Sunday, June 19, 2022

Economics of Leisure

I am having a heck of a time shopping for a travel trailer. This is a post about the insanity of that market and the economics involved. I find it fascinating how incredibly screwed up it is, and the danger for me, like with starting a game store, is attempting to crack the code, rather than standing back. A wise person would take a step back. A gamer might try to beat the system.

COVID forced people to seek safe travel locally, and there's hardly a better self contained, safer and cheaper travel option than buying an RV (assuming you use it). Air fares are up 50% in the last year and people are commonly coming back with COVID. Sales of RVs have skyrocketed. They were high before COVID and now they're out of the park.

Buying an RV in normal times is a bit like buying a car. Nobody pays full price. In fact, discounts are even deeper than passenger vehicles. You can normally expect a 30% discount off MSRP. I know some retailers get irritated with me when I talk about haggling for a new vehicle. It seems hypocritical to insist on holding the line and then go off and haggle for a car. However, that's the way of these markets and if you personally want to give a dealer an extra 30%, feel free.  

There are no 30% discounts on RVs right now. In fact, there are mark ups over MSRP in many places (like California), much like with passenger vehicles. The demand far outstrips supply. My first special order for a trailer was for a model that is built two months out of the year. Normally this isn't a problem and they sit on lots for many months. After the manufacturer increased the price by 17%, I dropped my order. I was already stretching and this priced me out of the market for that brand. What I realized after the fact was not only wouldn't I get that trailer, but I would now be competing for a place in line, if I wanted to try somewhere else. Allocations were accounted for and the option disappeared. I dropped that brand, at least as a new option.

My second order had me buying a used RV from a dealer in Arizona. In this case, after taking my deposit and providing me financing (a credit hit) they were unwilling to wait for me to have it inspected. There were people in line and if I couldn't show up within five days (a two day drive away), they would sell it to the next person in line (that was a week ago and it's still listed for sale). Companies will show you their true stripes when they make mistakes, but they'll also show them when they don't need you as a customer.

My third order was for a new, mass market trailer, built continuously in two factories. In this case, I was able to get a 10% discount, but no promise on the eventual pricing. They asked for a huge deposit for a trailer with a theoretical price point. They wouldn't even send me a sell sheet. I accepted. That's how unpredictable prices are and nobody in this space is willing to guarantee anything. If you don't buy it, someone else will.

There is a bit of a race here. Material prices continue to skyrocket with supply shortages, meaning waiting for a trailer means it's going to be more expensive over time. Interest rates are also on the rise and every month I wait to buy a financed trailer, the more expensive it becomes. I'm diverting more money to a down payment, kind of grateful I have more time to save, but my down payment may be offset by higher rates. The wise who can wait understand this can't last forever. Do you buy at the peak or do you wait potentially years for the fall?

There are other headwinds. The price of fuel is ridiculous. My gas truck will get 9 MPG towing a trailer, which the diesel truck folks would laugh at, if they weren't fearful of diesel and DEF shortages. RV park fees are also going up in price, while a lot of BLM land is closing to camping. Wal Marts and other free overnight spots are closing as well. There are too many nomads. 

There's a rise in services like Boondockers Welcome, where you can camp on private land, for an annual fee. The market provides. With all these costs and complications, it is possible you could buy an RV, only for it become a fancy lawn ornament. Also, good luck finding affordable RV storage. Most of my travel will be in Mexico with state controlled fuel prices (but rampant COVID).

There is fear of a travel trailer value collapse. A travel trailer loses 30% of its value the first year. Unless it happens to gain value in our upside down world. People are selling used trailers at their original MSRP of a year or two ago. The second trailer I attempted to buy has a new MSRP of $65K, while it was selling new for $45K about 18 months ago.  I was willing to pay that $45K, if I could find one. There were two in the nation, so I couldn't. But what happens when the market cools?

If you buy a new trailer at full price and it loses 30% of its value the first year, and the new market is back to selling trailers at a 30% discount, well you're seriously upside down, if you want to sell it. What keeps people on track buying a trailer, knowing this, is FOMO. Fear of missing out is real when this is your retirement plan. Now might be your only time. A lot of used trailers for sale are from people who waited too long, usually with a sick or deceased spouse. A lot of these have never been used, sold with knick knacks and new bedding, waiting to leave the driveway on their maiden voyages. A lot of RV buyers, like myself, are under the retirement age and we could theoretically wait, if we were wise. Like buying a boat or a time share, trailer buyers are clearly not paragons of financial wisdom.

2022 (2023?) Keystone Cougar 26RBS I have on order, if I ever get it. My third trailer order.

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