The stories that defined 2010Posted on
The industry was led on a roller coaster ride by the economy, the Gulf spill, Genmar’s sell-off and more
Last year was a difficult one for the boating industry, though by the end of 2010 there seemed to be some light at the end of a long tunnel.
Boat sales were down throughout the year, but there were developments – a stable stock market, an increase in fall boat show attendance and a better-than-expected holiday retail season, among others – that gave the industry hope for an upturn in 2011. As 2010 ended, however, unemployment remained close to double digits, consumer confidence dropped slightly and the housing market continued to be weak – none of which bodes well for the boating business.
For this reason, we’ve once again chosen the economy as the top story of the year. As one year ends and another begins, the editors of Soundings Trade Only compiled this list of the top 10 stories of 2010.
1. The economy: The economy was a mixed bag. The stock market was a bright spot, finishing the year up across the three major indices. The Dow Jones Industrial Average was up 10 percent from 2009, while the Nasdaq gained 16 percent and the S&P 500 was up 12 percent.
U.S. retail sales at stores open at least a year were expected to show a December growth rate of 3.4 percent, which would be the best performance for the month since 2006, according to the research firm Retail Metrics.
That’s the good news.
On the flip side, consumer confidence dropped slightly in December. Unemployment hovered only slightly below 10 percent as the year ended; 15.1 million people were classified as unemployed in November. And the housing market remained weak. About 1 million homes went into foreclosure last year, many of them in big boating states, such as California and Florida.
Foreclosures nationwide should peak this year, according to David Crowe, chief economist for the National Association of Home Builders. Crowe told Bloomberg BusinessWeek that foreclosures will not crest before unemployment tops out, which he expects will happen later this year, and that upward resets on adjustable-rate mortgages will continue to cost people their homes afterward.
Some other troubling news heading into 2011: Oil was inching toward $100 a barrel and gasoline prices topped $3 a gallon and were expected to climb.
2. Gulf oil spill: The Deepwater Horizon oil rig exploded April 20, killing 11 people and setting off the largest man-made environmental disaster in U.S. history. It took more than three months – and billions of dollars – for BP to plug the well. By the time it did, an estimated 4.9 million barrels of crude had spilled into the Gulf of Mexico.
Oil was found on the shores of Texas, Louisiana, Alabama and Florida, although fears that it would become trapped in the so-called Loop Current, end up on the east coast of Florida and move up the Eastern Seaboard never materialized.
About 74 percent of the oil that flowed from the well evaporated, dissolved or biodegraded, or was burned, skimmed or captured, the National Oceanic and Atmospheric Administration said in August. However, as late as November NOAA was still closing portions of the Gulf to fishing as a precaution.
The effect the oil has had and will continue to have on seafood from the Gulf remains unclear. And many businesses – including commercial fisherman, charter captains, marina owners and boat dealers – are still struggling to recover financially from a disaster that all but wiped out their businesses.
The National Marine Manufacturers Association conducted a survey during the summer to document how the oil spill had affected boatbuilders. The survey found that three in five recreational marine businesses nationwide had been affected by the spill and that nearly four in five companies anticipated some effect on their business from the spill through the remainder of the year.
To help businesses recover, BP set up a $20 billion compensation fund. In December, a “quick pay” option was announced in which payments would be made to those who agreed not to sue the company. By the end of December, about $43 million had been paid through the “quick pay” option.
3. Genmar sell-off: The saga that was the Genmar bankruptcy filing came to a conclusion in 2010. On Jan. 8 it was announced that California-based Platinum Equity had purchased 11 of Genmar’s boat lines for $70 million, J&D Acquisitions had purchased the Carver and Marquis lines for $6.05 million, and MCBC Hydra Boats, a subsidiary of Wayzata Investment Partners, had purchased Hydra-Sports for $1 million.
Later that month, Platinum Equity turned around and sold the Larson, Seaswirl and FinCraft brands to J&D Acquisitions, whose chairman is Irwin Jacobs, Genmar’s former chairman. The transaction also included the Larson Boat factory in Little Falls, Minn., the VEC Technology company in Greenville, Pa., and the Triumph Boat Co. and its Durham, N.C., factory. The purchase also included the Seaswirl Boat factory in Culver, Ore., Windsor Craft assets and other miscellaneous assets.
