Trump tariffs risk tarnishing American dream of mobility

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Trump tariffs risk tarnishing American dream of mobility


President Donald Trump has sold a vision of America as a place where manufacturing workers earn a proud living making things. Elkhart, Indiana, is his dream come true: a Republican county with low unemployment that bounded back to prosperity after the great recession by making a product that US consumers are wild about: recreational vehicles. 

Unemployment in the self-proclaimed “RV capital of the world” — Elkhart County in the heart of the Midwest rust belt — plummeted from 20 per cent in March 2009 to just 2.6 per cent in July of this year, a third lower than the national jobless rate. But now tariffs are starting to tarnish Elkhart’s lustre as a prototype for American manufacturing revival. 

“We are in uncharted territory for the RV industry,” after nearly a decade of expansion, said Richard Curtin, a consultant to the RV industry who recently cut his forecast for this year’s RV deliveries from 528,000 to 505,900. “If we didn’t have the tariffs, I wouldn’t be forecasting a decline.

The industry is a bellwether for the economy, so this could be bad news, he added. “If you are going to have a recession in 2020, expect the RV industry to start moving down in 2019 … I think the likelihood that RV’s decline in 2019 is at least 50 to 60 per cent”. 

For the moment, consumers are still snapping up this version of the American dream — a way to enjoy nature without any natural discomforts. The average age of recreational vehicle buyers is getting younger as millennials increasingly enter the market for a product traditionally bought by their grandparents. Retail sales of recreational vehicles grew at 6.3 per cent year to date at the end of July, compared with the same period a year ago, well below 2017’s full-year growth rate of 11.6 per cent, but strong for an industry that has been booming for nearly a decade. 

However, retail sales appear to be topping out: the Recreational Vehicle Industry Association predicts that RV shipments (from manufacturers to dealers) will rise only 0.3 per cent this year to 505,900, and fall 1.7 per cent next year. It is therefore the worst time for the industry to be hit by a trade war. Prices of steel and aluminium, used heavily in RV construction, have risen because of Mr Trump’s metals tariffs. Duties on Chinese imports that took effect this week are expected to hit things such as fabric used to upholster RV furniture. Prices will rise as RV suppliers and manufacturers — who overproduced when animal spirits were high earlier this year — seek to recoup higher costs. 

John Axelberg, president of General Stamping and Metalworks, who supplies the RV, solar and lawn and garden industries from nearby South Bend, Indiana, said he has recently stopped hiring “because we anticipate a bit of a downturn”, including in the RV industry where signs of the downturn are already apparent, he said. “Our (RV manufacturer) customers are mostly down to four days weeks,” he said. 

Is the RV capital tilting toward a partly tariff-induced recession, or just taking a breather to deal with excess inventory after a near-decade of unsustainable growth? 

Thor, one of the world’s largest RV manufacturers, on Thursday reported net sales for the quarter ended July 31 down 3.1 per cent from a year ago, at $1.87bn, and gross profit down 18.9 per cent on the year earlier period. Its shares fell 13 per cent on the news. The RV maker complained of “increases in certain raw material and commodity-based components, due primarily to headwinds created by the announcement and implementation of steel and aluminium tariffs and other regulatory actions”. But analysts said a bigger problem was dealer oversupply, which forced the company to cut US production, lower wholesale shipments and raise dealer incentives. 

Though steel and aluminium tariffs have hit results, Thor predicted the net effect of China tariffs will be “modest”, while forecasting US retail sales will be even stronger for the full year than year to date. 

“Tariffs haven’t hurt much yet. In our view, consumers see more upside from tax cuts than downside from tariffs,” said Craig Kennison, RV industry analyst at Baird research. “Steel and aluminium tariffs could add $1,000 or more to the retail price of an RV … for consumers with an extra $150/month from tax cuts, the trade-off has been worth it.” 

“We will know more once those new costs show up at dealers. Initially, tariff pressure hit the suppliers … Now we’re seeing manufacturers like Thor take a hit. It may not affect consumers until those RVs get in the market later this year and early next year — but the concern is that inflation and higher interest rates will begin to offset the upside from tax cuts next year.” 

Still, those attracted to the RV lifestyle may not stop buying even if prices go up, some analysts said. Models range in price from about $8,000 towables to near $1m: one of Thor’s top models comes complete with built-in fireplace, king-size bed, twin recliners, washer/dryer and marble countertops; the suggested retail price is nearly $500,000.

Dan Holtz, chief executive of Troyer products, a supplier to the RV industry, predicted that price increases spurred by tariffs will have an affect on the market but added “is it disastrous? I don’t think it will be”.

He is also the Republican Party chairman of Elkhart county. If tariffs hit sales, will that hurt President Trump’s support in an area where he scored nearly two-thirds of the vote in the last election? “Trump has already delivered enough meat and potatoes that their support will be very difficult to shake,” he predicted.



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