Nuggets of hope amid uncertainty of this economy

Posted on Written by Bill Sisson
Bill Sisson
Soft patch — or something else?

With European debt concerns moving back and forth between a simmer and near boil, and unemployment rising to 9.2 percent, with consumer confidence headed in the other direction, I had a feeling of déjà vu earlier this summer. Even the rise and fall of fuel prices this spring were eerily reminiscent of 2008.

Hadn’t we been here before?

Several new factors also affected our markets, notably the disruption to marine supply chains from the Japanese earthquake and tsunami, and the impact on retail sales caused by extreme weather — tornadoes, drought, flooding, wildfires and a long, cool spring in the Northeast. Unemployment and the moribund housing market, of course, remain the two largest drags on the economy.

Hopefully, the fiberglass new-boat market came close to finding a bottom in the first half of the year. (The outboard segment certainly is close.) And with volumes still as low as they are, it’s encouraging that some dealers reported doing as well as they did.

Given the level of uncertainty at the macro level, it’s difficult to get an accurate snapshot of what’s happening at any given moment, not to mention what the second half might look like. Among the truisms to keep in mind is this one: Consumers don’t like uncertainty. And they typically don’t make large discretionary purchases when the headlines shout “contagion” or suggest the United States might default on its debt. They prefer a level deck to one that is awash.

“We are seeing some glimmers of hope despite the recent decline in consumer confidence and the increase in unemployment,” says Jack Ellis, managing director of Info-Link Technologies, the market research and analytics firm in Miami. “My educated guess is that for 2011 we will see a slight increase in year-over-year sales.” Consider it just to the positive side of flat. “And it’s mostly because of aluminum boats,” says Ellis, pointing to pontoons as one of those market pockets doing well (see story on Page 38). “If we took aluminum out, we’d be down again.”

Ellis cites several reasons for the slight uptick, including the fact that 2010 was “absolutely miserable.” He notes in an e-mail: “New-boat sales last year were less than half of what they were five years earlier, so our point of comparison is low to start with.”

There are bright spots — inventories are low, margins are improving, there is far less distressed product in the pipeline, and those “great deals” for new and used boats that did such a number on value have subsided.

“In late 2009, the average boat was in inventory for over 400 days,” says Ellis, who short-term does not see a double-dip for marine. “This dropped to about 250 days a couple of months ago, which is not as low as we would like, but it is a significant improvement.”

In an interview this month, GE Capital’s Bruce Van Wagoner told us dealer inventories are the best he’s seen in many years. And ordering by dealers, he notes, is barely keeping pace with retail sales. With further reductions in inventory, Van Wagoner expects there may even be some shortages going into the model year.

At the same time, good late-model used boats are becoming harder to find. Something on the order of 84 percent of all boats sold in the last few years were used, Ellis points out. “This ratio is unsustainable,” he says. “Older boats eventually will have to be replaced with new boats.” And, he notes, “The reduced availability of late-model preowned boats should have a positive impact on new-boat sales in coming years,” which, indeed, is a silver lining.

“I think there’s some pent-up demand to get out on the water, and the people who are employed are feeling a little more comfortable about spending their money,” says John Burnham, editorial director for Dominion Marine Media, which includes YachtWorld.com, Boats.com and BoatTrader.com. “And I think people are a little more comfortable with living with uncertainty.”

U.S. yacht brokerage numbers continued to show improvement in June, when they reached their highest monthly level since 2007, according to Burnham. Not groundbreaking by prerecession levels but certainly worth noting in today’s market. “Broadly speaking, the trend has been gradual strengthening in the brokerage market,” Burnham says.

The successful businesses that make up the backbone of our industry have right-sized themselves. All of us have found ways to do more with less. More important, we’ve learned how to be profitable on smaller volumes. Growth may be slow, but it is growth nonetheless, and the curve seems to be headed in the right direction.

This article originally appeared in the August 2011 issue.

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