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Analyst talks about the state of dealer health

Aging inventories are expected to peak in 2009, as are dealer bankruptcies, according to an analyst who spoke with marine industry leaders at the Miami International Boat Show this week.

“Executives acknowledged that the current environment is the most difficult seen in their careers,” said Tim Conder, managing director of leisure equity research for Wachovia Capital Markets, in a report released this morning.

“Disciplines and structure are emerging that should result in significant earnings power potential and enhanced returns for a more consolidated industry going forward,” he added.

Conder said the marine industry’s primary focus for 2009 will be reducing aged inventories, given that dealer boat inventories more than 12 months old range from 40 to 50 percent compared to 20 to 25 percent year-over-year. This is being done through dealer sales incentives, manufacturer-based incentives, and likely changes in dealer curtailment structures.

“It should be noted that channel inventories [less than] 12 months are actually in very good shape,” according to Conder.

He went on to say that dealer bankruptcies “will rapidly escalate in 2009,” starting in March or April, the peak working capital period. This is because manufacturers and lenders need to preserve their own capital and, therefore, are giving a very short leash to weaker dealer/OEMs in the face of the recession and aged inventories.

“As aged inventories should peak in 2009, dealer bankruptcies could also,” Conder reported. “Collectively, executives estimate 25 to 30 percent of dealers could disappear over this cycle.”

“Existing lenders appear to remain committed to the industry,” he added.



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