Since the recession there has been a sizable hole in the market between the very high end and the low end.
Is the middle finally coming back?
Sun Trust Bank senior vice president Donald Parkhurst says that after a long drought it appears that the important middle-market buyer is finally re-emerging. The veteran lender categorizes the so-called “middle” as loans between $150,000 and $1 million.
“It’s definitely the first time I’ve seen the middle guy come back,” Parkhurst told me recently. “For Sun Trust, the middle is our bread and butter. Our average boat loan is about $250,000, and that customer has definitely been missing from the market.”
Parkhurst describes this customer as a small-business owner, professional or executive. After hunkering down through the worst of the recession, these consumers spent the last three years getting their financial house in order. With the U.S. economy slowly clawing back and the stock market hitting new highs, they once again have the confidence and financial wherewithal to make large discretionary purchases.
“I think it’s just taken time for the middle guy to rebuild his finances,” says Parkhurst, who heads Sun Trust’s marine and RV division. “Their businesses are doing better and they’ve built up their cash reserves and paid down debt.”
Those factors, combined with the wealth effect, pent-up demand and improved confidence, are bringing them off the fence.
Parkhurst reports: “I can’t say it’s a home run, but I think we’re seeing a major segment of the market that we haven’t seen in a while return. What we don’t need now,” he adds, “is anything that would shake their confidence.”
After talking with Parkhurst, I spoke with Galati Yachts general manager Darren Plymale, who has a good finger on the pulse of the same middle market that the lender services. “I can confirm what Don is saying,” Plymale says. “My strike zone is $250,000 to $1 million.”
Galati Yachts has seven locations in Florida, the Gulf and Great Lakes and sells a number of premium brands, including Viking, Tiara, Princess, Cruisers, Maritimo and Grand Banks.
Plymale, too, has seen positive signs from the middle segment since the Miami shows. “Let’s face it: We have an ultra-conservative buyer out there,” he says. “But we’re seeing glimpses of those folks returning to the market.”
For the first time in a long time, Plymale says, people are strategizing about their next boat with “defined plans,” such as length, the size of the slip they’ll need, a timetable — all signs of real buying. And the buyer? “For us, it’s the entrepreneur,” he says, “the person who goes out and lays it on the line every day and has prospered in the worst of times. And he wants to go out and have some fun.”
In terms of boat size the sweet spot for Galati is roughly 35 to 48 feet. Over 50 feet, Plymale notes, is a different buyer. Most are still paying cash, he says.
Both Parkhurst and Plymale talked about the changes they’ve seen regarding what today’s post-recession customer is looking for in a boat. “We’re seeing more day cruisers,” Plymale says. “It could be an express boat or an open-cockpit boat. The slow day-cruising market is very attractive.”
And both men say customers today are more concerned about operational expenses than in the past, a sentiment I hear echoed across market segments. As an example, Plymale says more buyers are opting for smaller-engine options to reduce upfront costs and improve fuel efficiency. “It used to be the bigger, the better — max horsepower,” he says. “Today they’re willing to compromise with less horsepower and more fuel economy.”
Parkhurst says today’s more conservative middle buyer is watching both purchase price and operational costs. As a result, he sees more people downsizing, for example, to trawlers, tugs and Down East-style yachts in the 30- to- 40-foot range from vessels in the mid-40s to mid-50s. In the process they are moving, when practical, from twin gas engines to single diesels. “I attribute it to the aging of the baby boomer,” Parkhurst says.
Ben Wilde, of Wilde Yacht Sales in Essex, Conn., has so far this year sold just the kind of boat that Parkhurst described to me: single-diesel, 34- and- 37-foot Nordic Tugs between about $330,000 and $360,000. “That segment has been very active,” Wilde says. “We sold four new 34s this year and two used 37s. And every one’s been financed, and normally it would be one out of 12.”
Adds Wilde: “We hope it’s real and not just a spurt. We hope it holds.”
His sales this year have been made to two high-level executives, a firefighter with a working spouse and a professional gambler. Of the latter, Wilde says, “I’ve never seen that before.”
More and more, it’s a new world.
This article originally appeared in the June 2013 issue.