Industry veterans eager for an end to downturn they call the worst ever
It has been a tumultuous late summer and fall in the both the marine industry and the economy as a whole. Volatility best describes a time when the largest one-week drop in the history of the stock market was followed on Oct. 13 by the greatest single-day gain.
As we go to press in mid-October, a great deal of uncertainly remains. But this much is true: Many boating industry veterans say the current financial landscape is perhaps the roughest they’ve experienced, and these are people who survived the gas crisis and proposed weekend boating ban during Jimmy Carter’s presidency, the 1987 stock market crash and the luxury tax of the 1990s.
“This is the worst that I’ve seen in my career in terms of the overall economic situation,” says Don Parkhurst, senior vice president of the marine and RV lending group of SunTrust Bank.
Ceasar Anquillare, CEO of Winchester Capital and chairman of WinMarine Ventures, which distributes Nord Star boats in the U.S., says he, too, has never seen the economy as weak as it is now.
“I have been an investment banker and chief executive for over 20 years, but I have never seen the turbulence that we’re experiencing right now, not only in our U.S. economy, but I think it’s going to affect the European boatbuilders,” he says. “Normally in Europe, the recession or economic impact from the U.S. basically trails by one or two quarters, so they are now starting to feel the brunt of it.”
Many in the industry are calling the situation a “perfect storm” of problems that converged at once on the boating industry. They include Irwin Jacobs, chairman of Genmar Holdings, the second-largest boat manufacturer in the country.
“I can say with more confidence and assurance than I’ve ever had before that this industry is going to shrink through this one, no doubt about it,” says Jacobs. “Already we’re getting calls from people who want to sell us their companies or [have us] take them over, take their lines.”
With tightening credit markets, a lack of discretionary income, a summer of record-high gasoline prices, a rising unemployment rate and a continuing slide in the stock market, it’s no wonder marine industry leaders are wondering when the business climate will hit bottom and begin the climb back up.
Thom Dammrich, president of the National Marine Manufacturers Association, says he hopes the industry will see a turnaround by the third quarter of 2009. Some other industry leaders don’t expect much positive news before 2010.
Speaking prior to the passage of the $700 billion bailout plan, Dammrich said he was hoping the bailout would return liquidity to the credit markets. Also, he noted, once the election is over and the political landscape is known, things may start to settle down.
“As we move into the first quarter of next year and boat show season, I think that will be a positive thing,” he says. “We are heading into the fourth quarter, which is traditionally the slowest quarter of the year for sales. So, it’s probably the best time for all this turmoil to be occurring.
“It would be a lot worse if all this turmoil was occurring during the peak buying season,” he says.
A starting point
Alan Bohling, CEO of Seattle Boat Co., speaking the day after the passage of the bailout plan, said he hopes the rescue package will help.
“I think [the bailout plan] was essential,” he says. “I wrote every one of our state’s senators and congressmen, and I wrote to the President and to the House leaders and the Senate leaders to urge them to pass the bill. I strongly feel it was absolutely necessary.”
While he doesn’t expect it will immediately solve all the economic problems, Bohling says it should “get the ball rolling.”
“I think there’s still going to be some difficult time, but it will unquestionably help us through this period of time,” he says. “I think this will help shore up some of the weaker [financial institutions] so they can survive longer, and I hope to get to the point where the economy turns and moves forward.”
Arnold Green, a New Hampshire boat dealer who’s been in the business for nearly 50 years, says customers who used to come in and write checks for new motors without thinking twice, now ask about used motors.
“I’ve got families that are trying to figure out how to pay their kids’ college,” he says. “I lost a boat sale yesterday to a guy who said, ‘I’ve got a daughter in college. I want this boat, but I’ve got to come up with $3,300 and I just don’t have that extra money right now.’ ”
Green isn’t confident a governmental bailout would help, adding it will take awhile for the marine industry to bounce back.
“We’ve been down this road before; it takes too long to come back,” he says. “You’d be two years out before you can really come back to where you were. Anybody in the boat business right now is going to be struggling to get back.”
While there’s no denying the credit market has tightened sharply in recent months, Parkhurst says there is financing available, and despite all the doom-and-gloom reports, there are people buying boats.
“It’s not down to the level where you can’t get a loan yet,” he said in late September. “When you listen to the media reports, you have to be careful because they tend to hype things. A guy [who] has good credit and qualifies and has some money for a down payment can get a boat loan today.”
Parkhurst did say he is concerned about banks leaving marine lending, though he points out there are many major financial institutions still in the industry. The latest to announce its departure was KeyBank, one of the largest marine lenders in the country.
This summer, Citizens Bank and Wachovia pulled out of marine finance altogether, and GE Money quit retail marine lending.
Many banks today are at a 100 percent deposit ratio, with some even higher, Parkhurst explains. This means banks have to wait for people to pay back loans in order to make new loans.
“Right now it’s difficult and expensive to get funding to continue lending; that’s why some banks are pulling back,” says Parkhurst, who called KeyBank’s departure a “bit of a shock to the industry.”
