your finger on it, and don’t get carried away on inventory,” he says.
Even with RV inventory at an all-time high in 2018, Ferkey says he remained true to his conservative fiscal principles. For example, he says he canceled an order for park trailers he’d made the previous year. The models didn’t arrive on a timely basis and were coming in at $1,200 more than the price he initially agreed to pay.
And Ferkey says he intends to continue to be cautious in 2019.
“There’s a lot of inventory out there,” he says. “I think next year (2019) will be a good one, but I don’t think we’re going to continue to have the sustained growth we’ve seen.”
While Ferkey doesn’t foresee a correction anywhere near the magnitude of what dealers saw during the Great Recession, he says he remains concerned over dealers who carry a large amount of inventory.
“And, as we move forward, I think I’m going to learn a lot,” he says. “I continue to talk to a lot of dealers just to see what is really happening in the industry in different market areas.”
Greeneway also continues to benefit from its decision to drop motorhomes from its inventory – a decision Ferkey says he and his wife made in 1987, when they bought half of the business.
“In a town of 18,000 people, we saw motorized as pretty risky,” he says, adding that during the Recession he observed that many dealers of large, motorized units struggled financially.