The North American RV industry is not unlike most major industries in the US. Market domination helps keep competitors out, acting as a barrier to entry, and the reduced competition leaves the remaining companies with the ability to focus more on their own bottom line. Powerful players in an industry really can control pricing to some degree and ultimately, achieve more attractive returns. There is a reason why antitrust laws exist to prevent the over-consolidation of industries. Investors shouldn't underestimate the power of oligopolies. Oligopolies Ultimately Lead To Higher Profitability Our prediction is that the new duopoly like market structure will dampen the impacts of a recession and improve industry profitability over the mid to long term. It is also unclear how the industry will react in a recession or financial crisis as the concentration of market share has increased dramatically since the crisis of 20. The recent consolidation means that it is quite unclear what impact a duopoly like structure will have on pricing power and ultimately, return on investment for the industry. Fast forward to 2018 and those market shares are now near 50% and 40%. Just ten years ago, Thor put its market share for travel trailers and fifth wheels at 30% and for motorhomes at 15%. However, it is important to note that this high level of concentration is relatively new. Source: Company 2018 third quarter investor presentation We also find it curious that both Thor and Forest River are headquartered in the same small town of Elkhart, Indiana, the state where over 80% of North American RV production takes place. We might not be giving enough credit to Grand Design with over 5% market share or Winnebago ( WGO) with over 3% market share, but Thor and Forest River control over 80% of the market, making it at least close to a duopoly. With the purchase of Jayco and their 13% market share in 2016, Thor essentially turned the North American RV market into a duopoly with Forest River. As the below graphic shows, Thor has been extremely busy buying up its competition. In fact, Thor is largely responsible for rolling up the industry into the current duopoly through decades of acquisitions. The North American RV market was not always as concentrated as it is today.
The North American RV market becomes a duopoly This article will discuss the investment case for Thor from the duopoly (and potentially European oligopoly) angle.
While many investors discuss the quality and attractive growth of Thor and the RV industry in general, they may be underestimating the impact of the recently formed duopoly in North America on Thor's ability to improve profitability and navigate cyclical downturns. The company is the dominant player in the North American RV duopoly, and if the pending acquisition of Hymer in Germany goes through, Thor will also be participating in the RV oligopoly in Europe. Thor Industries ( NYSE: THO) is the world's largest recreational vehicle (RV) manufacturer.
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