Bohling says KeyBank was Seattle Boat Co.’s only lender, and isn’t sure where he will turn for financing in the future. When times were good a few years ago, some institutions came knocking on his door, he says; now he may have to knock on theirs.
Phil Keeter, president of the Marine Retailers Association of America, says most dealers these days are not asking for more credit; they have enough product and don’t need to increase floorplan lines.
“We’ve seen a lot of companies tightening up their schedules on that, and we’ve seen a lot of companies not extending floor plans to higher levels, cutting back on floor plans,” he said.
In the past, many people used home equity lines of credit to help buy boats, but banks have been closing those down on many people, notes Mike Bradley, director of the North Carolina Small Business and Technology Development Center, Marine Trades Services.
His organization has been instrumental in bringing boating businesses to North Carolina, but these days its focus is on keeping them there. Bradley works with companies to help them network, simplify operations and diversify their products to keep cash flowing until the boating industry picks up again.
“I predict we’ll probably lose 10 percent of our North Carolina boatbuilders,” Bradley says. “But once we see the credit markets easing, then there’ll be a lag time … and people will start realizing they can borrow and they can get the boat.” Dammrich says he is hopeful the government bailout will lead to an eventual loosening in the credit market.
“The whole problem is that these mortgage-backed securities are clogging up the financial system,” he says. “When the government buys all those and gets them out of the system, they’ll be replacing those mortgage-backed securities with cash, and that’s going to create greater liquidity in the credit markets and, I think, make credit a little easier.”
Despite the tough times, many in the industry say this is not an end to boating. The industry may change, they say, but it will come back.
Restoring consumer confidence may be the first step in rejuvenating the marketplace.
“Without getting into the politics of it, I think the fact that the election will soon be over and people can settle down — that may have a positive effect, as far as people’s confidence level,” says Van Snider Jr., president of the Michigan Boating Industries Association.
Anquillare, who only recently started his distribution of Finnish boats, notes optimistically that, although boat sales are down, there’s still about 4,000 inboard boats sold each year in the United States in the category he’s targeting. He says he’s already had more than 100 inquiries.
Frank Herhold, executive director of the Marine Industries Association of South Florida, says boating is such a part of the Florida culture he doesn’t see people ever giving it up altogether, though they might put off new boat purchases or other expenditures.
“We’re very fortunate in Florida with 365 days a year of boating pleasure,” says Herhold, who wondered whether Northern boat owners, with their shorter season, might be more likely to question their commitment to the sport.
Herhold says South Florida’s position as a megayacht capital also helps, given that the megayacht industry has held up much better than other segments of the boat business.
Michigan’s Snider says even though his state has rough winters, its boaters are just as committed as those in warmer climates.
“We pack 12 months of boating into four to six months, and they are very passionate about it,” he says. While there may be a percentage of boaters who will not be able to afford to launch their boats next spring, he thinks that number will be minimal.
An aggressive Jacobs
Genmar’s Jacobs not only sees the industry rebounding, but he’s planning a new line of aluminum boats. He says the as-yet-unnamed company is expected to be up and running during the first quarter of 2010.
In announcing the new venture, Jacobs says he believes today’s aluminum boats are overpriced, with some even retailing for more than comparably equipped fiberglass fishing boats of identical size.
“It is Genmar’s intention to substantially decrease the wholesale and retail prices in all of the aluminum boat segments of the market,” he says. “It is obvious that we are very optimistic about the future of the boating industry and believe that the recreational boating market will once again be re-emerging bigger and better than ever.”
Jacobs also says he’s looking into putting together a Genmar finance company to help his dealers during these difficult times.
Keeter points out that eventually all the boats destroyed in Texas and other Gulf states during Hurricane Ike will have to be replaced, and the damaged marinas rebuilt, and that could be a boon to the industry down the road. “That demand’s not going to go away,” he says. “Once it gets rebuilt, those people are going to want to do the same thing; that’s why they lived there in the first place.”
‘Why you own a boat’
Green, the New Hampshire dealer, is confident anglers will always be around to buy boats.
“In the five recessions we have had in the marine business, and in the country of course, it’s the fishermen who will still buy our boats, regardless of the price of gas and the economy,” he says. “I have always said that God loves the fisherman because St. Peter was a fisherman.”
And perhaps the best hope for the industry is that people who love boating and being on the water won’t give up that pleasure.
Pete Frederiksen, director of communications at Viking Yachts, says every time he went out on his boat this summer he looked around at the ocean, smelled the fresh air, enjoyed good fishing and thought, “This is why you own a boat.”
“There’s no better way to get relief from the troubles on shore than by climbing aboard a boat and heading out to where the sky meets the horizon,” he says. n
Interviews for this article were done between Sept. 19 and Oct. 3, most of them prior to congressional approval of the $700 billion “bailout” plan and the subsequent and significant drop in the stock market.
This article originally appeared in the November 2008 issue.