Many were upset that Jacobs would be allowed to repurchase the boat lines. An estimated 4,000 unsecured creditors who were owed more than $100 million wondered whether they’d ever see a penny of what they were owed.
“The debtors’ selection of the J&D bid rather than the GYA bid solely on the basis that the GYA bid matched, rather than exceeded, the J&D bid is an insufficient reason to approve the J&D prevailing bid in the face of other considerations,” the committee said in court documents. “Both the interest of the unsecured creditors and the goal of maximizing the value of the debtors’ estate dictate that the J&D prevailing bid should not be approved.”
The committee lost its court battle and Jacobs seemed humbled by the experience. “I’m never going to allow a corporate structure to ever get in the way of making our business a success,” Jacobs told Soundings Trade Only in April. “I allowed this thing to get out of hand, with too many brands competing against one another, allowing too big of a corporate structure … that really didn’t bring much value at all to our businesses and just created more confusion and cost.”
4. E15: On Oct. 13, the Environmental Protection Agency waived a limitation on selling fuel blended with more than 10 percent ethanol for model-year 2007 and newer cars and light trucks. The decision was made in response to a petition that Growth Energy and 54 ethanol manufacturers submitted in 2009. In doing so, the regulatory agency set in motion a legal battle that’s sure to play out in 2011.
The waiver applies to fuel that contains as much as 15 percent ethanol, or E15. The decision excludes marine engines and other non-road engines, such as those that power snowmobiles, and lawn and garden equipment.
Industry groups, including the NMMA, the Marine Retailers Association of America and BoatU.S., have vigorously opposed E15. Though it wasn’t approved for marine engines, E15 opponents say it will be too easy for consumers to mistakenly use it in their boats.
“We are extremely disappointed that EPA is allowing this fuel to enter the market without the appropriate scientific data or consumer and environmental safeguards,” NMMA president Thom Dammrich said after the announcement. “This decision not only adversely impacts marine manufacturers, but creates a significant risk of misfueling for the nation’s 66 million boaters.”
The EPA is proposing E15 pump-labeling requirements, but opponents say this won’t do enough to keep consumers from using the wrong fuel.
In December, the NMMA joined with the Outdoor Power Equipment Institute, the Alliance of Automobile Manufacturers and the Association of International Automobile Manufacturers in a new coalition called the Engine Products Group, filing suit in the U.S. Court of Appeals for the D.C. Circuit to try to stop E15 from going forward.
5. Midterm elections: Months of mudslinging and finger-pointing led to a midterm election that saw Republicans take control of the House of Representatives and Democrats barely hold on to their majority in the Senate.
Rep. John Boehner, R-Ohio, took over as Speaker of the House in January, and even before the 112th Congress was officially sworn in he announced a vote on the repeal of the new health care law, referred to as “Obamacare.”
“The American people are expecting quick action from the Republican majority,” House Majority Leader Eric Cantor, R-Va., said before the new Congress was installed. Asked whether the repeal effort is moot because Senate Democrats have said they oppose a flat-out repeal, Cantor says, “The important thing right now is to make sure we send a repeal bill across the floor,” adding that the “Senate can serve as a cul-de-sac if that’s what it wants to be.”
6. Changing production/sales model: Many boatbuilders had to ramp up production in 2010 as dealer inventories dropped to historically low levels. However, as sales continued to lag, manufacturers were cautious about putting too much inventory into the pipeline.
“I think 2010 is going to mark the bottom for the boating industry,” Dammrich, the NMMA president, said during IBEX in September. “Clearly, for the boat manufacturers, 2009 was the bottom. We only produced about 80,000 boats in the whole country in 2009. We’re going to produce 50, 60, 70 percent more than that in 2010 and I think we’ll see that continue to grow in 2011.”
With dealers still struggling to get floorplan financing, many manufacturers changed their stocking requirements and, in some cases, opened factory showrooms. KCS International, Regal, Four Winns and Marquis are among the builders that are working off this new model.
“We’re thinking out of the box to figure out how to market and sell product differently,” says Russ Davis, director of sales and marketing at KCS.
Brunswick began adding brands to about 50 dealerships, creating showroom pairings that in the past would have been unthinkable. In some cases, Sea Rays now sit next to Bayliners and Boston Whalers alongside Trophys.
“We’ve kept our focus on the health of distribution,” Sea Ray president Rob Parmentier told Soundings Trade Only in the fall. “The company with the best dealers is the company that’s going to win.”
