The affordability challenge

Posted on Written by Reagan Haynes
Getting middle-class families to invest in a new boat over an ever-growing variety of recreational choices is critical to the industry’s long-term health.

Getting middle-class families to invest in a new boat over an ever-growing variety of recreational choices is critical to the industry’s long-term health.

A man with a baby under his arm and two grade-school kids makes his way through the Progressive New England Boat Show. He wends his way through a section called the Affordability Pavilion, where boats can be financed for less than $250 a month. His eyes light up momentarily as he pauses next to one of the boats, looking at the price and the breakdown of monthly expenses associated with it. His bigger kids scramble aboard after removing their shoes — an indication that this isn’t their first show. The father follows suit and begins checking out the helm, the baby quietly staring around under his arm.

“Can we get this one, dad?” his 9-year-old daughter asks. “It’s big enough for us all! It looks safe for the baby!” The father pauses before issuing a small sigh. “Not this year, sweetie. Hopefully next year, though.”

It’s a scenario that plays out at boat shows across the country, and an issue the industry is hard-pressed to resolve. Executives spend a lot of time contemplating whether boating is affordable — which, of course, is a relative and thus unanswerable question. But it’s an issue the industry continues to grapple with as new-boat sales remain at about half their prerecession levels, even as the economy improves.

Behind the data

There are several theories about why this is happening. The price of boats has outpaced inflation, Brunswick Corp. CEO Dusty McCoy often points out during shareholder meetings. That has led to a mandate by Brunswick, the country’s biggest boatbuilder, to bring out each new boat at the same price or less than the model it is replacing.

In addition, many middle-class families remain financially challenged despite an improving economy and a declining unemployment rate. U.S. Census data issued in September show that the middle class hasn’t had a raise since 1999, with median income remaining stagnant at $52,000. According to the Pew Research Center, 55 percent of U.S. income was earned by households in the middle 60 percent of the income distribution in 1970, and more than half of households were in the middle tier. In 2013, both numbers had fallen to about 45 percent. In a 2012 report, Pew researchers talked about the “lost decade of the middle class.”

 A trend at boat shows  is for dealers to display pricing that might grab consumers’ attention.


A trend at boat shows
is for dealers to display pricing that might grab consumers’ attention.

There also has been a shift in lending since the economic crisis. The widely available credit prior to the bust, as thousands of Americans pulled equity from homes for such items as boats, doesn’t seem to be coming back anytime soon — a good thing, many feel, but still impactful for the industry. That might not just be a shift in lending standards, but also a shift in borrowing demand, many experts say, with Americans more risk-averse in the ways they incur debt. Add to that the growing list of activities many families find their children involved in, and the value equation for buying a new boat becomes even more challenged as time becomes scarce on weekends because parents are shuttling their children from one activity to another.

Yet the industry is constantly pointing to data that show boating participation is rising and is reaching record numbers. National Marine Manufacturers Association data show that boating participation was up in 2013, with 88.5 million Americans getting out on the water at some point that year, compared with 87.8 million the year prior. (2014 data should be released in late May, but NMMA spokeswoman Ellen Hopkins says the numbers are expected to be about flat, compared with 2013.) As a reference point, the number has fluctuated between roughly 61 million and about 71 million from 1990 until 2010, when it jumped nearly 10 million, to 75 million.

A used boat is the only option some will consider. Americans remain risk-averse to big-ticket items despite the improving economy.

A used boat is the only option some will consider. Americans remain risk-averse to big-ticket items despite the improving economy.

afford4

The record numbers of adults (18 and over) enjoying themselves on the water indicate that interest has not waned and is actually increasing. Boat manufacturing screeched to a near halt in 2009 during the recession and has slowly been ramping back up. That means the amount of relatively new, used product is scarce. But the tipping point for new-boat sales might still be years away, given that boats last for generations.

“I think affordability is a really complex topic,” NMMA president Thom Dammrich says. “What is an affordable boat, or boat experience, is a continuum from low to high and based solely on the consumer’s perception of what is affordable.”

