11 Mar 2019

Even the Grey Nomads are cutting back

Even the Grey Nomads are becoming spooked by the house price downturn, potential changes to franking credit rebates and generally tougher economic conditions in Australia.

Apollo Tourism and Leisure, a global player in campervan rentals and sales with a fleet of 5000 vehicles across Australia, the US, New Zealand and Europe, says the Grey Nomads are backing off from buying top-of-the range campervans and caravans and trading down to lower priced vehicles in preparation for extended trips around Australia.

Luke Trouchet, the chief executive of Apollo, expects the caution to persist until after the federal election. Sentiment started to come off late last year and it's continuing to be soft.

"We're not immune from what's happening in the automotive sector," he said on Wednesday. "We are seeing a bit of trading down".

"It's probably the sentiment, the uneasiness and the uncertainty," he said. The Grey Nomads have some niggling worries about the housing market, potential changes to franking credit rebates which will disappear if the Labor Party wins the election and dent their retirement plans, and constant headlines about a slowing economy.

"It's just that the Grey Nomads are now a little bit wary".

It is a phenomenon that is only evident in Australia for Apollo, which has suffered a 60 per cent fall in its share price to about 94¢ from $1.71 in late June. The North American market is strong, fuelled by a robust in-bound tourist market, likewise in New Zealand. Europe is still solid too, although Brexit uncertainty has crimped tourism numbers in the United Kingdom.

Revenue from the rental market in Australia was still solid, but those buying campervans and caravans outright ahead of a big trip, had waned.

"They will still buy, but it's a lower priced vehicle," Mr Trouchet said.

Instead of purchasing a $65,000 caravan, they might drop back to a $55,000 version. A top of the range motorhome at $150,000 is more likely to be foregone, in favour of a $130,000 model.

But the Grey Nomads were still pressing ahead with plans.

"It's not really a discretionary purchase. If you're pursuing the Great Australian dream of retiring and buying a motorhome to travel around, there's only a limited amount of time to do it in while you're still healthy and able," he said.

Reserve Bank of Australia governor Philip Lowe said on Wednesday at The Australian Financial Review Business Summit in Sydney that falling house prices will cause consumers to cut spending on new cars and furniture but the "wealth effect" on the broader economy should be limited.

On Tuesday, the Federal Chamber of Automotive Industries said new vehicle sales fell 9.3 per cent in February compared with the same month a year ago, making it 11 consecutive months that sales have been lower than the previous corresponding month.

The biggest drops came in Victoria and NSW, where house price falls have been the steepest of Australia's capital cities, led by Sydney and Melbourne.

Mr Trouchet said the long-term demographics over the next 10 to 20 years were running strongly in Apollo's favour as more cashed-up baby boomers retired.

With almost three decades of being in the compulsory superannuation system, and with most having been in the housing market for a long time, they were in a strong financial position once the temporary uncertainty passes.

On February 25, Apollo said it was tracking toward the lower end of its profit guidance range of $22 million to $24 million for financial 2019. Its net profit in the first half fell 8.1 per cent to $14.7 million. It completed the acquisition of a caravan manufacturing business from Fleetwood Corporation for $11.2 million on March 4.

Apollo listed on the ASX in November, 2016 with an issue price of $1 per share. The business was established in 1985 when Gus and Carolyn Trouchet began renting out a pop-top camper from their house in suburban Brisbane.

SOURCE ; https://www.afr.com/business/tourism/even-the-grey-nomads-are-cutting-back-20190306-h1c1dr

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