NOW is the time to buy a new RV – Insights from a former RV dealer

Yes, now is the time to buy! RVs became the preferred way to travel during COVID. Sales skyrocketed, creating such a demand that manufactures couldn’t keep up. Given the shortage of RVs, dealers were asking MSRP or above for RVs on their sales lots. Customers were paying it, thankful to buy the unit before someone else beat them to it. Low interest rates and low fuel prices only made the decision to buy an RV that much easier.

Things began to change midway through 2022. Demand for RVs began to drop as interest rates and fuel prices soared. Manufacturers caught up on the backlog of orders filling RV dealers’ sales and storage lots until they overflowed. Now RV dealers are finding the COVID party is over, as motivated buyers have left the market. Those that are still in the market know it is time to buy. They are savvy enough to shop around for the best price as there is no shortage of RVs on dealers’ lots.

Excess inventory combined with fewer buyers expecting a great deal is certainly causing sleepless nights for dealers, but there is more to this story.

Read on to learn why the spring of 2023 is the time to buy a new, in-stock RV from a dealer.

Available cash

Most RV dealers use floor plan financing, aka “flooring,” for their new and sometimes used inventory. How it works: When dealers receive a new RV it is “floored” by a financial institution like a bank. The bank pays the manufacturer for the RV. The bank then charges the RV dealer monthly interest-only payments based on the amount of the RV. This allows the RV dealer to maintain a much larger inventory than they could purchase on their own. It also frees up the cash they would have used to buy RVs to cover other business expenses.

When the RV is sold, the dealer pays the bank what the bank paid the manufacturer. If the RV sits too long on the dealer’s lot, the bank starts asking for monthly principal payments, known as curtailments, which are typically around 10% – 15% of the amount of the RV. During COVID, interest floor plan rates were very low, allowing dealers to stock RVs for very little cost. Plus, RVs sold in such a hurry or were sold when they hit the lot, and dealers seldom paid more than a month or two of floor plan interest. Life was good. I suspect paying curtailments on a unit were a distant memory during the COVID buying frenzy.

Now is the time to buy

Things have changed! Interest rates have soared since last summer, equating to RV dealers paying a bunch more in flooring costs on a lot full of RVs that aren’t selling as quickly. This alone puts a serious strain on available cash, but it gets worse! Curtailments!

Imagine being a dealer with a lot full of aging motorhome inventory with, say, a wholesale cost of $100,000 each. Say the dealer is paying a curtailment of $10,000 (10%) a month to have that RV sit on their sales lot. If they have 20 of them and they have been paying curtailments for, say, 4 months, they have $800,000 of their cash tied up in those 20 motorhomes. This can create a serious cash flow problem for a dealer, possibly leaving some unable to pay their bills. Their only choice is to dump those RVs at a discount to free up the cash they paid in curtailments.

Manufacturers’ discounts and the possibility of deflation

While not as frequent a practice as in the past, some RV manufacturers will maintain a stock of unsold RV inventory in their “yard.”  When sales slow and their working capital is impacted, they might offer these RVs at a discount to free up cash. When I had my RV dealership, a manufacturer once offered to sell me a handful of travel trailers they had in stock at a 20% discount. Even though the retail market wasn’t the best, I “bought” them via floor plan. My thinking was if I didn’t take them, my competitor would, placing me at a disadvantage. If I bought them, I could offer them for sale at original invoice, which my competitor couldn’t match. I quickly sold them. The customer got a great deal and I made 20%.

As I believe we are heading into a recession, the cost of goods and services could fall, leading to deflation. If this were to occur, RV manufacturers could build the same models already in stock on dealers’ lots for less than the dealer paid for the units they have. A competitor with the new lower-price units could quickly bury a dealer stocking the older higher-priced units.

Manufacturers’ discounts or deflated wholesale prices would be a disaster for RV dealers with a full lot of inventory. This is one more reason for RV dealers to dump inventory now—making it “time to buy” for you.

Fewer buyers

As I covered at the beginning of this article, many potential buyers have postponed buying due to elevated inflation coupled with high interest rates. This leaves fewer buyers in the market with a large inventory of RVs sitting on dealers’ lots to choose from. Just as a large demand for RVs and a short supply drove up prices at the beginning of COVID, low demand and large supply dictates falling prices now.

Why this is the best time to buy a new in-stock RV – Final thoughts

RV dealers have spent a lot of money exhibiting at first quarter RV shows, hoping to unload some inventory. Some even purchased more space than normal at the shows to display more units in the hopes of finding buyers for them. From what I hear, sales at shows haven’t been that good. Now, not only have dealers spent more of their precious cash in hopes of thinning their inventory without results, but their inventory has aged another month resulting in more curtailments due and less cash to pay them.

I suspect cash spent on show space and curtailments on aging inventory has put some dealers in a precarious situation. I am especially concerned for the newer RV dealers that have never been through a downturn before and don’t have the reserves to survive this one. Now that most RV shows are done for the season, dealers’ only remaining option is to offer units at huge discounts (see example ads below) in the hopes of attracting the few buyers remaining.

“Lots of brand-new 2022 models still on lots. The 2023 models being discounted but not unusually so from a historical perspective, and still sky high pricing for what a buyer gets. If you are a cash buyer…no trade, no loan…welcome to the negotiation driver’s seat!!!” Comment from Spike on a recent RVtravel.com article on RV shipments in February with info from RVIA.

Best deal for a new RV

If you are in the market for a new RV, your best deal will be on a new in-stock unit that has been on the dealer’s lot for 6 months or more. Expect great discounts on new 2022 RVs that the dealer is undoubtedly paying curtailments on. After being in stock a year, the bank normally requires the dealer to pay for the unit in full. Trust me, any RV that has its first birthday on a dealer’s lot is one they badly want to sell to free up cash. Expect huge discounts on these units.

The date the RV was manufactured (and likely delivered to the dealer a week or two later) will be on the unit somewhere—typically, on a plate affixed to the side of the RV. This will give you an added advantage when negotiating the best deal possible.

I once purchased a snowmobile armed with this information. Knowing that dealer had paid most of the curtailments on the unit, and since was spring, I was certain they would want to get their cash out of it rather than wait for the market to return in the fall. I gave them a take-it-or-leave-it price and they accepted it. They even acknowledged I bought it for less than they paid.

Just remember, this window of opportunity will be short. Once the dealer has purged their aged inventory via heavy discounts, they will be ready to start making a profit again on what remains.

Good luck and happy buying!

##RVT1099