New vs. used

Affordability is a relative term, but McCoy thinks boatbuilders have priced out the middle class. “New-boat sales in America are hurt by the ever-increasing price over time, where price increases have significantly outpaced normalized inflation,” McCoy told investors and analysts during the Raymond James 36th annual Institutional Investor Conference in New York in March.

“Every new model we bring out costs equal to or less than the model it replaces. That should bring new and used pricing together. And then if we focus on new product, and release things that, you can only get it new, we will win this new-used battle. This will take many years, and my judgment is we are 40 percent on the way to winning that battle.”

If McCoy is right, Brunswick — the builder of 14 boat brands marketed in the United States alone, including Sea Ray and Boston Whaler — could be poised to help shift the ratio of new versus used boats sold by about 2020. Today only 18 percent of boats purchased are new; the other 82 percent are used, Dammrich says.

The writer’s family did some window shopping at this year’s New England Boat Show.

Bayliner’s Element line was created to specifically target entry-level buyers.

“The key to growing sales of new boats is you’ve got to have new product,” he says. “You’ve got to be offering something that is not available on the preowned market. If you can get the same thing preowned, you’re going to get it a lot cheaper.”

On that front there is progress, he says. “At the Miami boat show, we saw more new models and more new designs than I’ve seen in my 15 years at the NMMA. The pie is growing every year. It’s been growing for two or three years, and I think it will continue for the next three or four years.”

Price is one reason the pontoon boat segment has experienced the only true rebound — returning to prerecession levels as other segments remain about half of what they were before the downturn, speculates David Foulkes, chief technology officer at Brunswick Corp. and vice president of product development, engineering and racing at Mercury Marine.

“The good news is people really want to boat,” Foulkes says. “I think that’s one of the reasons the pontoon market has rebounded — it’s like the SUV of boats. They have a tremendous amount of flexibility and capability, they’re easy to use, and they’re affordable. I think people give indications with the boat types they select, about what they value. I do think, though, that … at times like this, when there is a lot of change in the market, there is a lot of opportunity for us.”

 

Foulkes stops short of outlining those opportunities. “I can only tell you it’s a tremendous area of focus for us and something we’re not at all complacent about.”

Increasing numbers of models are being introduced as value options for those just getting into boating, such as the Bayliner Element and the Scarab jetboat. But Joe Lewis, owner of Mount Dora Boating Center and Marina in Florida, isn’t convinced those entry-level boats are actually moving the dial.

“I think it’s good for us to continue to talk about the affordability issue and try to keep our products as affordable as possible,” Lewis says. “But at the same time, if you look at the statistics, yes, there are good price point boats being introduced. They are helping create more interest and helping drive more dealer traffic. But are people really walking out with that product? The numbers suggest they are not.”

That’s not the case with Chaparral’s H2O line, which has national pricing that’s the same at every dealership, Dammrich says. (The 21 H20 Sport is listed at $32,705.) “A huge percentage of the H20 are young first-time buyers,” Dammrich says. “There are affordable brands out there in every line of boat.”

Chaparral’s parent company, Marine Products Corp., also recently introduced a jetboat line called Vortex. “The average H2O buyer is more likely to be a first-time buyer than the buyer of another Chaparral product, so we’re bringing people into the market that way,” says Jim Landers, vice present of corporate finance, during a conference call to discuss earnings in October 2013.

“Also, the average jetboat buyer is younger than the average sterndrive boat buyer. So we’re catching people earlier in their boating lives, and they have a good experience with their first product and they’ll stay with us throughout their boating career. We know demographically that that is important, as well.”

The time issue

A young family that came to Lewis’ Mount Dora Boating Center and Marina to buy their first boat — a Monterey — didn’t have the same set of issues some families face when getting into boating. Matt and his family had the cash to buy the boat and keep it up. But after almost a year, the family had logged just seven hours on the water, Lewis says.

“People need to use their boat 15 times a year in order to perceive value,” Dammrich says. “If they’ve only got seven hours on the boat, that’s a problem.”

