RV Industry Death Spiral Part 3– Suppliers

Part 3: Suppliers is  republished with the permission of the RV Daily Report (now defunct). Original publish date August 2016.

When it comes to the RV industry’s death spiral, suppliers do play a role, but they are also pushed into a very difficult spot when serving their cost-conscious manufacturing customers. They may build the toughest, most durable products on the market. But, if a manufacturer says, “This is a fine product, now get the cost down 30 percent,” the suppliers are left with no option other than to comply with the specifications dictated by manufacturers.

So. . . wood becomes fiberboard and metal parts become plastic parts, and plastic has varying degrees of quality as well. The suppliers can hold their ground, jump up and down and plead their case that the products they design are best suited for multi-climate use while bouncing all over the road. But, if they don’t comply with demands to reduce costs, well, there is always another firm willing to play that game and provide a similar product for less money.

More importantly, a significant way to take cost out of parts production is to ship the process overseas where firms operate in a much more loosely regulated environment. RV suppliers don’t pay nearly the same wages–or taxes–in China and other emerging countries as they do in America.

For example, shipping jobs overseas eliminates the need to provide health insurance coverage for entire families based on Obamacare rules, which significantly lowers the cost of labor. As more pressure is put on suppliers to reduce costs, look for more products to be made overseas. But if there is a problem with a boatload of products delivered to America, it’s pretty much assured the parts will be put in service anyway. Suppliers have no alternative when meeting the demands of cost-conscious RV manufacturers are the priority.

Some suppliers have developed very strong standards for products made overseas, and even hire people to oversee production there to ensure compliance with the firm’s quality specifications, but not all do.

It is a double edge sword for manufacturers. If they force suppliers to build products overseas, there is significant lag time to build and ship the products, which means suppliers can’t quickly add features or correct issues when 10,000 pans have to be shipped and stored for manufacturers. It is much more difficult to deliver products “just in time” when ocean-going vessels are involved.

No training or supervision of manufacturers

I know companies can make a quality refrigerator. I have toured factories and witnessed how they are built and I have observed the great lengths the products are tested before they are shipped to manufacturers. The firms boast a minuscule failure rate on refrigerators delivered to RV makers.

But, the companies get a bad reputation when the products fail when used by consumers. When that happens, who gets the blame for “making junk?” It’s not the RV manufacturer, that’s for sure. The company name on the refrigerator pays the price for product failures.

What causes RV refrigerators to fail? It generally isn’t a product quality issue. They were improperly installed on the assembly line in the first place. Yes, the quality control tests at the manufacturing plant– and at dealerships–ensure the refrigerator turns on and gets cold. But, how will it work six months later when the family is on a week-long RV trip? I’ve heard stories from service technicians about how the fans were blocked or no air at all was getting to the coils because the refrigerators had not been installed to the supplier’s specification.

A company can make a great septic tank valve, but mine had to be replaced every year? I later found out why. The manufacturer had Installed the valves so they pointed downward and the handles had to be pulled down. When that happened, gravity would cause water and black tank gunk to seep into the valve housing.

Eventually it filled up with water and gunk to the point it was hard to push the valves closed. Because gunk would get trapped in the valve track, it eventually prevented the valve from closing completely. So, when I took the cap off the septic connection, I was treated to nasty water poring over my hands. It’s not the supplier’s problem. Their product is designed to work perfectly, as long as the handles are pulled up or directly out – not down. Problems in the installation process caused issues for the previous owner and me for years.

Of course, supplier companies can’t afford to pay someone to stand at an RV manufacturing line to oversee the installation of a few dozen RVs a day, especially if there are dozens of active assembly lines. Nor can manufacturers accommodate a dozen “inspectors” standing at stations along the line. There just is not room. But, with the high employee turnover in manufacturing plants, it is unlikely that line workers are sufficiently trained to install the components right the first time. Suppliers must pay more attention to training. After all, their reputation is on the line.

Dealers Not Compensated for Diagnostic Work

Manufacturers and suppliers alike are guilty of this problem. When an RVer brings a unit in for repair, a good technician will investigate what’s broken and why before initiating the repair. However, suppliers often make a pan available for free and cover the cost of installing their replacement. They don’t cover the costs to investigate the cause.

As a result, the technician simply addresses the symptom (the broken part) rather than the cause (faulty wiring). The part is replaced under warranty, but the root cause isn’t addressed. So, it is no surprise that the same part may break again this time after the warranty period expires. In the supplier’s defense, dealers are not doing their jobs to effectively diagnose problem parts either. They just accept the consumer’s complaint that a part is broken and go about replacing it to make the customer happy.

I have visited with suppliers who insist that all “broken” parts be returned to them so they can investigate the cause and ensure that any problems are corrected on their end. However, when their technicians hook up the diagnostic equipment to the broken part, many times they discover it works perfectly fine. In the rush to fix the problem without addressing the cause, a new part is simply installed as a band-aid. All it would have taken to avoid the problem was paying for the diagnostic time.

These cost-saving measures needlessly raise costs for consumers who may have to pay to have parts replaced multiple times until they stumble upon a trained technician who can properly figure out what the real problem is.

