Genmar aftershocks rattle industry

Posted on 25 June 2009
Written by Beth Rosenberg

ShareTweet

Surprise bankruptcy filing stuns recession-weary dealers, manufacturers

If the boating industry had any illusions that a turnaround was near, they were largely put to rest when Genmar Holdings filed for Chapter 11 bankruptcy protection.

The June 1 announcement raises many questions: What will Genmar - the world's second-largest fiberglass powerboat manufacturer - look like after reorganization? Will it shut down or sell off any of its 15 boat lines? What will happen to its network of more than 1,000 dealers worldwide?

Those questions, which even company chairman and CEO Irwin Jacobs was not immediately able to answer, will be addressed in the coming months. In the meantime, two things seem likely: The repercussions could be far-reaching, and the boating industry may not yet have seen the full effects of one of the worst economic downturns in its history.

The filing comes as a surprise - in large measure because Jacobs has been, and continues to be, a voice of optimism for boating's future. Most who share that long-term view envision a painful shakeout process leading to a leaner, more efficient industry - just as Jacobs sees this reorganization creating a stronger Genmar. That painful process, however, may not have run its course.

"I think the reality is there's a lot of bad news still to come out over the next year," says Don Parkhurst, senior vice president of SunTrust Bank and past president of the National Marine Bankers Association. "I think [Genmar's announcement] really got people's attention, and I think it shook them back to reality."

Because Genmar is a privately held company, it isn't required to report quarterly earnings, and its financial data is not open to public scrutiny. "The reality is that up until now no one really knew what was going on inside Genmar," says Parkhurst. "And, of course, Irwin Jacobs is a dynamic individual, and so what he is saying out there in the media is all you have to go on." He compares Genmar's bankruptcy in the boating industry to the General Motors and Chrysler bankruptcy filings in the auto industry.

Ambitious plans

Less than a month before filing for Chapter 11, Jacobs unveiled the latest model in his FinCraft line and predicted it would be a success. "I believe that FinCraft could make the difference in not only helping your dealership to get through these historically difficult times, but FinCraft in many cases could make the difference between a dealership being profitable or not being profitable," he said in a May letter to dealers.

At that time, Jacobs expected to build and retail 8,000 to 10,000 FinCrafts by the end of 2010. It's not known how the Chapter 11 filing will affect these plans. However, VEC Technology, a Genmar subsidiary that developed a high-tech process for manufacturing these fiberglass boats, isn't included in the filing, Jacobs says.

It also wasn't too long ago (April) that Jacobs said he was looking at providing floorplan financing for his dealers, as more lenders pulled out of the marine business and market leader GE announced a rate increase.

"That would have made you think they were flush with cash, and obviously that wasn't the case," says Parkhurst.

According to court documents, Genmar has listed assets of $237.5 million and liabilities of $216.5 million. Jacobs says the company also has substantial intangible assets. The list of creditors holding unsecured claims includes Volvo Penta, which is owed $2.6 million by Genmar Michigan, $1.9 million by Genmar Minnesota, and more than $748,000 by Genmar Yacht Group; and Mercury Marine, which is owed nearly $578,000 by Genmar Minnesota, more than $663,000 by Genmar Michigan, and more than $403,000 by Genmar Tennessee.

Also on the list is Bombardier Motor Corp., which is owed more than $36,000 by Genmar Tennessee and nearly $88,000 by Genmar Minnesota. Raymarine, EZ Loader Boat Trailers and North American Composites are a few of the other creditors.