Q&A with with Robert Moran, president/CEO of Nautic Global Group - Trade Only Today

Q&A with with Robert Moran, president/CEO of Nautic Global Group

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Robert Moran is president and CEO of Nautic Global Group, the corporate entity that owns Rinker Boats and Godfrey Marine. Based in Elkhart, Ind., NGG is the fourth-largest boat manufacturer in the United States, and its brands include Rinker, Hurricane, Polar, Polar Kraft and the Godfrey pontoon brands.

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Before joining NGG in 2004, Moran, 55, was president and CEO of Omega Cabinetry. From 1995-2003, he held several CEO positions at manufacturing firms across various industries, distributing products through a network of entrepreneurial dealers. These companies include Zimmerman, Berkline and Eurodesign.

Moran holds an MBA in operations research from the Joseph M. Katz Graduate School of Business at the University of Pittsburgh. He also holds Bachelor of Science degrees in business and engineering, both from Carnegie Mellon University, where he also minored in art and architecture.

Moran says he loves anything related to the water and favors coastal estuaries when boating. His passions include art, design and architecture, and activities related to aesthetic pursuits. Dividing his time between Dallas and Indiana, Moran is married with a son, Gregory, who is working on NGG's Web site.

Q: With the Miami International Boat Show and other major winter shows behind us, what is your impression in terms of attendance and sales.

A: The shows this year are flat or better than last year. What we've seen is a real strengthening in the market. It's not a great market, a robust market, but it has been stronger in various pockets throughout the country. We've seen some shows - Tulsa, Detroit - that have been truly outstanding. Others have been OK.

The only negatives we see at shows are the ones I'm sure everyone in the industry is feeling - that we get a lot of potential buyers, a lot of people signed up, and then they try to get the financing, and that has still been an issue. If it wasn't for that, we'd probably have a pretty robust year going. Again, the banking - the financing - has been the major hold-back in the industry overall.

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Let's [look at sales] in two ways: fiberglass and aluminum. The fiberglass side of the business is probably up in the 25 to 30 percent range, and the aluminum side is up probably 10 percent. But last year, too ... aluminum didn't fall as far as fiberglass did, so if you look at it on a two-year average, we're kind of on equal footing.

Q: Where does Nautic Global Group stand in terms of product in the pipeline? Do your dealers have the stock they need?

A: Looking at the last couple of years, our dealers have done a fantastic job of reducing their inventories. They have taken their inventories down year over year, comparing January 2010 to January 2009, about 45 percent. Prior to that, from 2008 to 2009, they had dropped 35 percent. Overall, they're probably down a little over 50 percent, 55 percent total.

Inventory turns, which we measure very closely, in the past had run about 1.6 turns per year with our dealers to 2 turns per year. Now we've seen our dealers are improving to 2.2 turns. This makes them a lot better, more viable, but it also reflects that we have less shipments going out, or more immediate shipments to satisfy a specific need in the market.

What we see in the pipeline is that probably more in the bigger fiberglass, where [consumers] have held back purchases in anticipation ... the market really has to knock them upside the head for them to figure out that the market is coming back. [With] the Hurricane, the deckboats and the pontoons ... the dealers are turning their inventory very well and are repurchasing or buying new boats to supplement that inventory. So with Rinker and Godfrey we have a really good blend of seeing what the market is doing. The big boats are slow to reorder; the Hurricanes and the pontoons and the Polar Kraft fishing boats are being reordered on a pretty regular basis.

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Q: Where do you stand in terms of production?

A: I joined the industry back in 2004, and the production levels we had back then compared to now are so drastically different. But the production rates are up over last year, I'd say, in a range of about 25 to 30 percent. Special models are up a little bit further. As I mentioned earlier, the fiberglass segment is up much more significantly than the aluminum, but the aluminum hasn't fallen as far as the fiberglass has in the prior year.

We're at that point where we have the reorders coming through from the shows ... but there is that relative slow period where people are waiting for the spring, and the weather will help induce a lot more spontaneous buying, which will really help production. We're pretty set right now, through March, and we're looking at mid-April in some of the fiberglass lines.

Q: How has your dealer network fared during the downturn?

A: We've lost probably around 9 percent of our dealers, depending on the market and the segment, and I think we were incredibly fortunate. Our dealer base is long-lived and has been around for a while - very entrepreneurial, they're smaller dealers. ... Most of our dealer network has one or two sites, and they have been able to cut back on costs, cut back on expenses extremely well and weather this downturn. It's a great distribution network, and we're very proud of it.

Rinker has about 75 dealers, and Godfrey has about 350 to 375 dealers. So you can say about 40 dealers overall have probably gone away.

Q: Have you put any programs in place to help your dealer network get through this downturn?

A: Since I have the expert here, I'll let him answer that [turns the interview over to director of marketing Steve Tadd].

Tadd: We didn't put together financing programs, but we put together more options for dealers to choose from. This year our program was either a higher discount level, or we would assist them with floorplan financing or a combination of the two depending on their business model and how long they expected to hold inventory. Further than that, we've done more with regard to retail promotions in the past year than we had in the past. We did a spring clearance event last spring that really helped our dealers, and we used a lot of the Grow Boating funds that had been redistributed back to us to help fund that and really help dealers to clear out their inventory.