Planned Obsolescence

That’s not to say suppliers are squeaky clean. There appears to be a planned obsolescence built into some products today in that they are designed to last just a few years after which they must be replaced. That’s great for improving cash flow and the bottom line of a company, but consumers aren’t reacting too kindly to having to replace parts and accessories after just a couple of year’s use – especially when the products are only used an average of five weeks a year.

You see this in electronics and appliances, and the problem will be exacerbated in the future as more residential appliances find their way into the RV industry. Those products are typically designed to be built, shipped to a store, and then to a home where they sit in the same spot on the floor or the counter for 20 years. These products are not designed for over-the-road use and they aren’t truly tested to withstand the rolling earthquake to which they are subjected by RVs bumping down the road or when boondocking.

Penalizing Innovation

One of the biggest complaints with RV suppliers is that quality products are ripped apart, analyzed by competitors, who then change the design slightly so as not to interfere with the patent. They then reassemble them with lesser quality internal parts and sell a similar product for less money in stores and online. While some would say that only helps consumers by keeping costs competitive, it stifles innovation and discourages inventors when the product they brought to market can be manufactured overseas and sold for significantly less money.

Lack of Competition

Now let me get in trouble by immediately contradicting myself and say there isn’t much competition in the RV aftermarket. There are generally two refrigerator makers, two toilet makers, two water heater suppliers, two furnace providers, three air conditioner makers, etc. So there is some competition!

But, we are getting to a point where RV manufacturers are demanding exclusive use of products. So, if Thor demands one product and Forest River demand the other, where will independent manufacturers go to get products to put in the RVs they build? That’s probably the fastest way to convince an independent company to sell out to one of the big manufacturers.

Let’s complicate it further in the aftermarket. One company, LKO-Keystone-NTP-Stag-Coast controls 80 percent of the RV aftermarket products made available to consumers after the RV has been built. This company is demanding exclusivity from some suppliers to keep the product out of the hands of smaller wholesalers.

Even dealers are being pressured into exclusive arrangements. Company officials sternly warn a supplier that it can sell to “us” (80 percent of the RV aftermarket) or compete with the other companies to gobble up a share of the scraps. This is price fixing in its infancy. Once the distribution firm locks in exclusive contracts with suppliers, it can charge whatever it wants for the products and consumers have no choice but to pay that inflated price.

Companies Underselling RV Dealers

This topic isn’t going to be received too well. Dealers are starting to discover their wholesale distribution partners and even some suppliers are selling products online via Amazon at prices less than the dealers can sell them at their stores. This opens a whole can of worms for RV owners who may need a part before their next camping trip. If dealers can’t make an acceptable profit margin to cover the costs for ordering, stocking, selling and replacing parts, they simply stop stocking them.

Diminishing Comfort

It doesn’t take long for new RV owners to realize what looks good on the outside is not all that it’s cracked up to be when actually put in use.

Take RV bedding as an example. The quality of RV beds is atrocious. Most people pull out the mattresses after a night or two, give it to Fido and replace them with household mattresses. To save weight and costs, manufacturers are installing mattresses that are often nothing more than 8 Inches of recycled fiber stuffed inside a holding bag.

Mattresses used in bunk beds and Class C over-the-cab beds are usually just a few Inches of foam. It doesn’t take much to compress the material and make the mattress very uncomfortable. This is surprising for an industry that prides itself on being able to market RVs that can sleep 10. You’d think that if the RVs are designed to sleep so many people, bedding would be far more comfortable than it is.

Another common complaint among RV owners Is the use of non-standard sizes in RV bedding. The RVs are often marketed as having queen- or king-size bed. Owners find out the truth when they go to a department store to buy sheets and learn that the beds are really a few inches shorter than standard sizes. Plus, where do consumers go to find sheets and blankets for mattresses that are not built to any normal size – single, full, queen or king? They must special order them at considerably higher prices. This is especially prevalent in RVs with corner beds.

Emerging monopoly

Lippert Components has acquired a host of RV suppliers in recent years and is well on its way to becoming the exclusive provider to RV manufacturers. Currently, the company offers more than 100 products to RV manufacturers. Unfortunately, the company’s products don’t have the best reputation for standing up to the rigors of RV use.

Consumer forums and social media are frequent avenues for venting about problems with Lippert products. In fact, I was surprised when talking to manufacturers in the last year that they did not want me to report in a story that a component was supplied to them by Lippert.

Lippert is able to bundle the products to a manufacturer akin to what cable TV companies do to consumers.How does that work in the RV industry? Lippert can bundle essential items for a particular RV and sell them all to a manufacturer for, say, $10,000. If a manufacturer indicates a desire to use Brand B for a particular component, then Lippert responds by upping the price of the remaining nine items to $11,000.

Suppliers tell me this is becoming more frequent and it works to shut out competitors from getting their products installed on RVs. As a result of these exclusive games, there is little chance for new companies to enter the RV market with more innovative solutions, better quality products and better service. This is especially true when the exclusive deals are being locked in for multiple years.

RV Industry Death Spiral Part 1: Introduction

RV Industry Death Spiral Part 2: Dealers Drop the Ball on Service

RV Industry Death Spiral Part 3: Suppliers in Tough Spot

RV Industry Death Spiral Part 4: Dealers Drop the Ball on Service

RV Industry Death Spiral Part 5: Campgrounds Lose Capacity

RV Industry Death Spiral Part 6: RV Owners

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