Should dealers recognize clouds on the horizon?

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With healthy overall consumer spending in 2019, a successful fall boat show circuit winding down, and a continued good consumer confidence index, what’s to be worried about? Simply, that there are some clouds on the horizon that dealers should consider now.

It begins with the recognition that boat sales in some key categories have slipped below expectations in spite of the economic positives, albeit overall powerboat sales for 2019 are still predicted to show good growth for the eighth consecutive year. They could even end at the second highest level in a decade, according to the National Marine Manufacturers Association. Last year new powerboat sales in the U.S. reached 276,000 units.

Looking forward, however, one indicator of boat sales is the movement of the consumer confidence index. We know boat sales will mirror that movement. The Conference Board’s index decreased, albeit marginally, in October, and that followed a decline in September. Thus, the current index stands at 125.9, down from 126.3 in September. Of course, that’s not so bad when viewed in the context of the Great Recession that bottomed out at 25.3. Still, we have now seen a two-month decrease.

There’s an undeniable swing toward a pessimistic view unfolding. In one survey, business executives revealed the highest pessimistic outlook since 2012. However, we can recall that year was still good for boat sales. More importantly, just a year ago surveys showed a very high economic and business outlook. So, what’s changed?

For openers, the negatives of the long-drawn-out trade war, primarily with China, that we didn’t expect to drag on so long are now having an impact. Current estimates indicate consumers and businesses have paid $38 billion more out-of-pocket because of the tariffs between February 2018 and September 2019, according to reports from the Tariffs Hurt the Heartland organization. This 19-month trade dispute has resulted in tariffs slapped on $360 billion worth of goods from China and $75 billion on U.S. goods exported to China. Who’s feeling the punch more, China or the U.S., is now debatable.

Then, there’s the unprecedented animosity and resulting political uncertainty that’s flooding out from Congress and the White House. Every newscast is now filled with tiring accusations and counter-punches. It’s clearly starting to grind down optimistic attitudes. Lest we forget, boat purchases are easily postponed when the prospects don’t feel good about the future.

Couple all that with proposals from campaigning presidential hopefuls of higher taxes on corporations and their wealthy leaders. These include a proposed additional 7 percent corporate levy on every dollar above $100 million in profits, and/or a proposal to jack back up the corporate tax rate to 35 percent along with banning stock buybacks. In addition, the prospect of an increased regulatory environment being espoused by some candidates can help make staying optimistic a mission impossible.

“It’s hard to get a really clear view of the next year,” Chuck Cashman, chief revenue officer for MarineMax, told Michael Sasso, reporting from the Ft. Lauderdale Boat Show for Bloomberg. “Even though the buyer’s feeling pretty good, I think the idea that ‘something’s coming’ is in the back of their head.”

That’s also reflected in NMMA’s report that sentiment among marine chief executive officers has gradually weakened over the past six quarters. Where 65 percent of CEOs reported business was expanding in the second quarter of 2018, only 27 percent said business was expanding in the third quarter of this year. Half described conditions as “stable” in the most recent survey.

In 2018, new powerboat sales in the U.S. reached 276,000 units, the highest level since the Great Recession. The numbers for 2019 will likely continue upwards, but 2020 is increasingly becoming a big question mark.

Therefore, while the signals are truly mixed, they may be early warning indicators that make it prudent for dealers to take time now to assess and develop plans that could be put into action should change occur and the economy heads south. 

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