7. Optimism at boat shows and IBEX: The industry held its collective breath prior to the start of the fall boat show season. Would anyone come? And would they buy boats? The answer was yes.
Show organizers from Fort Lauderdale to Annapolis, Md., to Newport, R.I., reported increased and upbeat crowds at this year’s shows. The Boston Fall Boat Show, which had taken a year off because of the economy, was back in 2010. And although it was nice to see a rise in attendance at many shows, increases in consumer confidence and in the number of customers who were out to buy, not just look, was what pleased exhibitors most.
“[Consumers] are still looking for a deal, but the good news is they are still looking,” Regulator Marine president Joan Maxwell told Soundings Trade Only after the Fort Lauderdale show, which saw a 5 to 6 percent increase in attendance. “With new-boat inventories down and distressed inventory declining … I think the industry can look for slight positive growth in 2011.”
Optimism was also in the air at the International BoatBuilders’ Exhibition & Conference, which paired with the Marine Aftermarket Accessories Trade Show in 2010 and moved to Louisville, Ky., for the first time.
“The last two years reminded me of a wake. Today I feel like I just came back from a christening,” was how attendee Greg Scholand, business manager of Lighthouse Marine Distributors, described IBEX.
The show saw a 13 percent jump in attendance from 2009 and nearly 550 exhibitors took part.
8. Social media: What may have seemed like a fad a few years ago is here to stay. Social media – Facebook, Twitter, LinkedIn, YouTube and others – continued to gain influence in 2010. Literally hundreds of millions of people each day are logging on to these sites to keep up to date on their world. More marine businesses joined these sites last year, as Twitter feeds and Facebook pages continued to pop up throughout the boating industry.
A recent study from Foresight Research shows that 84 percent of new-boat buyers had seen information on the Internet before they made their decision to buy. Most used the Internet to compare brands, models, engines and pricing. Overall, just 15 percent of buyers discussed boats on social media websites. However, this usage varied significantly by the type of boat purchased.
And prepurchase social media use decreases with age. Nearly one in three buyers under 35 (29 percent) used social media to discuss a pending boat purchase.
“[Consumers] are engaged and they are learning more. Like it or not, it’s here and you really need to embrace it and capitalize on it,” says John Kavaliauskas, founder and president of BoatFlorida.com.
9. Grow Boating returns: The Grow Boating program was a casualty of the recession, but in November it was announced that the NMMA board had approved full restoration of Grow Boating assessments, effective Jan. 1.
“Restoring Grow Boating assessments is a necessary step to rebuild our industry following the recession and effectively return to promoting the boating lifestyle long-term,” said Scott Deal, president of Maverick Boat Co. and chairman of the board of Grow Boating Inc., at the time of the announcement. “The importance of continuing to protect and invest in the valuable, industry-owned brand asset – Discover Boating – cannot be underestimated.”
The assessments were temporarily reduced by 85 percent July 1 pending the development of a new marketing strategy and an analysis of the effect of the recession on consumers. In August, Grow Boating’s board selected the Minneapolis-based marketing firm Olson as agency of record to aid in the development and execution of a new integrated marketing campaign.
The restored assessments are projected to collect $4.5 million by the end of 2011 to fund the campaign.
10. Reggie Fountain resigns: In December, 10 months after Fountain Powerboats exited Chapter 11 with new owners, the builder’s iconic founder, Reggie Fountain, announced his resignation from the company. Fountain, whose company was purchased by Liberty Associates, said that although he was initially happy that Liberty bought the company, there were differences of opinion.
“Sometimes when you get to know people better, things don’t work out like [you] thought they would, whether you’re getting married to another person or whether you’re getting into business,” he told Soundings Trade Only. “After a while, it became apparent to me that there was a very substantial difference in both philosophy and opinion as to how we should run the business.” He wouldn’t give specifics but said the differences were substantial.
John Walker was named president and CEO of Fountain. He’s also CEO of American Marine Holdings – owner of Donzi Marine and Pro-Line – and CEO of Baja Marine. At the time of the announcement, Walker said he was confident that the company will carry on and continue to grow.
“Unfortunate while it is, everything doesn’t come to a halt,” he says. “People are still building boats. The entire staff at Fountain is, in fact, at work today. Everybody is continuing to do what they do.”
This article originally appeared in the February 2011 issue.