Hello, National Indoor RV Centers family of employees and customers I am trying to kill two birds with one stone by addressing two different audiences in this video the first audience is our family of employees who I have made a promise to provide them with all the information I would want to know if our roles were reversed during this crisis I’ve mentioned before. If nothing else you may learn a little bit more about business in general and specifically a lot more about our company and how does position during this current crisis it’s been a little over three and a half weeks ago since my last email to you and rather than another lengthy email I felt I would communicate with you this time through a video. The second audience I would like to address is our family of customers.
I believe a lot of the information I would like to share with our employees can also answer a lot of our customers questions about the current and future state of the motorhome industry. I would like to discuss the Paycheck Protection Program and then differences between the great financial crisis of 2008 and the crisis of today especially as it relates to the differences between the manufacturers of motor homes then and now between the buyers of then and now the ownership and service of motor homes and then finish up with the current needs of our family of customers and the opportunities we have to serve them. Let me start by saying what I told my children growing up which is there is no security in this lifetime only opportunity.
I think we are all witnessing there is no individual no group no company no agency or even government who can assure our security there really is only the opportunities we create and take advantage of in this life. Over the next several minutes I will share with you some facts and data along with my unvarnished opinions on how they could shape our future is motorhome owners and the employees who service Li. Yes my message will be filled with facts and figures which will include both the good and bad news as with everything there is some good news albeit different news so please hang in there and each of you are free to draw your own conclusions from the information contrary to what we are all hearing on the news the Paycheck Protection Program doesn’t begin to have enough money to cover all the wages salaries and what I will call the gig employees for two and a half months.
As most of you know I am a career investor of 40 years as a full-time RVer National Indoor RV Centers and RV happen to be my passion. As an investor of 40 years you develop your favorite sources for information and data one of those sources for me has always been the Federal Reserve it’s a favorite site on my desktop computer and one of my favorite apps on my phone.
The Federal Reserve shows personal income totaling eighteen point six trillion dollars for the year end to 2019 nine point one trillion dollars is what I’ll refer to as the gig employee who doesn’t receive an hourly wage or a salary they receive their income from a variety of sources a couple examples would be rent think of hair salons for example or contract labor think of our videographer or the ladies who decor and photograph our coaches in a service economy like ours the list of services these gig employees provide is very lengthy and their numbers are very large but there is no provision for these people in the Paycheck Protection Program.
According to the Federal Reserve nine and a half trillion dollars was paid in just wages and salaries for the twelve months ending January 2020 two and a half months of wages and salaries is two trillion dollars yet there was only three hundred and fifty billion dollars passed by Congress for the Paycheck Protection Program or seventeen point seven percent of all wages and salaries. Basically Congress approved enough money for only one out of every six companies to pay just their wages and salaries for two and a half months or put another way eighty-two percent of all employees were not covered by the Paycheck Protection Program. Our chief financial officer and my partner in business for 37 years now Angelo Prieto read the cares I cover to cover before it went to the Senate then he reread it after the Senate passed their version and then he reread it again after the House passed their final version.
Bottom line the maximum amount of money our company qualified was reduced by 67% from the Senate version to the final version passed by the house. Angelo did file our application for the maximum amount our company qualified for that shortly after midnight on Friday morning April the third which was the soonest the government would accept applications. Astonishingly the Small Business Administration worked the weekend and we received notice at 9:00 a.M. On Sunday morning April the 5th that our application had been approved. We received another email two hours later informing us our money had been funded into our bank and then by Tuesday morning April the 7th the entire three hundred and fifty billion dollars was gone. Angelo performed a Herculean effort in accurately pulling together everything we needed to file on such short notice and in time to place us at the very front of the line. Thank you, Angelo.
The Paycheck Protection Program provides us with two and a half months of just payroll which as I’ve said before will go about as far for our company as the $1,200 that you are going to receive will go for your families. I point this out only to say we cannot and we will not rely on the government to get our company through this and. I wouldn’t have it any other way with our dedicated family of employees I want to be in control of our own destiny
I would like to discuss the future of motorhome sales now the hub of our wheel the heart and soul of our company. What our business model is based on here at National Indoor RV Centers is service. However a sale is the only activity we do which involves every single department in our company. So what do the manufacturers of motor homes look like now compared to the great financial crisis? Who are the buyers of motor homes going to be now? Will there be financing for those who want to purchase a motorhome?. These are just a few of the questions I’ll touch on.