Lewis thinks so, too. “I’m happy to report he’s got 25 hours on the boat now,” he says. “We’ve been trying to figure out ways to make it more interesting and figure out ways for them to use their boats, whether it’s through events or activities. First of all, we made it easier for them. We came to find out, after talking to Matt for a while, a big reason they didn’t use it was because it always took an hour and a half to get the boat cleaned up and ready to go. We offer concierge kind of services. I said, ‘We can do all that for you, Matt. We can wash the boat, have it here ready to go when you’re ready to go.’ That was just a communication issue.”

So the dealership helped him conquer that hurdle. Lewis went a step further. “We tried to figure out what kinds of things would interest them. In their case, they like to destination-cruise, to go places. We hooked them up with a trip to Silver Springs and Silver River because they wanted to go up and see the monkeys. It was nothing more than telling them how to do it. Then they discovered how much fun it was. Once we got that fun established, now they’re trying to make more time in their schedules to have more fun with the boat.”

It’s one of the advantages of being set up on the water in a marina, Lewis says. “They show up to use the boat. It’s a 5-minute-greeting conversation — nothing more than engaging with the customer when they come to visit.” It’s more challenging for highway dealers to know whether customers are using their boats, he says.

Matt’s family is pretty typical of new boating customers, Lewis says. Their time challenge came when their son made the traveling baseball team.

“I had a kid on the traveling team; it’s extremely time-consuming,” Dammrich concedes. “When people talk about time, we all have the same amount of time. It’s really not about time. It’s really about where their priorities are. If their priority is baseball, we’re losing out. So how do we make boating the priority?”

Part of that leads back to Discover Boating, the industrywide initiative designed to get lapsed boaters and first-timers to take the plunge. “You take your kid to baseball, hockey, basketball, dance, gymnastics — are you really doing anything with your kid? You take your kid boating, you’re doing something with them. That’s part of the message we need to get out,” Dammrich says.

“Our very first advertising agency said people don’t sit around talking about all the time they spend in a minivan driving to sports. They spend time talking about all the time they spent out on the water. The truth of the matter is kids participating in sports is on the decline, and team sports have been declining for two or three years now. That may be an opportunity for us.”

Lewis helped his family partially solve the time issue by, first, making the boat easier to use, and second, making it more interesting. “We offer a lot of what people involved in other activities lack — that is, the opportunity to really enjoy each other’s company, regardless of what the generation is, all at the same time,” Lewis says. “Boating joins like no other. There’s no other activity where grandma, grandpa, the kids, and mom and dad can go out and have an equally good time.”

The little Regal

Lewis says that about half of the boats he sells are kept at his marina and about 40 percent of those owners are what he would call active boaters, which he characterizes as people who use their boat on a monthly basis. Another 30 percent are what he calls casual, meaning they get out maybe once every quarter.

“Then I’ve got 30 to 40 percent left over, where the boats are just sitting. They’re the ones we really focus on to trying to get out of here. If we can’t do that, eventually they’ll get to a point after a couple of years where they’ll say, ‘Hey, I’m not using this thing; it’s probably time to sell it.’ Then they turn to me to sell it for them, which in itself offers another opportunity because then I’ve got a nice preowned boat to sell. It’s a Catch-22 because that preowned boat, in my mind, has now become the entry level to the boating business, especially in what I sell, which is fiberglass sterndrive. A lot of folks are getting into boating now, starting with a nice late-model boat.”

And maybe a new boat is not for everyone, he says. “I see people going out having a great time on a $600 canoe. In my market, what I’m seeing in the segment of boats we sell, the preowned is definitely becoming the predominant entry point for new boaters,” rather than the value models. “Once they’ve made that purchase, they get out there and become passionate, now they evolve into a new-boat buyer. I’ve seen that play out time and time again.”

