Editorial board members weigh in on how and why the recession happened and when it might end
Marine banker Don Parkhurst didn't mince words in an economic overview at a Soundings Trade Only Editorial Advisory Board meeting at the Miami International Boat show.
The global recession will last into 2010, and the stimulus bill recently signed into law will do little to help, says Parkhurst, senior vice president of SunTrust Bank and past president of the National Marine Bankers Association.
"The negative forces are too strong ... for this stimulus to work," says Parkhurst. "It's not going to create a lot of jobs, and it's not going to do much. It's not going to do anything to help the people that buy our boats."
By the time the nation begins to pull out of recession, as many as 25 percent of dealers and 10 to 15 percent of manufacturers could be out of business, Parkhurst predicts.
Parkhurst opened Trade Only's 10th annual editorial board meeting, explaining how things got to this point, and what we can expect in the future. His introduction led to a frank discussion on economic issues such as financing, inventory levels, repossessed boats and what the post-recession industry will look like.
Parkhurst was joined at the meeting by Bob Apple, senior vice president, sales and marketing, Volvo Penta of the Americas; Rick Fulmer, general manager, Four Winns; Chuck Hawley, vice president of product information, West Marine; Jon Lintvet, CEO, Channel Blade Technology; Darren Plymale, general manager, Galati Yachts; Norm Schultz, president emeritus, Lake Erie Marine Trades Association; and Larry Vandiver, marketing director, Suzuki Marine. Bob Staehle, vice president and general manager of Kellogg Marine Supply, is also on the board but was unable to attend.
Little 'stimulus' help
Aside from a provision that removes the duplicative Longshore and Harbor Workers' Compensation insurance requirement for recreational marine service and repair businesses, the stimulus package will do little to help the boating industry, Parkhurst says.
"No leader ... is going to be able to change [this situation]," he says, predicting unemployment will rise to 9 or 10 percent by the end of 2009.
Parkhurst says the global recession - "the worst since the Great Depression" - is a result of overleveraged financial institutions worldwide, overleveraged consumers and insufficient government oversight of the financial industry. Because of the vulnerability in the system, the housing bubble burst, mortgage and investment banks failed and liquidity dried up.
The economic woes, obviously, have not been limited to this country, he points out. Marine dealers and manufacturers who previously looked toward international markets to increase sales are having a harder time doing that these days.
So when will recovery begin?
A thawing of credit markets, which is already beginning, will help, Parkhurst says. So would lower interest rates, enabling homeowners to redo mortgages and stay in their homes. And a continuation of lower gasoline prices would be another big plus.
For the long term, Parkhurst says there's a simple solution: "We need to borrow less and save more."
Parkhurst maintains it's not a lack of financing that's keeping buyers away from boats - though loan requirements certainly have tightened. Rather, he says, it's record-low consumer confidence, fueled by growing unemployment, that's hurting the industry these days.
Yacht dealer Plymale agrees that financing is not what it once was, and says today there are no exceptions to any rules. He and others say credit standards have been raised to where they were 10 years ago. Buyers need higher credit scores, larger down payments and more conservative debt-to-income ratios.
The panelists agreed that those consumers who bought boats without down payments are likely out of the market for good. Gone, too, are the "no-doc" or "low-doc" loans.
Even though there is money available for retail boat loans, there simply aren't enough takers, enough buyers. "The consumer doesn't want the money," Parkhurst says. "The consumer is tapped out."
Buyers are shrewder and have more leverage these days, Plymale says. Also, he says, consumers are going to the Web to find better deals and dealers are being forced to take lower margins on aged inventory. Many dealerships, he predicts, won't be able to take another bad summer.
Floorplan lending, according to Parkhurst, is also "a crisis for the industry." GE has the lion's share of the market, and few others are likely to enter the market anytime soon.
Dealers are affected not only by their own aging inventories, but by repossessed boats that are becoming more common in the marketplace and often sell at significant discounts.
The industry has "exploded" with repossessed boats, says Four Winns' Fulmer. "It's really not healthy," he says, citing the lower margins dealers have had to accept.
Suzuki's Vandiver says he went decades without getting calls about repossessed merchandise, but now he's getting them regularly.
"The consumer is out there looking for a deal," Parkhurst says, and a bank can only hope for about 70 cents on the dollar for a repossessed boat. And with more and more dealer failures likely on the horizon, manufacturers need to step up and buy merchandise and sell it through their own channels, according to Parkhurst.
"[The manufacturers] need to support the value of their product," he says.
Vandiver says the marine industry is not alone in facing these issues. The auto industry is losing dealers, and the motorcycle industry is losing as many as a dealer a day, he says.
Dealers, Vandiver says, need to "walk very carefully and try to be as aggressive as you can. We're losing guys right and left because they can't get financing."
Despite the bad economic news, which is outside the control of the industry, there are steps dealers and manufacturers can take to remain solvent until conditions improve, according to the panelists.
Channel Blade's Lintvet says his company studied how businesses respond to leads, and the results were not all positive. The average response time to a lead is 31 hours, and "that has to change," he says, in order to remain competitive.
"There's a huge opportunity in front of us," he says. Dealers and manufacturers who respond swiftly are more likely to survive and form strong relationships with customers.
Fulmer says the customer of today and of the future has grown up with technology such as the Internet and Blackberrys, and they expect instant responses. "We need to communicate at that level," he says. "That's how they communicate every day."
Other opportunities to gain buyers include introducing more affordable boats with smaller engines, says Vandiver, who spoke of "going back to basics."
Even if the market is down 30-35 percent, "The good news is there's still a market," he says. "It's going to depend on how hard we work. The consumer that has the dollars is going to be stronger than ever."
Schultz says the next year should provide a "cleansing" to the industry, which has to show the consumer that boating is a fun sport that isn't restricted to the wealthy.
"We need to survive the next year," he says. "We've been in this before and we always come out stronger. Two years from now, I'm very optimistic."
This article originally appeared in the April 2009 issue.