To combat the unfavorable market conditions of 2000, RV maker Monaco Coach Corp. sacrificed net income for an increase in revenue.
Last year's interest rate increases, low consumer confidence and sky-high gas prices weighed heavily on the RV industry, a sharp contrast from the healthy market manufacturers enjoyed in 1999.
However, while U.S. wholesale motor home shipments were down 14.9 percent last year, Monaco's revenues of $901.9 million were up 15.5 percent from the previous record in 1999.
Monaco's major competitors, Winnebago Industries Inc. of Forest City, Iowa, and Fleetwood Enterprises Inc. of Riverside, Calif., reported sales declines in late 2000. Winnebago reported a 12.2 percent decrease in revenue for its first quarter of fiscal 2001, which ended Nov. 25, 2000, and a decline in net income to $9.6 million, compared with $12.4 million a year earlier. Fleetwood's RV preliminary sales for its third quarter, which ended Jan. 28, dropped to $251 million, compared with $434 million a year earlier.
To buck the industry's weak wholesale conditions, Monaco used a twofold strategy that focused on retail and wholesale incentives and customer feedback. However, its higher-than-usual incentives, which peaked in the third and fourth quarters of 2000, caused net income to drop to $42.5 million, from $43.8 million. Monaco spent about $5 million in incentives during the two quarters.
'The pressure on margins and earnings was not a surprise to us,' said Mike Duncan, Monaco's manager of investor relations. 'A lot of things we did were from pricing pressure from our competitors and the fact that we had good retail demand.'
Until last year, the Coburg, Ore., RV maker traditionally has focused on offering wholesale, not retail incentives.
But to combat the pressure to move gasoline-powered motor homes from dealers' lots, and gasoline-powered chassis from the factory, Duncan proposed a new program that began last November.
Monaco told its dealers they could give buyers of gasoline-powered motor homes a Shell Oil card that could get them $1,000 worth of gasoline or other products.
'It's not just cash,' Duncan said. 'It's a marketable tool for dealers. It gives them a weapon in their arsenal to try to close deals.'
Since the program's inception, Monaco has given away about $400,000 worth of gas to consumers through its dealers. During that same time period, the company's dealers sold $27 million worth of gasoline-powered motor homes. Although Monaco does not have the data to make a correlation between the free-gas program and these sales, Duncan said he is convinced the program was worth the investment.
The gas giveaway helped Monaco dealer Tim DeMartini, owner of DeMartini RV sales in Grass Valley, Calif., and Sacramento, Calif., close deals with customers who were 'on the borderline.' Monaco's focus on retail sales was unmatched by the other manufacturers whose units DeMartini stocks. The result: He has been ordering less from Coachmen and Thor and more from Monaco.
Monaco will discontinue the free-gas program at the end of March. However, more retail-focused programs are expected, said company Chairman Kay Toolson.
Meanwhile, Monaco continues to offer dealers a discount on invoice price of new vehicles ordered to replace sold units.
From cocktails to coaches
The other half of Monaco's strategy, Duncan said, was to transform consumer suggestions into products.
In 2000, Monaco launched 40 new motor home and towable units. The majority of these new designs were generated using feedback from consumer clinics, which Monaco holds about six times a year, for as many as 600 people. Executives, including Toolson and President John Nepute, attend.
'We have had owners design floor plans on cocktail napkins, and those have made it into production,' Duncan said.
The cocktail-to-coach method is exactly how the Dynasty Queen Class A diesel motor home was designed. A 'ladies-only' focus group told Monaco executives they wanted more flexible seating and a larger kitchen. A new coach reflecting these changes was introduced last June.
Customer-driven designs were more prevalent in 2000 than in previous years, and Duncan said consumer feedback will be even more of a focus in 2001.
A rough start
The first half of 2001 will be challenging for Monaco, Toolson said. However, he expects the market to pick up later in the year.
Looking ahead, Toolson predicts the following for net income: a 5 percent increase if the industry remains flat; an increase of 5 percent to 10 percent if the industry is up; and no change if the industry is down 5 percent.
'The big challenge of this year is economic uncertainty and consumer confidence,' Duncan said. 'Dealers are starting to feel comfortable with inventory levels. That challenge is diminishing.'