In 2000, Lewis remembers selling an 18-foot Regal that the owner traded in for a bigger boat in 2003. “I sold that boat four separate times over the next eight years,” he says. “Each time I sold it, the owners came back and bought a new boat. One day, around 2008, there were three guys in the showroom, and I looked at them and said, ‘You three have something in common and you don’t know what it is.’ Each one of them had at some time during the decade owned that little 18-foot Regal. All of a sudden they were buddies. It kind of broke my heart when I sold it overseas because I didn’t want to see it leave the country.”

The challenge today is finding the little Regal to sell four times in a decade, Lewis says, “because the way [builders] reacted in 2009 to the downturn is to stop producing boats. All those preowned boats don’t exist.” Rather, they do exist, but many of the used boats on the market aren’t clean enough for dealers to touch. “I haven’t been able to find them,” Lewis says. “But when I follow up with them, they end up finding something someplace. Sometimes they buy the wrong preowned boat, and then they have a negative first boating experience.”

Driveway to driveway

About 75 percent of first-time boat buyers buy a used boat, Dammrich says. That can make it difficult to drive the main effort of Discover Boating, which is to ensure boating is as easy as possible and that boaters have good experiences and that everything on the boat is working.

“That means they’ve got to have a good experience with the dealer, whether it’s during sales, during service, even if it’s routine maintenance,” Dammrich says. “We have to teach them if they don’t already know how to use their boats, so they’re confident using them. The more confident, the more they’ll use [them]. That gets into this whole area of education and hands-on skills training.”

Dealerships should, like Lewis, create opportunities for people to use their boats, through rendezvous opportunities and other events. But this challenge is compounded when buying a boat from a neighbor without that dealer support. “Over 70 percent of that business will never see a dealership,” Dammrich says.

Realizing he was losing customers from those driveway sales — and more important, losing boaters who were attracted to the lifestyle but lacked the dealer support to make the experience a good one — Lewis created a program about a year and a half ago for people who don’t know anything about boats.

“Why not have the boat evaluated by a disinterested third party?” he asks. “We charge standard shop times to check the boats over. An 18-foot boat we can go through in around two hours, and labor is $100 an hour. We can give an honest appraisal. We can prepare estimates on what it would take to bring the boat to good operating condition. If they want us to do the work, we will.”

The program is designed to reduce that high percentage of driveway buyers who never see a dealer, Lewis says. “We’ve got to try as an industry to inject ourselves into that process and help people do it the right way.”

That’s another way Discover Boating is helping, says Lewis, who serves as chairman of the Grow Boating initiative and Discover Boating. Partnering with marine data analyst Info-Link, registrations showed that first-time boat buyers who had visited the Discover Boating website prior to purchase were more than twice as likely to buy new as someone who hadn’t been on the Discover Boating website.

That means the 18 percent number was closer to 40 percent, Lewis says. “We have no way to track how many buy from a dealer and how many from a curb, but we probably swayed a few of them to go that way,” he says. “What it boils down to is perception. I think that’s where Discover Boating is becoming invaluable. It helps change people’s perceptions of what’s affordable.”

To that end, Dammrich wants to use Discover Boating as a tool to educate people about what they should look for when buying a used boat and help them identify problems. “Most of those people aren’t buying through dealers. They’re buying driveway to driveway,” Dammrich says. “But we need to tell them what it’s going to cost, what to look for, and help to manage their expectations about boating. Under-promise and over-deliver.”

Alternatives to owning

Used boats have been the No. 1 way to introduce people to boating, agrees Matt Gruhn, president of the Marine Retailers Association of the Americas. “Most people buy a used boat and then step up to a new boat after that,” Gruhn says.

But the growing popularity of rentals, boat clubs and fractional ownership is giving new boaters alternate ways of coming aboard. “Dealers around the country have really spent time exploring those options and figuring out how they can provide those access points to people that are interested in getting out on the water outside of ownership,” Gruhn says.

“At the end of the day, it’s about getting people on the water and getting people excited about being on the water,” he says. “There are numerous ways to encourage people to fully enjoy that lifestyle through ownership. I think these avenues offer a great opportunity to introduce people to boating.”

Some dealers have sought partnerships with boat clubs so they can provide such access points. “That kind of partnership is something we need to explore and enhance for our industry,” Gruhn says.

