Economic fallout: On the road to ruin in Elkhart, America's RV capital

McClatchy NewspapersDecember 18, 2008 

ELKHART, Ind. — On the snow-covered sales lot at the Great Lakes RV Center, owner Rob Reid talked about what life is like as an endangered species.

Throughout the year, Reid has watched eight recreational-vehicle dealerships close their doors, leaving four others and himself in the immediate area to fight for the few customers that still bother to visit.

This year, Reid has sold about 50 fewer vehicles than he did last year, and his gross revenue is down by nearly $400,000. He's had to pour more than $250,000 of his own cash into the business to keep it afloat.

In August, he closed his other sales lot because business was so slow. Over the last two months, Reid has laid off eight service department employees and three salespeople.

Those are troubling developments for any business, but in this northern Indiana town of 53,000, dubbed the "RV capital of the world," it's a downright panic.

According to the city's Web site, one of every four jobs in Elkhart is tied to the service or manufacture of recreational vehicles and component parts. RV manufacturers, suppliers, service centers and related businesses provide more than $1 billion in annual wages for residents in Elkhart and four surrounding counties.

So when RVs aren't selling — and they aren't — Elkhart is hurting.

The same forces that have brought the U.S. economy to a standstill are decimating this town's old-school manufacturing economy. As home values decline, retirement savings shrink, job losses mount and consumer credit becomes harder to find, discretionary spending for RVs has become a luxury that many no longer can afford.

This summer, the Monaco Coach Corp. cut 1,400 jobs, closing RV manufacturing plants in Elkhart and nearby Wakarusa and Nappanee. Another RV manufacturer, Pilgrim International of nearby Middlebury, laid off 180 workers in August before filing for bankruptcy in September.

Next month, the Starcraft RV plant in Topeka, Ind., will close, eliminating more than 200 jobs.

The economic bloodletting has taken its toll on Elkhart. From October 2007 to October 2008, the Elkhart and Goshen area lost about 5,800 jobs, or 4.5 percent of its employment base. That one-year decline was the second-worst in the nation over that period, after El Centro, Calif., according to the Department of Labor. Most of the job losses were in transportation manufacturing.

The area's 6.3 percentage-point jump in unemployment over the same period was the third-largest in the nation, after Lake Havasu City-Kingman, Ariz., and Flint, Mich.

In fact, Elkhart County's 10.7 percent unemployment rate is the highest in the state and more than double its rate last year.

Bill Grubbs, a 41-year-old cabinet setter at Heartland RV, has worked in the RV business for15 years. He's seen previous work slowdowns, but nothing like this. In the past, the companies shut down one week for Thanksgiving and one week for Christmas. This year, Heartland and many others have closed from Thanksgiving until early next year.

After a round of layoffs in September, the plant went to working every other week, then moved to four-day workweeks, Grubbs said.

The cutbacks could cost him as much as $20,000 in annual salary, but Grubbs, a 41-year-old father of three, remains optimistic. "We just have to tighten our belts. We're going to get by. Everything finds a way," he said.

Elkhart's economic problems are affecting the Faith Mission, a local homeless shelter and soup kitchen. The agency used to serve 50 to 100 people at its free lunches and dinners, but that number now has doubled. Also, people who need temporary housing are staying longer than ever before, said Ross Swihart, Faith Mission's executive director.

"In normal conditions, it's nothing for a client to get a job in a week, but that's not happening now. So a person's going to tie up a bed (at the shelter) longer than they would under normal conditions, and that means we're not able to serve more people," Swihart said.

Problems with the Big Three automakers may grab national attention, but the "other automobile industry" in Elkhart struggles with the same problems: disappearing jobs due to a drastic sales slowdown and a lack of consumer credit.

"The easiest thing to do right now is to sell the customer the unit," Reid said. "The hardest thing is to sell the banks on why they're creditworthy."

"That's why this bailout is so ridiculous," he continued. "The banks have done nothing but solidify their bottom line. They're not giving us any money."

Reid said he recently had a customer with a solid 715 credit score who was willing to put 10 percent down on a $50,000 trailer. He was denied financing, however, because the deal would have pushed his debt-to-income ratio to 48 percent, and the bank's lending threshold was 46 percent.

If the same thing had occurred as late as April, Reid said, the deal would have sailed through.

"Nobody would even have said 'boo' to him. But that's how bad the market has been," Reid said.

Nationally, RV shipments to dealers through October are down 27 percent from last year and industry experts expect only 248,000 units to be shipped this year, down from 353,400 in 2007.

Next year looks even worse, with shipments expected to fall another 25 percent, according to the Recreational Vehicle Industry Association.

However, because RVs allow families and older folks to tap the "on the road" cool of Beat Generation writer Jack Kerouac without the hipster makeover, many longtime observers think that the industry will rebound strongly, because it always has.

"The American people are inherent vagabonds," said Al Hesselbart, a historian at Elkhart's Recreational Vehicle/Manufactured Housing Hall of Fame, a 56,000-square-foot shrine to the RV lifestyle. "We all have a degree of wanderlust and love to travel and see our great country, and it's pretty much been that way from day one."

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McClatchy Newspapers 2008

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