As I’ve mentioned in a previous email we commissioned a study back when we were deciding whether to get into sales or not the study was to determine if there was a correlation between the sale of motor homes and a number of variables including interest rates fuel prices income levels personal net worth personal savings inflation employment rates population by age and many more. We had over 20 variables and what we discovered was there was no correlation whatsoever to anything other than the S&P 500. Basically the stock market and the correlation between the sale of motorhomes and the S&P 500 was almost a perfect correlation. When people felt wealthy or secure they purchased motorhomes whether that wealth was in the retirement accounts or their current brokerage and savings accounts. When people didn’t feel wealthy they didn’t purchase. If the stock market is a barometer for motorhome sales what does the next couple of years look like for the stock market?.
When it comes to the value of a business the stock market is a voting machine in the short term and a weighing machine over the long term. Meaning in the short term the market is emotional and reacts to the events of today but over the longer term it looks to earnings and ultimately weighs the value of the business correctly. Notwithstanding the recent tumble and subsequent rebound of the stock market current market conditions feel like a classic bear trap to me. In the midst of all this coronavirus hysteria I believe the market is reacting daily to the number of new cases deaths announcements of possible vaccines and additional government stimulus. However the majority of public companies will have announced their first quarter earnings by May 15th and I expect those earnings to be flat or down based on very good Januaries and Februaries for most companies followed by a miserable March as the coronavirus and stay-at-home orders started to take their toll.
By August 15th companies will have reported their second quarter earnings and no one will be able to defy gravity with our economy completely shut down for the month of April and then reopening of America to come in three phases over time. I suspect the second quarter earnings and beyond to be awful. Every investor and fund manager will begin to wonder and worry about where the bottom will be for earnings no one will want to try and catch a falling knife. I do not believe we have seen the bottom in this stock market. For perspective. During the great financial crisis the S&P 500 tumbled forty four point seven percent over a two point one year period I will not be at all surprised to see us fall even further in this crisis. Additionally when corporate earnings do finally bottom, so will stock prices however I don’t expect stock prices to rebound as quickly this time around as they did.
Coming out of the great financial crisis and please allow me to explain. Why. First it’s just the math if the S&P 500 drops say 50 percent this time around before bottoming a 50 percent rebound in stock prices doesn’t make you whole again it takes a hundred percent gain in stock prices to get you back to where you were before the drop. Second the U.S. Stock market has just finished the longest bull market in our nation’s history prior to this crisis the stock market by most measures was overvalued by 15 percent. Third what causes the price of undervalued stocks to rise? The answer. The easy answer is willing buyers with cash. However there are really only three groups who purchase stocks. One is the company itself the company recognizes their stock is undervalued and represents a good investment and they buy their stock back. Two is a company’s competitor who sees their competition stock is undervalued so they start buying stock in their competitor and.
Three is all the others the exchange-traded funds or ETFs foreigners insurance companies mutual funds pension funds hedge funds and households. The real question is who will be the buyer this time around?. Since the great financial crisis far and away the biggest purchaser of stocks have been the companies themselves by a factor of almost 8 to 1 in a total approaching four point two trillion dollars. With the main purchaser of stocks leaving the scene this time around because many companies were already highly leveraged coming into this recession and need to conserve their cash and borrowing power buybacks are no longer a priority. Plus the CARES Act restricts any companies receiving federal loans loan guarantees or other assistance from buying their stock back. If the decline in stock prices of the great financial crisis in this current crisis end up being similar. What else could be different this time around?.
While the second chart covers only half the time of the first chart I wanted to include it to show the magnitude of who the net purchasers of stock has been the blue bar to the left represents stock purchases by the corporations themselves. Not surprisingly the red bar on the right shows pension funds being net sellers of stock as our population has aged and retired. I expect you’ll see life insurance companies becoming net sellers in the future as these retirees begin to die off. What is another difference between the great financial crisis and this current one?. Coming out of the great financial crisis a very large percentage of coach owners saw the value of their motorhomes decimated as the manufacturers of their motorhomes went out of business country coach Monaco national RV and many more.