The delicate part is when the conversations emphasize that ownership is a hassle. “Boating is a lifestyle pursuit. It is something people dream of. If we as an industry — builders, suppliers, dealers, marinas, boat clubs, everybody — if we as an industry start cannibalizing each other, poking holes in what somebody else offers to move my offering ahead of the game, we’re not going to help ourselves.”

Dammrich agrees. “I think anything that gets people on the water is good for the industry,” he says. “Clubs seem to be doing really well, and that’s good.”

More training

If people want to learn to ride motorcycles, there are a plethora of opportunities to learn to ride. But if you do a quick search for local opportunities to get hands-on powerboat training, they’re nearly nonexistent, Dammrich says.

“We as an industry have to work on making hands-on skills training available everywhere, and it has to be standardized,” he says. “If you wanted to learn to boat, you could find a lot of opportunities to learn to sail, but you would not find anything to learn to powerboat, drive a ski boat, etc. So we’ve got to make that ubiquitous so it’s easy to get people to find and use.”

Dammrich has a plan and an idea for executing this. “It’s something we’re working on, but it’s going to require more work and more finances. I think it may begin to come together in the next 12 months.”

Building on the motorcycle example, Dammrich says he does not have a licensing system in mind. “We don’t want people to be taxed. When you renew your driver’s or motorcycle license, it’s a tax. We’re not looking to create another tax on boaters, but I do think a well-educated and well-trained boater is a safer boater. The best boating experience is a safe boating experience. Even if you buy a boat inexpensively, if you’re not comfortable using it or it has a lot problems, it may be affordable, but it’s not the key to keep you in boating.”

Making it easier

One of the things Foulkes is tasked with is making it easier to be a boater and designing new boats with features such as control systems that make docking easier so first-time boaters are less intimidated by the process.

“There are a lot of people who really love boating and love to boat. That’s a great place to start, so we have a lot of pull. So we focus on, how do we deliver something accessible and convenient for them? We’re trying to do better, but I think we can improve and there are a lot of opportunities.”

The industry doesn’t have all the solutions yet, but Brunswick is working aggressively on innovation, technology and understanding the consumer to make boats more reliable and more intuitively designed.

“Both of those things are about, how do we make sure people who buy, use and operate a boat are spending time doing what they enjoy and not doing things that are incidental and not what they enjoy?” Foulkes says. “It’s about maximizing the proposition that we offer — making the product fun, accessible, easy to use and as reliable as possible. Those are huge areas of focus for us.”

There has been a “tremendous emphasis” on making boats easier to use, “but there is still a lot of opportunity for the industry,” Foulkes says. “I think there’s a strong awareness of its importance.”

Awareness is the key, Dammrich says. “We just need to keep talking about it — boating, and what the overall benefits are.” If people realize the benefits, boating will seem more affordable, because there are access points at a whole range of income levels, he says.

“There are 110 million households in this country, and there are 12 million registered boats,” Dammrich says. “There are a lot more people who could afford it that we’ve not reached.” n

Editor’s note: The family in the beginning of this story is the author’s, who would like a new boat, but is told by her husband that they have to buy a roof first.

This article originally appeared in the June 2015 issue.

Comments

2 comments on “The affordability challenge

  1. Bob Schroer (former manager of field and customer service - Outboard Marine)

    When I was a marine dealer in the 1970s, our best selling entry-level package was a 15-16 foot tri-hull with a 60-70hp outboard. These boats were basic and plain but met a families needs for a basic fishing and ski boat. Maybe it’s time for a builder to produce a current version of this package. Todays entry level boats appear to be too luxurious and over-equipped. Let’s go back to the basics!

  2. Bob Schroer

    Not all entry-level buyers can be “Sea Ray” buyers. We need to offer the entry-level buyer an affordable new boat package that allows him to equip the package to meet his specific recreation needs, (Fish and ski?) New boat warranties are preferable to a questionable used boat. Let’s make it easy for an entry-level buyer to do business with us!

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