Topic: RV Manufacturer Rolls Its Way to Profits

Written by Chris Titus, CFA

Language: English

Level: Intermediate+

Warm Up Questions:

Considering that we are in the middle of a global economic crisis,

• Do you think all industries/companies are experiencing difficult times?  
• Or, do these difficult times provide opportunities for some?
• Can you name a few industries that are not having problems?  These are called 'recession proof' industries.

Vocabulary

• recreational vehicle (RV)
• trailer types: tow-behind & eco-friendly 
• to file for bankruptcy
• market share
• to rise from the ruins
• entrenched 
• to make a name for themselves
• slash
• nadir

Article Excerpt

At a time when manufacturers of recreational vehicles are filing for bankruptcy, Thor Industries is rising from the ruins as a clear winner. Ron French, president of Thor's Keystone unit, estimates Keystone has increased its market share by 1.5 percentage points as competitors have exited the recreational vehicle market. Larger, once entrenched competitors have been replaced by a number of start-ups, increasing competition in the tow-behind and eco-friendly RV markets. With plenty of cheap labor and credit, competitors have slashed prices in an effort to make names for themselves. According to Richard Riegel, chief operating officer for Thor, "the nadir in this industry is definitely behind us." Thor's speed in adjusting to new economic conditions was its secret formula for surviving and gaining RV market share.

Questions

• What is the relationship between Thor and Keystone? Which is the parent? Subsidiary?
  Thor is the parent company. Keystone is a subsidiary, division, segment, or unit. Many non-native speakers mistakenly call subsidiaries - ‘daughter company'. This is incorrect.
• Which division gained 1.5% market share, the parent or subsidiary?
  Keystone gained 1.5% market share. It's market may be only a portion of the overall RV market.
• What happened to the larger, once entrenched companies?
  Appropriate answers and variations on expressing them include: 
  • They went bankrupt. 
  • They filed for bankruptcy. 
  • They failed. 
  • They went into receivership.
  • They exited the industry
• Who replaced these companies?
  New entrants. Start-ups.
• Where do you think many of these entrepreneurs came from?
  Many actually were previously employed by the larger companies that went bankrupt.
• What do you think their competitive advantage is? (Quality, price, new features?)
  Primarily price. Some have introduced ‘Green' trailers - eco-friendly trailers

Role Play

Richard Riegel, CEO of Thor, goes on vacation for a month and asks you to assume his position. He will not be available by phone, email, Blackberry, or fax. A few days after he leaves, gasoline prices reach record highs of $4 per gallon and the economy begins to weaken very rapidly. Banks stop providing your customers with credit to purchase RV's. Thor's secret is speed and you know you must act quickly to avoid a crisis. In other words, you must act before Richard returns from his holidays.

• Create a list of as many options as possible.
• Select the options that are best for the company and workers

Possible answers to consider/discuss:

• Close factories - This is what Thor did. They had small factories that were easy to close quickly
• Lay off employees - This was also done by most companies.
• Move labor to part-time - does not eliminate all overhead but is better for employees
• Raise capital - Finance their customer's purchases - do not rely on bank financing (risky)
• Leasing/Creative financing - Creative financing programs that lowers or defers near-term payments until the economy improves (risky)
• Sell Other Services - Bundling other services such as maintenance, rv insurance, and upgrades can be very lucrative, especially when combined with 'creative financing' structures
• Sell Assets - Raise money & exit businesses (if buyers are available)

View My Other Lessons

LingoPass! LLC

http://www.lingopass.com/blogs