The good news is current motorhome owners should be able to take this concern off the table this time around eighty five point two percent of all motorhomes are currently manufactured by four industries: Thor, Forest River, Winnebago, and Tiffin. Thor is a public company who also happens to be the largest motorhome manufacturer in the world. Forest River is wholly owned by Berkshire Hathaway. Need I say more?. Winnebago is also a public company and happens to be the oldest motorhome manufacturer in the industry. And finally Tiffin is the largest privately held motorhome manufacturer and this isn’t their first rodeo when it comes to operating through a recession or a crisis. Bottom line while a motorhome isn’t an investment today’s motorhome owners are not going to find the value of their motorhome destroyed overnight because their manufacturer went out of business and the market for their motorhome evaporated. Financing for motor homes is another big difference between this crisis and the great financial crisis.
During the great financial crisis our entire monetary system came within days of collapsing money market accounts broke the buck the government placed their own sponsored enterprises federal National Mortgage Association or Fannie Mae and the Federal Home Loan Mortgage Corporation or Freddie Mac into conservatorship ships anchored offshore not coming ashore to unload their cargo fearing the letters of credit backing the payment for their cargo were no longer any good and the list goes on. There was. Absolutely no financing for the purchase of a motorhome. So far in this crisis there is plenty of financing available for the purchase of a motorhome. Our government is approving stimulus in both unprecedented and an unfathomable amount. Our Congress just passed a two point two trillion dollar fiscal stimulus package in the CARES Act alone. Plus there’s ongoing discussions for hundreds of billions if not trillions of dollars more in the very near future the government set the Federal Reserve up with another four trillion dollars in monetary stimulus.
And guess what when I look at the assets of the Federal Reserve they are already at six point four trillion dollars as of April 15th 2020 and indicating they will need to infuse another five trillion in the very near future. If nothing else I believe this crisis is going to make us all numb to the word trillion. Plus the word stimulus seems to be a big misnomer to me. Historically the growth of our economy which would slow our government acting in concert with the Federal Reserve would add fiscal or monetary stimulus or both to help stimulate our economy in hopes of preventing a recession. But in the wake of the stay-at-home orders we currently have no economy to stimulate. To me all this quote stimulus sure walks and talks like national welfare by providing food and shelter for our population as opposed to stimulating our economy.
These are certainly strange times as our nation currently has debt approaching 25 and a half trillion dollars and growing rapidly while at the same time we have. Historically low interest rates. Both the 10 and 20 year Treasury bond yields are at 70 years or more lows. As of April 17th the yield for a ten-year Treasury bond was point six 1% per annum and the 20-year was 1.1% Per annum. Let me try and bring some perspective to that. If you had 1 million dollars to invest and chose to invest all 1 million dollars into a ten-year Treasury bond you would earn $6,100 per year. At that rate of return it would take a hundred and eighteen years or almost two lifetimes to turn that 1 million dollars into 2 million dollars. My point here is credit is currently available at.
Historically low interest rates and when coupled with our nation’s debt the odds are far more likely for interest rates to be higher than lower in the future. It sure seems to me for those so inclined to borrow now could end up being a once-in-a-lifetime opportunity now let me shift my gears to possible changes in how we vacation and recreate when we are once again permitted. How willing will we be to go back in to crowded stadiums and arenas with thousands of strangers coughing and sneezing all around us for four hours just to watch a sporting event or a concert?. How willing will we be to sit in a crowded movie theater of strangers?. Will we ever be at ease cooped up in the fuselage of a crowded plane for a dozen hours with a bunch of strangers all using the same restroom? Just so we can travel abroad. Have we taken our last cruise?.
Will we ever look at the people walking out of a hotel and wonder if they slept in the same bed I’ll be sleeping in tonight?. The list goes on and on. I believe this pandemic has scarred an entire generation. I believe these scars will change people’s behavior. The sum of all of our changes in behavior will change an economy. Will people still recreate want to vacation. Absolutely I believe they will simply make changes. I’m already seeing it as I have met new customers of ours over the past few weeks who had trips and cruises abroad canceled. They openly admit they are going to vacation and travel domestically and now they want to do it from the safety and cleanliness of their own motorhome. Trust me I totally understand where they are coming from. I would much rather use the kitchen and bathroom in my motorhome than in a plane or a service station also. I much prefer sleeping in my own bed.
