Forest River – Page 3

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Unlike the world of automobile manufacturing, which has for decades been ruled by giant corporations such as Ford, GM, and Toyota, the world of RV manufacturing still is a relatively small business (at least as compared to automobile manufacturers), and has yet to adjust to the increased scrutiny all types of specialty vehicles receive in regards to reporting safety defects.

Not that major automobile manufacturers have done all that well lately, with Toyota having received the largest criminal penalty ever for a car manufacturer when in 2014 it was fined $1.2 Billion for concealing safety defects.

Putting the Hammer Down

In a move that underscores the seriousness of this reporting duty, Berkshire Hathaway’s Forest River, Inc., which manufactures RVs, shuttle buses and other recreational vehicles, has been fined $5 million, plus $30 million in deferred penalties by the National Highway Traffic Safety Administration (NHTSA).

According to the NHTSA, both RV maker Forest River Inc., and Spartan Motors Inc., which manufactures custom chassis for Class A motorhomes and specialty vehicles, have “each acknowledged failure to launch timely safety defect recalls as required by the Motor Vehicle Safety Act, and to report critical data such as technical service bulletins and Early Warning Report data.”

“Safety is a critical shared responsibility, and when manufacturers fail to meet their responsibility, the Department will enforce the law,” U.S. Transportation Secretary Anthony Foxx said on July 9, 2015. “Today’s action sends a message to these manufacturers and to others that withholding critical safety information is not an option.”

Also, according to the NHSTA, Forest River, “acknowledged it failed to report early warning data and failed to launch two safety recalls in a timely fashion. Forest River agreed as part of a consent order to pay a $35 million civil penalty, including a $5 million cash penalty and a $30 million deferred amount.”

$30 Million in Deferred Penalty

NHSTA is requiring the $30 million deferred penalty to insure compliance. Forest River is “also is required to retain an independent monitor to conduct periodic audits of the company’s safety practices. Failure to resolve any issues discovered in those audits will result in deferred portions of the civil penalty coming due — $3 million for a first violation, $7 million for a second and $20 million for a third. Forest River also is required to hire an in-house consultant to assist in meeting requirements of the consent order.”

As for Spartan Motors, the company “acknowledged that it failed to report service bulletins to NHTSA as required by law and that Spartan did not launch three previously-initiated safety recalls in a timely manner. Under a consent order, between NHTSA and Spartan, Spartan is required to launch recalls to remedy three additional safety defects that NHTSA identified in previously undisclosed service bulletins. Spartan also will pay a total civil penalty of $9 million, including a $1 million cash penalty. The company commits to spending $3 million on compliance with requirements of the consent order; the remaining $5 million will come due immediately if Spartan fails to comply with the consent order.”

The consent order requires Spartan to “undergo a third-party audit of its reporting practices; develop new written reporting procedures; and engage in an education and outreach campaign aimed at increasing awareness of reporting requirements in the medium and heavy-duty vehicle industry.”

“These companies face not just financial penalties, but increased oversight designed to ensure these safety lapses are not repeated,” said NHTSA Administrator Mark Rosekind. “NHTSA will continue to use its enforcement authority in innovative ways to protect public safety.”

Forest River has pointed fingers at its software vendor for its reporting troubles but the message from the NHSTA has been we don’t care.

As for its safety defects, Forest River announced a recall on July 6,2015, of 1,497 model year 2016 travel trailers citing concerns that a wheel might detach from the vehicle.

An Even Bigger Hammer in the Wings

Specialty vehicle manufacturers would be wise to spend money now to improve their systems and culture of compliance, as the Department of Transportation is seeking enhanced safety enforcement, including greatly raising the power of the department’s safety authority by increasing the statutory cap on NHTSA civil penalties from $35 million to $300 million.

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Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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“I don’t want to work for a big corporation!” It’s popular sentiment among those with an entrepreneurial bent. What was surprising to me was those words were being spoken by one of the managers at Forest River Inc., a leading manufacturer of recreational vehicles, pontoon boats and buses that is owned by Berkshire Hathaway.

Corporate bureaucracy

Scott Adams, creator of the Dilbert cartoon strip, told USAToday, “Corporate bureaucracy ‘would be top on the list of sucking the life force out of [workers], making them feel helpless.”

Back to the manager I was speaking with. He had sold his company to Forest River a number of years back and at that time had several options. He could start another company, and face all the challenges of a new start-up; he could go to work for another corporation; or he could join Forest River as the manager of the division that had purchased his company. He chose the third option and became a general manager at Forest River, and by doing so he became one of the 335,245 employees of Berkshire Hathaway.

How big is a company that has 335,245 employees? By comparison, Exxon Mobil Corp. has only 75,000 employees.

About Forest River

Forest River itself is no small company. It has close to 6,000 employees that work at 71 manufacturing facilities. Its RV product lines include Forest River RV, Coachman RV, and Shasta RV; its boat division includes Berkshire Pontoons and Southbay Pontoons; and its bus division includes Glaval Bus, Elkhart Coach, and Starcraft Bus. In addition to RVs, boat and buses, the company also manufactures mobile offices, manufactured housing, park trailers and cargo trailers.

All combined, Forest River produced $3.3 billion in revenues in 2013, which was up 24% from 2012.

Back again to the manager who didn’t want to work for a big corporation. Over the time I have known him he has consistently described the operating climate at Forest River as anything but bureaucratic. It has more the entrepreneurial spirit of a smaller company. It’s a spirit that comes from the company head Peter Liegl.

Warren Buffett on Peter Liegl

Peter Liegl founded Forest River in 1996 and stayed on as its president when Berkshire Hathaway acquired it in 2005. In Berkshire’s 2005 Annual Report, Warren Buffett described Liegl.

“Pete is a remarkable entrepreneur. Some years back, he sold his business, then far smaller than today, to an LBO operator who promptly began telling him how to run the place. Before long, Pete left, and the business soon sunk into bankruptcy. Pete then repurchased it. You can be sure that I won’t be telling Pete how to manage his operation.”

Buffett has lived up to his word, keeping a hands-off approach to Forest River. At the 2014 annual meeting he noted that he had only called Liegl “three or four times over the past decade.”

Hands-Off Approach

Buffett’s hands-off approach is what has separated Berkshire Hathaway from the typical conglomerate’s top-down management structure. It is what has enabled Peter Leigel to grow Forest River through an entrepreneurial style that values and retains top managers.

And it is what has enabled one of Forest River’s managers to say proudly “I don’t want to work for a big corporation!”

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