Industry makes its case to lawmakers

Posted on Written by Jim Flannery

12_industryExpansion of loan programs and concerns about E15 are top issues at American Boating Congress

An estimated 150 marine businessmen and women from around the nation descended on Capitol Hill May 6 to attend the American Boating Congress and talk legislation with their congressional representatives.

“We’re going to be talking to the key decision-makers, those who affect your business and mine,” said National Marine Manufacturers Association chairman David Slikkers in his opening remarks.

The CEO of S2 Yachts, builder of Tiara and Pursuit boats, says the industry has been challenged by a “massive economic downturn” and a “new political environment requiring constant attention and vigilance” to beat back regulatory initiatives adversely affecting the industry. “We have many pressing issues, but also many opportunities,” he says.

14_industry_02Top on ABC’s agenda was an opportunity to talk to lawmakers about changing two lending programs the Small Business Administration administers through private lenders. The changes would make the programs more attractive to lenders and deliver credit to more small businesses – boat dealers in particular, who continue to have trouble getting floorplan loans at affordable rates.

The industry wants the ceiling on the so-called 7(a) program raised from $2 million to $5 million and the program extended from a one-year pilot venture to a full five years. Lenders prefer bigger loans because they are more profitable and a program with a longer life span that gives them more time to recoup their investment – the costs of gearing up for it – says lending consultant Bill Thompson.

The 7(a) loan money can be used to buy machinery, equipment, furniture, fixtures, real estate, inventory, supplies – and to finance floorplan. Under the pilot program, SBA had hoped to issue 4,000 loans the first year, but because of the program’s shortcomings it issued only 62.

Cap increase

Industry volunteers who fanned out to Capitol offices also asked for amendments to the SBA’s so-called 504 program, a fixed-asset program that provides long-term financing for real estate, equipment or expansions. These loans are delivered through certified development companies – private, non-profit corporations set up to contribute to the economic development of their communities – with only a portion of the loan underwritten by a bank. Thompson says the industry is asking Congress to increase the loan cap on 504s from $2 million to $10 million, and to permit refinancing under 504, which now is restricted to new loans.

This would be “another tool for dealers and manufacturers whose mortgages are maturing to obtain the refinancing they need,” Thompson says. The industry is hoping both changes will be adopted this summer in S.2869, the “Jobs 3″ bill enacting measures to create jobs.

These SBA programs could help ease the credit crisis, but no one is suggesting they will end it. “We need to put pressure on the bankers to loosen up with their money,” says Phil Keeter, president of the Marine Retailers Association of America. “Many [dealers] are just hanging on because their floorplans haven’t run out yet, but they’ll close if their lender closes on them [and won't offer another floorplan loan].”

Credit likely will remain tight, however, until more lenders return to the marine industry and to floorplan lending, says Donald C. Parkhurst, senior vice president for marine and RV finance at SunTrust Bank. Jim Coburn, a former banker and business consultant, points out, too, that while banks are reluctant to renew floorplan loans for businesses that show unhealthy balance sheets, they sometimes will renew with a struggling business that shows consistent improvement.

Thompson says small community banks – those where relationships are key – are the best sources now for securing floorplan financing, but he says a dealership’s health still is a big factor in getting loan approval.

Beyond credit

ABC delegates also jawboned legislative staff about E15 ethanol gasoline and the National Oceanic and Atmospheric Administration’s new ocean policy, among other topics. They say the Environmental Protection Agency must be required – for safety reasons – to study the effects of E15 on boat and off-road engines, fuel tanks and hoses before moving ahead with it, and that Congress should have the final say on NOAA’s new ocean policy. NOAA     hasn’t released that policy yet, but the industry fears it will include vast closures to boats, divers and anglers.

The NMMA, in a policy brief, says the draft ocean policy does not give sufficient weight to recreational use of the waters and raises the specter of NOAA making management decisions by executive order under the Antiquities Act, which authorizes limiting access to areas designated national heritage sites.

“The Antiquities Act can be abused,” Slikkers says. “These are unilateral designations.”

Development of renewable fuel to supplement fossil fuel is important, but E15 – a blend of gasoline and 15 percent ethanol – isn’t the answer, says Sen. Susan Collins, R-Maine. “E10 is virtually the only fuel available in Maine and it is causing a lot of problems for my constituents,” she says. She cited destroyed fuel lines, clogged filters and damaged fuel tanks. “I’m very concerned that older and off-road engines will experience an even greater problem using E15. EPA should have to show it will protect them.”

Slikkers says the industry also must press Congress to fund NOAA adequately to improve its “science” (data collection) used to shape fisheries management. “There has been a dramatic increase in the number of red snapper in the Gulf of Mexico,” he says. Red snapper catch limits “are way behind the reality.”

Addressing the Gulf oil spill, NMMA chief counsel Cindy Squires told attendees that businesses affected by the massive spill should keep detailed records of losses associated with it. The Oil Pollution Act of 1990′s Oil Spill Liability Trust Fund, which is funded by the oil companies, can be used to pay for natural resource damage, state and local emergency response activities, lost tax revenues, the cost of cleaning up and lost business revenues, she says.

Collins also threw in a plug for Coast Guard funding, noting a $75 million cut in the agency’s budget for fiscal 2011 and a reduction in personnel of 1,100. Meanwhile, she points out, the federal budget proposes $200 million to try alleged terrorists jailed at Guantanamo in civil court. “That makes no sense whatsoever,” she says.

Keynote speaker Charlie Cook, political reporter and analyst for the National Journal and NBC News, predicts significant Republican gains in the midterm elections that could give them a majority in the House and just short of that in the Senate. “I think the Republicans could take the House back, if the election were held today,” he says. However, he warned that midterm elections are seldom good predictors of the next presidential race. He says voters’ willingness to vote the Republicans back in so soon after voting them out reflects several things.

“Voters are getting a lot less patient, a lot less tolerant of their elected officials,” he says. “They want to have it their way – fast.”

Second, it reflects the view of many independents who, while they like President Obama, are concerned that he’s not as centrist as they thought and believe they misjudged his views on an expanded role for government. Cook says Gallup polls show that 57 percent of those surveyed think government is trying to do too much; 37 percent say it’s not doing enough. He says Americans generally favor health care reform, but judged it a huge mistake for the administration to focus on that before turning around the economy and the unemployment trend.

“Things could change in the next six months,” he says, “but something [big] would have to happen to prevent Democrats from having very, very substantial losses.”

On the economic front, Clearview Economics president Ken Mayland declared the recession over in June 2009, though “recovery is not synonymous with recovered. The direction of the economy has changed. It is expanding again. But it probably will take us the better part of two years to get to those better times.”

Mayland is forecasting 3.6 percent GDP growth in 2010, based on increased consumer confidence, a lower personal savings rate, rising production and inventory, a turnaround in the housing market, auto sales and capital spending in several key states, export growth and more fiscal stimulus spending. Less than half the $787 billion in federal stimulus money had been spent by mid-April.

Mayland says consumer spending on boats historically follows total consumer spending in general – and total spending has been edging up. However, he notes that during the last decade, consumer spending grew faster than the overall economy.

“Moving forward, consumer spending at best is only going to grow as fast as the economy or a little less,” he says. He warned that high unemployment, rising fuel prices and significant tax increases in 2011 will be a drag on the recovery, but overall, “2010-11 should be years of recovery and boating should get its share of the increase in consumer spending.”

Some at ABC judged that a bit optimistic, since boat sales historically tend to lag behind economic recovery.

This article originally appeared in the June 2010 issue.

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