I much prefer living in an environment I controlled as opposed to one thousands of strangers have used. Just like post 9/11 I think it’s very probable the motorhome industry is going to see another boom only this time it could be on steroids. For perspective I’d like to share some statistics about the industry our company operates in. Since 2001 the number of households who now own an RV has gone up 16%. Roughly 40 million people in the United States go camping in an RV. Of those 40 million Millennials make up approximately 38% of campers even though they only make up 31% of our general population. The average age of an RVer in the United States is now 48 years old. According to the University of Michigan more RVs are owned by people in the 35 to 54 age demographic than any other age group. As of 2017 there are over 10 million registered RVs 1.3 Million people live full-time in their RV.
Clearly a lot of people have been changing to RVing as their preferred way to vacation. Now in the wake of this pandemic I believe the number of people who will look to vacation in a motorhome is going to increase and accelerate. I also believe people are going to discover financially they can have their cake and eat it too. During the great financial crisis with this crisis people saw or will see their 401ks become 201(k)s albeit temporary they’ve seen their wealth cut in half. However those only become permanent losses when they sell. Allow me to discuss the potential silver lining for our company as well as the future of our customers well I don’t believe anyone will sell their stocks in the middle of a crisis and incur big permanent losses just so they can buy a motorhome. I do believe that they will figure out they can finance the purchase of a motorhome at.
Historically low rates and once their stock portfolios have recovered they’ll look back and discover they indeed had their cake and ate it too. They will not have sold their stocks at a loss they will have still vacationed and travelled in the safety of an environment they controlled their own motorhome and they will probably have done it all at an interest rate they will never again see in their lifetime. As a career observer of markets it’s going to be interesting to me to see what happens first with the cessation of motorhome production a month ago will the existing supply disappear before production resumes and can ramp back up to meet demand or with interest rates at. Historically low levels coupled with our nation’s 25 and a half trillion dollars of debt cause interest rates to rise before the demand for motorhome purchases can be filled. As with all markets it will be the classic race against time
I would now like to talk about motorhome service for a few minutes to help lay out the opportunities that lie ahead for our company and its employees and to help set expectations for our customers. National Indoor RV Centers was founded on providing service to motorhome owners in an industry which others chose not. I know for many my facts and figures are incredibly boring but for me they really do tell a story. If you will indulge me I would like to share just a couple of more. At the end of 2019 there were 284.5 Million automobiles registered in the United States and according to the Bureau of Labor there were eight hundred thousand auto mechanics that works out to be one auto mechanic for every 355 automobiles. By comparison there are over 10 million RVs registered in the United States. Then according to the Bureau of Labor there are only 15,560 RV technicians.
Strangely it’s roughly the same number of technicians as there was in 1998 but that works out to be one RV technician for every 643 RVs. I would like to make two observations here. First there are 7.1 Million well 7,068,500 to be exact more RVs. At the end of 2019 than there were in 1998 yet there are still the same number of technicians. Second the RVs of today have far more complexity and a greater number of components than did RVs of 1998. Clearly Motorhome service is a tremendous opportunity for our company and a wonderful career for our technicians. Given the number of mechanics per unit you would expect lead times for RVs to be approximately double what they are for an automobile but they’re not they’re much more. Why? Well, according to Toyota the average car has 30,000 parts. A diesel pusher is a much larger vehicle than a car has many more systems than a car resulting in significantly more parts than a car.
But the problem is bigger than that. Additionally automobiles have a level of standardization that motor homes do not. Just by way of an analogy an automobile mechanic may do 12 repairs a thousand times whereas a motorhome technician may perform 12,000 different repairs. The difference in complexity between an automobile and a motorhome aren’t the only reasons for longer lead times and slower turnaround times while in service. When compared to an automobile the supply chain and warranty approval process of the motorhome industry add friction the automobile industry doesn’t have. While well engineered and designed, a motorhome is still both an extremely nice home on top of a very complex chassis rolling down the road in earthquake conditions and at gale force winds of 70 miles an hour. Occasionally things will need to be repaired.
