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Greed and Capitalism
What kind of society isn't structured on greed? The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.
- Milton Friedman
Wednesday, December 2, 2015
Warren Buffett Was Right About the RV Business
Warren Buffett Was Right About the RV Business
The industry is heading for one of its best years on record.
Like
most people who buy recreational vehicles, Warren Buffett made his
decision quickly. He heard about Forest River in the summer of 20051 and bought the company just seven days later.
Today,
the purchase seems particularly sage. The Recreational Vehicle Industry
Association projects that North American manufacturers will ship
369,100 machines this year at an average price of around $37,000, which
would be a 52 percent boost in business from five years ago and make
2015 one of the industry's best years on record. With a dominant market
share of close to 40 percent, Forest River is in pole position.
"The
sun, the moon, and the stars are all lined up," said Doug Gaeddert,
general manager of Forest River's RV business. "A lot of folks who made
this purchase are doing pretty well right now."
Buffett’s
timing wasn’t even that great. Just a few months after getting into the
RV business, the industry began its peak year. After 2006, the
home-on-wheels industry drove into the crisis, almost disappeared, and
has since been slowly accelerating back to cruising speed.
Forest
River, however, fared better than the industry at large. Despite some
bumpy years, it steadily drove annual sales from $1.6 billion in 2004 to
$3.8 billion in 2014.
A lot of factors are fueling the recent
boom, including a surge in interest from bored baby boomers, relatively
cheap gas, and even cheaper financing. More than anything else, however,
the business rides almost entirely on the economy at large. A consumer
needs to be feeling fairly sanguine to think: "Wouldn't it be cool if we
could drive somewhere with our bed and flat-screen TV in a $400,000 rig?"
A
lot of those consumers happen to be among the more than 10,000 U.S.
baby boomers retiring every day. Roughly 10 percent of RV owners are
over the age of 54, according to the RV Industry Association2.
But younger cruisers are buying in as well, in part because the
industry's major players pour about $15 million a year into a collective
marketing budget that has been sending caravans of big rigs around to
college campuses and music festivals.
Gaeddert
said there is a 50 percent chance that the industry will sell more than
400,000 RVs next year, even factoring in a slight uptick in interest
rates. "That would absolutely be a milestone number," he said.
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