The slimming down of the boat business

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the_slimming_down_18The industry has lost 50 to 75 percent of its workers since 2005, which translates into at least 135,000 jobs

During the last year, it seems barely a week goes by without a marine business announcing layoffs, production cutbacks or plant closures. By some estimates, the marine industry has lost as much as 75 percent of its work force since late 2005.

So just how many workers does that represent?

Precise numbers on marine industry employment are hard to come by, but the National Marine Manufacturers Association has garnered some statistics based on a survey of its members conducted during the first quarter. The association had estimated that roughly 135,000 – nearly 50 percent – of recreational marine industry jobs have been lost since late 2005. Of those, 17,600 were direct manufacturing jobs lost in the last 12 months. There were about 180 plant closures in 2008. However, NMMA president Thom Dammrich says the number of jobs lost is higher now, because manufacturers have continued to scale back in 2009.

“Today, we think that number is closer to 75 percent of industry jobs lost,” says Dammrich, who spoke with Trade Only in late May. That translates to about 200,000 jobs. The NMMA does not have exact figures on how many of these jobs are in retail, distribution or manufacturing, but Dammrich says the vast majority are in manufacturing.

Brunswick Corp. went from 21,598 marine employees in 2007 to 13,393 in 2008, according to Hayley Wolff, a senior analyst for Rochdale Securities. Marine Products Corp. – builder of Robalo and Chaparral boats – had 1,100 employees in 2007 and was down to 400 in 2008. MarineMax had 2,135 employees at the end of fiscal year 2007 and 1,759 at the end of fiscal year 2008, which ended in September.

“The number is even smaller now,” says Wolff.

The NMMA is not immune to the difficulties the recession has presented. The association has reduced its staff from 149 employees to 91, and suspended or canceled boat shows that were deemed no longer viable.

“Personally, I’ve learned a tremendous amount in the last six to nine months – things about running a business in an adverse economy, the need to move quickly and be realistic about what’s happening,” says Dammrich.

Phil Keeter, president of the Marine Retailers Association of America, estimates that employment on the dealer side is down about 40 percent overall. He says many of those jobs have been make-ready positions such as riggers, as well as sales staff from dealers that have closed smaller satellite locations. He says service technician jobs remain relatively secure, as customers look to maintain existing boats instead of buying new.

“The service may be what’s helping [dealers] keep the door open,” Keeter says.

On the manufacturing side, Dammrich says all boatbuilders have been hit by the recession, though some harder than others. The inflatable market is down the least, while the inboard cruiser and sterndrive segment saw the sharpest decline during the last year, with sales down more than 30 percent.

“The inboard/sterndrive market tends to be larger boats,” says Dammrich. “They were resistant to any downturn while the rest of the industry started seeing a downturn in 2006 and 2007. Instead, that market declined all at once instead of over a couple years.”

The exact number of U.S. boatbuilders still in business is hard to pinpoint. While builders must register with the Coast Guard and receive a manufacturing identification code, Phil Kappel, from the Coast Guard Office of Quality Assurance, says it’s hard to track how many are in operation. “It’s a moving target for us,” he says. “We know there are builders going out of business, but they don’t contact us.

“We’re issuing an MIC a day to new builders, but we don’t know if they’re actually in business,” he adds, noting that plant and product inspections may be one or two years out from the issuance of an MIC.

Keeter says there also is no way to measure how many dealers have been lost across the industry. However, both he and Dammrich say membership in their respective organizations remains about the same – around 3,000 for MRAA and 1,600 for NMMA.

“We haven’t lost many members,” says Keeter. “We have seen a big slowdown in the timeliness of paying their dues, but we’re not having a lot of them drop out.”

While NMMA membership has remained constant, Dammrich says the group has less money in its coffers, because the drop in industry sales means manufacturers are paying less dues.

The NMMA still has about 400 boatbuilder members that build 90 percent of boats on the market. Dammrich says it’s difficult to monitor non-member boat companies, because there are so many that only build one or two boats a year.

