| In
The Economy and RV Sales
we identified a number of macroeconomic factors that correlate with RV
industry retail sales. RV Investor has developed a simple, objective,
model that incorporates these factors to predict retail recreational
vehicle sales. Furthermore, the inputs to the model can be easily
obtained from numerous sources of macroeconomic data including the
Congressional Budget Office, the
Federal Reserve, and the
Economic Report of the
President. The Recreational
Vehicle Industry Association (RVIA) is the best source for industry
shipment data and trends. The
model is a simple regression model with each predictor assigned a weight
based on historical correlation dating back to 1978. Gross Domestic
Product (GDP) and Personal Consumption Expenditures (PCE) are the best
predictors by far but we also know that interest rates, income tax
rates, unemployment, and gas & oil prices as a percent of PCE all exert
either upward or downward pressure on RV retail sales.
GDP as of May is forecasted to be
$13,163 billion for 2006. We have assumed that PCE stays flat as a
percentage of GDP at 70% or $9,214 billion. The Prime Interest Rate is
currently at 8.0% and we assumed that would be the average for the year,
implying the Fed may raise rates again. We kept taxes flat at 17.3% of
GDP and unemployment at 4.8%. Gas and oil expenditures as a percentage
of PCE were hiked from 3.3% in 2005 to 4.0% in 2006 and may admittedly
be low since in 1981 they were at a then all time high of 5.0%. Lastly,
we assumed a 5% increase in average sales prices for RV's in 2005 and
2006. From 2001 to 2004, ASP's increased an average of 5.8% per year.
These assumptions and their respective weightings are summarized in
Table 1 below.
Based on these assumptions, the model
predicts that RV Retail Sales for 2006 will be $14.4 billion, down from
our estimate of $15.3 billion in 2005 and that unit sales will be
343,400 in 2006 down 15% from 384,400 in 2005 (Table 2).
Admittedly, there can be significant
errors in statistical models that rely on historical data as their basis
and forecasts or estimates, even short-term ones, as inputs. However,
statistical models do not suffer from personal bias its own
peculiarities.
Dan Hutcheson, CEO of
VLSI Research, a well
respected market research firm in the semiconductor equipment industry
has coined the term "operational flexibility" to deal with the
industry's notoriously cyclical and often unpredictable nature when
making forecasts. If I was running a recreational vehicle company today,
I'd be prepared for a dip and would be cautious about adding capacity
except through productivity gains. |