I purchased my first motorhome in 1985 and the way I have chosen to keep it in perspective when I think about getting my motorhome serviced versus my car serviced I stopped asking myself how many times have I had my hot water heater or furnace or plumbing or shower or sink or fireplace or tile work or TVs or cabinetry or washer and dryer or dishwasher refrigerator or generator or many many more components serviced at my Ford dealership. It would be like me complaining to the president of Ruth’s Chris Steakhouse about how long it takes for me to get my steak dinner while pointing out I can get a Big Mac through the drive-up at McDonald’s in 45 seconds.
When it comes to traveling I will readily admit I’m one who much prefers freedom from a set schedule being able to leave when I want stopping when and where I want and for whatever reason I want eating what I want and when I want using my own bathroom and sleeping in my own bed. These are just a few of the reasons I prefer traveling in my motorhome over having to be to the airport two hours ahead of time checking my luggage standing in a long line for security just so I can then stand in another long line to board my plane just so I can wait on the plane and yet wait again for my luggage. This is all to say nothing about delayed flights cancelled flights sitting on the tarmac circling shuttling to and from rental car agencies and then checking into a hotel.
Yes I will gladly put up with getting my coach serviced every six months versus the myriad of inconveniences associated with air travel. But what about our family of customers?. We simply need to keep doing what we’ve always done what you are known for and what our company stands for and that is simply treat our customers like family. Treat them the way you would want your parents treated or the way you would want to be treated if the roles were reversed. Customer service begins in our heart. It’s understanding the products we sell and the service we provide are very expensive. To many it represents a lifetime of savings and a dream to many. They certainly didn’t purchase these wonderful machines to sit in our service lot. Just like going to a doctor they will all need service in the very least we can and we must do is be kind. We simply need to continue to make them feel comfortable in our home.
Given as many customers as we service I realize and I believe our customers realize we occasionally will drop the ball. We will make a mistake. No one has ever been or ever will be reprimanded here at National Indoor RV Centers for making a mistake. They are learning experiences. But when we do make a mistake we need to own it immediately. We then need to make it right on our nickel not the customer’s. I hope you know and understand and truly believe if we will just continue doing what we’re known for doing we will always have a place to come to work and the opportunity to be able to provide for our families in closing I would like to touch on how proud I am of our exceptional employees and their indomitable spirit I don’t believe I’ve been moved to tears in my life as I have been over the past month and a half. First came the stay-at-home orders and.
Fortunately we were considered an essential business in all four of our locations. However just because we were deemed an essential business didn’t mean our employees were required to still come to work. Many of our competitors closed their doors. During this time because their employees refused to come to work. Yet true to their nature our employees cast their fear aside and eagerly came to work. I am so thankful and grateful they did because of what I’ve been seeing firsthand. While I was at our Phoenix facility in March I spoke to a number of displaced and stranded motorhome owners who were forced to leave the RV parks and resorts. They were staying in as they closed for business. During this time there are far more examples of people whose lives were turned upside down as they found themselves displaced and stranded than I can possibly detail here in this video. However one couple who drove to Scottsdale in their motorhome really sticks out in my mind.
They were staying in an RV park that had just closed pursuant to stay-at-home order. I listened as a dear wife sobbed while she told me they came to Scottsdale so her husband could receive daily treatments at the Mayo Clinic. Between her husband’s health his daily treatments and being forced from where. They were staying she was understandably distraught with how full her hands were. Then upon my return home to Texas where I live full-time in my motorhome our general manager Eddie Braley told me that Mrs. Smith was going to be one of my new neighbors for a while. Mrs. Smith is the sweetest little 79 year old lady you would ever want to meet she lives full-time along with everything she owns in her motorhome. Mrs. Smith along with so many others had to leave the state park she was staying in and had nowhere to turn and nowhere to go.
It has been heartwarming to see and to hear how you have welcomed our customers in their time of need across all of our locations. If we have shelter to share we’re going to share it. This crisis has forced our company to make changes I never thought we would ever have to make and one of those has been pay cuts. Here again I was moved to hear that everyone’s willingness to participate regardless of income level from top to bottom how everyone gladly participated in the pay cuts. It was the first time in my 40 years of business I have ever had to cut pay and your response meant the world to me. Nothing lasts forever so I dearly look forward to the day when we can restore your pay along with the loyalty bonus for having sacrificed and placed your trust in National Indoor RV Centers. I want to thank all of you for taking time out of your day to listen to my thoughts.
I wish you all safe travels and all the best thank you.