The downturn has affected marine businesses of all types, from dealers and manufacturers that have filed for bankruptcy, like Genmar and Olympic Boat Centers, to others still struggling with cash flow. Many more smaller operations have simply faded away without the headlines given to their larger brethren.

“This [downturn] is the most severe ever,” says Dammrich.

As a result of tight credit, low demand and negative economic conditions, sales of new boats and engines were $11.2 billion in 2008, down 22 percent compared to 2007, according to the NMMA. All segments showed a decline in unit sales, with the number of new boats sold down 16 percent. Aftermarket accessory sales decreased an estimated 8 percent to $2.4 billion in 2008 compared to 2007, says the NMMA.

Marine distributors have taken a hit as well. Sales in that segment were down 17 percent in March compared to March 2008, according to a recent member survey conducted by the National Marine Distributors Association. And for the fiscal year-to-date, Oct. 1 through March 31, sales were down 17.6 percent compared to the same period last year.

Industry leaders and observers agree that when the recession ends it will take years for the marine business to fully recover. Even then, sales, production and staffing will not be what they once were. Those that do survive will emerge stronger, savvier and leaner than before.

“We’ll do a better job of qualifying our customers and a better job of running our businesses,” says Keeter.

Wolff, the investment analyst who follows publicly held marine companies, says the industry likely will shrink further before it shows signs of recovery. In the past, consumers have leveraged against rising home values to buy boats and other luxury items, but the drop in home values has changed buying habits.

“There’s been a structural change in people’s balance sheets,” says Wolff, adding that household net worth was down $5 trillion in the fourth quarter of 2008 compared to the same period in 2007.

“It doesn’t appear as if we’ve seen any pickup [in sales] as we go into the summer selling season,” she says. With excess inventory and cash flow problems, she says, “That could trigger another round of bankruptcies among dealers and manufacturers.” And that obviously wouldn’t bode well for the employment situation.

She also notes that the “onerous requirements” announced by GE for floorplan financing will make it difficult for struggling marine businesses to stay afloat.

Wolff believes the industry needs to get smaller for its own long-term survival. In the fourth quarter of 2005 there were 306,000 units sold by about 5,000 dealers. She estimates about the same number of dealers will be selling 130,000 units in 2009.

“We have to see a contraction in the number of dealers and manufacturers,” says Wolff. “We should see a shakeout. We haven’t seen that in previous recessions. People would just buy the molds from boat companies that went out of business.”

What all of this will mean for the industry’s long-term future is difficult to predict, says Nancy Cueroni, NMDA executive director. “Like most of us who have been in the recreational boating industry for many years, we have seen changes that have surprised us, amazed us, thrilled us and more,” she says. “But we have also seen that there is no set path or road that the future will take.”

Dammrich echoes those sentiments. “I don’t know what [the industry] will look like in three years, but I’m fairly confident it will look very different than it is today,” he says. “There’s been a resetting of the whole economy. People’s attitudes have changed; people have gotten more conservative about investing and spending.”

Dammrich says most industry leaders and analysts believe it will be five years or more before the industry peaks again, and that the peak likely won’t be as high as in previous recovery periods. He speculates that there won’t be as much floorplan financing available as there was before the credit crisis. That means dealers are going to have to be more capitalized, and manufacturers will have to produce more boats to order.

“We’re going to see less manufacturers, and they’re not going to be selling so many different models,” says Keeter. “I think we’re going to see dealers carrying much less inventory and not stocking multiple colors of a boat model. It will be representative of the line, but not much depth.

“I think inventory levels are going to be way down when we get to the other side of this, and I think we’re going to see more manufacturer involvement, like partial consignment to the dealer,” Keeter continues.

Keeter and Dammrich both say those who survive the recession will come out stronger in the end. “Capitalism is all about survival of the fittest,” says Dammrich. “With fewer competitors, those who survive will be stronger.”

This article originally appeared in the July 2009 issue.us_unemployment_16

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