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Moran: We had come out with "Hot Smoking Deals." In programs for our dealers to be successful, we brought these boats out that either had been obsoleted or were slow movers, and we put special packages together to incentivize the dealers to buy a few boats but also to have attractions for our consumers to come to the booths, to the showrooms, to drive in business. This has been really successful for Godfrey and for Rinker. And like anything else, you get an opportunity to up-sell or get a consumer for life at your dealership.

Q: Last year, Nautic Global Group looked at buying Crownline, and that didn't work out. Are you looking for more acquisitions? Did you look at any of the former Genmar brands?

A: We still have sections of our portfolio which aren't fully utilized. We have opportunities within our brands right now to add others. [A new acquisition] could be a brand like a fishing boat, or it could be a segmented brand that is very strong in a specific region like in the Pacific Northwest. We're not looking to go into the luxury lines; it's not something that fits our strategic goals or the type of company we are.

We did [look at some of the Genmar lines], but with the way the bid went down we unfortunately couldn't be active in that, because there was so much being sold at once and the way the deals were struck. We have opportunities to talk with them further, and we will explore those as they become available.

Q: There's been a lot of talk about getting consumers used to more "normal" boat prices again. Is this a concern for you and how will you handle it?

A: So much of these liquidated [units] have been put out into the market. It's really like it was a feeding frenzy, and opportunistic buying occurred. I think the inventory reductions we talked about earlier have happened for the industry overall, and I think the inventories are down between 35 to 50 percent depending on the individual manufacturer.

People will still look for those great deals, and, frankly, we're providing some of those with this Hot Smoking Deals program. But what I think is going to happen is these great-buy boats will no longer be available. ... There will still be a few opportunistic buys, but I think overall with the lack of availability - builders aren't going to be building these boats at these prices because they're below cost - there will be a natural growth in the price point.

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A lot of the [boat] shows permitted older models to be shown, and that's the last phase we're seeing through this transition from the old boats, getting rid of the old inventory and starting fresh. Once this final surge goes through the system, we'll be back to fresh, new boats and new production, which will be the driver to help the consumer move up the food chain.

Q: Have you seen many of your boats go through repossession or liquidation?

A: We haven't seen a lot of that. Again, we try to help remarket. We support the finance companies. We've seen maybe half a dozen where they were repossessed and put into a market that we probably wouldn't have liked to happen. But it's not been a big issue for us. We're able to direct some of these repossessions ourselves by repurchasing the boats and putting them into places we knew would not disrupt our dealers.

Q: Do you think the industry needs to pull costs out of boats to attract new customers?

A: I think the industry has to look at a more "value" boat. With our concept, our restrategizing our business, we're looking at a value boat, looking at price-point-oriented boats, MSRP boats. In the past, some manufacturers said "add this, add this, add this," and put a dealer margin on it and here's the price. We've restrategized our business at NGG where we're now going out with MSRP pricing ... That's a major strategy shift within our organization. And I think the cost of these catalytic converters on the sterndrive product ... might cause a shift more toward outboards. With our mix of business, we're prepared to handle both ends.

Q: There's also been talk of the need for fewer models. Do you agree?

A: We support it. Let the consumer dictate what we should be manufacturing. We've been utilizing dealer councils ... and consumer groups, focus groups, to understand what the market wants. We've been using those methods to reduce skews in our production line. Most recently, we've been doing more of that in the pontoon segment. Hurricane is in good shape. Rinker is in really good shape. Fishing boats - that's a tough one because every fisherman has their own setup that is peculiar for their needs and demands, so we have a lot of skews there. But the cost of manufacturing a boat in the aluminum segment is not [as expensive] as it is in the fiberglass segment, so we can have that flexibility.

Q: What is the future of the marine industry?

A: I believe we've seen the bottom in the third quarter, fourth quarter of '09. Turnaround is going to be relative to what the new $320,000 model is - is it going to be $200,000 is it going to be $220,000? We've repositioned ourselves, rationalized our facilities to the point that we can effectively manufacture in the $225,000 to $250,000 overall range, where we have our market share of that segment.

We believe the industry will obviously be a lower-unit type of industry. We think it will be very much oriented toward the value boats. I think consumers want to be on the water, need to be on the water. It's just what vehicle are they going to use to get on the water?

I see it's coming back right now. It's going to be a very shallow growth curve. But we see in manufacturing data across the country that 25 percent growth this year for the industry is not that big. Inventory reductions were so strong that manufacturers will see growth even if the units sold does not change.

Some of the marketing information we've seen from some of the analysts said that the growth will be between 67 percent and 95 percent, and we're going to keep on the low end and plan for that. But manufacturing will grow, and I think the top-line dealers, as we've seen from the shows, are growing. The industry is starting out at the bottom. It will be a long curve upward, but it is moving upward.

This article originally appeared in the April 2010 issue.

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