Two years ago, Rexhall Industries Inc. was in overdrive. The Saugus motor-home maker, which opened in 1986, had seen its sales soar to $34 million in 1989--a year when nationwide shipments of recreational vehicles fell 2%. But in 1989 Rexhall's profits more than doubled to $2.27 million from $918,000 the year before.
Little Rexhall was the toast of the recreational vehicle industry, which had long been dominated by the big three manufacturers, Fleetwood Enterprises, Winnebago Industries and Coachmen Industries. In May, 1990, Business Week even crowned Rexhall the nation's No. 1 hot growth company.
The rest of the RV industry had started into a slump six months earlier, but June, 1990, was Rexhall's biggest month ever. Chairman William J. Rex, now 41, figured that there was no need to hit the brakes. He leased two more facilities in an effort to expand production from eight vehicles a day to 20, boosted employment to more than 500 and continued introducing new products, and planned to raise $12 million through another stock offering and use part of the cash for further expansion.
Unfortunately, even veteran RV makers typically suffer from horrible roller coasters of booms and busts--and when the economy finally slowed down, Rexhall wasn't ready. When Saddam Hussein's army invaded Kuwait, Rexhall's growth stopped as suddenly as a bug hitting a windshield.
While many of its more experienced RV competitors had already scaled back, Rexhall was caught off guard. "I made a critical error," Rex admitted. "I got caught speeding."
In 1990, Rexhall's profit plummeted 68% to $701,000. And except for a brief spurt in sales during the few months after the end of the Gulf War, the slump worsened in 1991. Nationwide RV industry shipments plunged 15% for the year to 300,500 vehicles, while retail sales fell 18%, to $6.7 billion, according to the Recreation Vehicle Industries Assn., a Reston, Va. trade group.
In addition to the recession--which dampens consumer enthusiasm for high-ticket items such as RVs--Rexhall also felt the heat from its competition. Rexhall had made its mark with low-priced, well-equipped motor homes, but other companies seeking to appeal to increasingly cost-conscious consumers also began coming out with lower-priced products.
David V. Jackson, an analyst at Western Group, a division of the H. J. Meyers & Co. brokerage firm in Beverly Hills, said Rexhall was hit harder by the recession than some of its big competitors because dealers tend to favor better-known brands and more established companies during industry downturns.
As Rexhall began cutting back and laid off more than 300 workers, about 80 former employees filed workers' compensation claims, which further ate into profits. The result: Last year Rexhall lost $1.15 million on a 35% drop in revenue to $25.9 million.
So in the fourth quarter of 1991, Rexhall undertook a major restructuring that included buying back the two new leases and reducing plant space from 250,000 square feet to 100,000 square feet. It discontinued a line of high-priced motor homes, made other products more uniform to simplify manufacturing operations, and wrote off unusable inventory for a total cost of $379,000.
After the restructuring, Rexhall managed to narrow its loss to $170,000 in the first quarter from $459,000 a year earlier, although revenue declined 19% to $3.76 million. While there's no guarantee of a smooth ride for Rexhall from here on, in the past few months some encouraging signs have appeared.
Analyst Jackson said Rexhall was never close to seeking bankruptcy protection. Rexhall has no long-term debt, more than $4 million in cash, and with its overhead drastically reduced, Jackson believes that Rexhall is now poised for recovery.
Rex, who is also Rexhall's president, chief executive and its majority shareholder with 51% of the stock, said he hopes that his company will return to profitability later this year. Production has been increased from one motor home a day to two, and Rex has slowly begun rehiring workers.
Indeed, the RV business--typically one of the first to be hurt by a recession and among the first to know when it's over--has started bouncing back. According to the RVIA trade group, industry shipments surged 69% in the January-through-March period over a year-earlier, to 98,700 units.
"We've seen a dramatic increase in sales in the first quarter of the year, and April and May still continued fairly strong," said Gary Groom, executive vice president of finance at Coachman Industries in Elkhart, Ind., which returned to profitability in the first quarter after a year-earlier loss.
Fleetwood, based in Riverside, recently reported a 22% jump in its motor-home sales in 1991's fourth quarter. And Winnebago cut its losses in half in its quarter ended Feb. 29, to $4.1 million. "The whole RV industry is very optimistic right now," said Sheila Davis, a Winnebago spokeswoman.