Tariffs trip up the all-American RV industry

westernrvparkowner wrote:

DallasSteve wrote:

WTP-GC wrote:

DallasSteve wrote:
I saw the same story this morning and I thought about starting a thread like this one. I'm actually hoping for a big recession soon. Sorry about that. It would probably help me since I am retired and planning to buy an RV next year. I'm not working so losing my job is not a worry and RV prices would probably be cut - simple economics. Too much supply, not enough demand. It would also probably reduce the number of RV park visitors and drop those prices.

Which brings me to:

pianotuna wrote:
I'm a small business man. If I buy an item to resale and it costs me $10 then I sell it for $20. So if there is a 25% tariff it would cost me $12.50 and I'd sell it for $25.00.

That represents quite a large jump in price to my client.

Mr Small Business Man, as a former CPA I have a question. Why would your price go to $25.00 instead of $22.50? At $25.00 your profit jumps 25%. That's a jump that would make a hospital CEO blush. At $22.50 you cover your increased cost and you get the same $10 profit. If I'm your competitor that's what I would do and most customers would come to me.

Edit: I see that Schlep beat me to this observation by 3 minutes. Good work Schlep.

Steve

As a retired CPA, why don’t you see profit as a percent instead of a number? $10 item sold for $20 is 100%. $12.50 item sold for $25 is 100%. Exposure and risk increased, so the profit should follow suit. The margin didn’t increase. By your logic, a $10 profit is equitable on a $10 good the same as a $20 good or a $2000 good.

Again...profit is a MARGIN of cost, not a fixed number.

WTP

Profit is not "MARGIN of cost". Profit is revenue minus expenses. I promise you. Part of getting my bachelors degree in Accounting required 2 semesters of Economics. If he has a monopoly he can charge what he wants, but in the real world he probably has competitors and if they could make a good profit with a $10 markup before, they can make a good profit with a $10 markup after, and they will undercut his $12.50 markup.

Steve

Unless they are strictly on a cash basis, in the example being hashed about, they would need to increase the price more than the $2.50 the wholesale price increased. The reasons would be the cost to carry the inventory will increase resulting in either increased interest costs or increased opportunity costs (if they pay cash for inventory, they lose the ability to invest that money). Also, in today's world, 90% of all transactions are card based. Card transactions are subject to fees that are a percentage of the amount of the transaction. Now the total of all those costs probably only amount to $.10 or so on an additional $2.50, but dimes add up when you are selling in quantity. Bottom line, to maintain exactly the same amount of profit, if the wholesale price rises, the retail price must rise slightly more than that wholesale increase.

westernrvparkowner

I basically agree with your analysis. I was oversimplifying, but as you said the price would (probably) rise slightly more than the wholesale increase; not double the increase. The free market would decide exactly where it settles, but I think it would be a lot closer to $22.50 than $25.00.