They’ve trailed outboards in recovery, but much quieter, more efficient models are on the horizon
The industry has experienced modest gains since the recession, but the recovery hasn’t been consistent across segments.
Sales of outboard-powered aluminum boats have rebounded well, and the sport jetboat market saw a resurgence last year. But sales of sterndrive boats have faced deeper challenges, although some hopeful anecdotal information emerged this spring before hard market data are available.
“In the last 30 days we’ve sold 11 new Cobalts, which, of course, are sterndrive-powered,” Fred Pace, co-owner of Destin, Fla.-based Legendary Marine, said in early May. “We’ve seen a return to sterndrives in the last 30 days, and we hope it continues.”
Volvo Penta also had positive news: Gasoline sterndrive sales were up 15 percent in 2012 from the prior year, according to Marcia Kull, vice president of marine sales for Volvo Penta of the Americas. Marine diesel was flat year over year in that time frame, but the first quarter this year was “up pretty significantly over last year, so ... we’re seeing a growing trend among all of our segments.”
Data from Statistical Surveys, the Michigan company that tracks new-boat registrations, reflect a less positive outlook. Sales of sterndrive boats totaled 27,077 in 2009 and plunged to 18,688 in 2010. The segment continued its downward trajectory in 2011 and 2012, with 16,550 sold last year. Compare that with sales of outboard boats, which began to increase last year after a more modest dip from 209,222 units in 2009 to a low in 2011 of 184,647. Last year, 202,539 new outboard boats were registered, according to Ryan Kloppe, national marine sales manager for SSI.
But Marty Bass, Mercury Marine’s vice president of global category management, cautions skeptics not to make long-term conclusions based on short- and medium-term trends. “I would argue that it’s very premature for anyone to observe a permanent trend away from sterndrive propulsion,” Bass says. “I think people tend to gravitate toward the most recent information and overemphasize it when it comes to some of this stuff. The trends are there — that’s in the data — and we need to be aware of what they’re telling us, but there are also factors behind some of these trends that make them short-term in nature.”
People’s tastes are shifting toward more innovative products, says Larry Russo, president and CEO of Boston-based dealership Russo Marine. “It’s an economic issue for our country; it’s not about boating,” he says. “Buyer preferences are changing. How you want to look and feel on a boat — it’s all changing. And because the single-engine sterndrive bowrider, which was the mainstay of the business, is suffering now, everybody’s asking questions.”
Pace says he has seen a shift toward outboard boats over sterndrives and inboards in the past few years that continues to gain momentum. “I don’t know that anyone has any real answers as to why that shift is happening overall, but I know for our specific market customers are looking for a boat they can fish in and take the family out in,” he says. “As fishing boats become less common, multipurpose boats tend to be more appealing to the whole family.”
The U.S. sterndrive and inboard markets are down, relative to outboard segments, Bass says. SSI data show that the inboard-powered market is faring better than sterndrives but not as well as boats powered by outboards. In 2012, 51,582 inboard boats were sold, down from 59,262 in 2009, according to Kloppe.
“I think it’s fair to say that traditional outboard segments have recovered from post-recession troughs in a more rapid fashion than sterndrive, but from my perspective it’s probably worth noting several factors contributing to this,” says Mercury’s Bass. He points to the ways in which market data can be broken down.
Segmenting boats used primarily for fishing shows anglers have been more resilient during the downturn. Looking at 16-foot aluminum fishing boats, registrations in 2012 were about 63 percent of what they were in 2005, compared with small runabouts, where the number is closer to 26 percent, Bass says.
Traditional freshwater boats have been more resilient than saltwater boats, as well, he says. And although saltwater fishing boats “aren’t doing great,” they are still faring better than other types of traditional fiberglass boats — the boats that would typically be purchased by the “casual, family-focused, more general recreational consumer,” Bass says. “I think collectively that group has proven to be a little more discretionary coming out of this recession.”
Yamaha Marine Group president Ben Speciale agrees that several factors might be driving the shift. “I think consumer preferences have changed regarding the style of boats — like you see with pontoon boats and deckboats over traditional sterndrive sportboats,” he says. “We saw this similar shift about 15 years past in saltwater boats. Now it is moving into the traditional freshwater pleasure segment.”
Rec Boat Holdings president Roch Lambert says his company recently entered the sport jetboat market because it’s difficult for builders of sterndrive boats to distinguish themselves from others since there are so many similar makes.
“The outboard manufacturers very likely were perceived to have a greater level of new technology than sterndrives, but that is changing,” says Pace. “Both MerCruiser and Volvo Penta are coming out with new entries that are quieter, more efficient and have smaller displacement.”
Bass says part of Mercury’s strategy is to manage macro and micro trends in consumer demand. “In general, Mercury’s got a very large portfolio of products,” he says. “I think this leads into the conversation about engine developments and innovations translating into new-boat sales. I think in general it’s difficult to make the case that products we generate get people into boating. On the other hand, the joystick technology that we’ve been investing in over the last few years, you could see where a product like that takes some of the hassle out of boating ... and can bring demand in.” It might not bring new people into boating, he says, but innovation can influence what people buy.
“Manufacturers have done a great job of integrating outboard power into boats,” Speciale says. “Once consumers have experienced the advantages, we think they will stick with outboards. Low-cost automotive engine blocks are not as readily available, due to shifting automotive regulations, driving up some of the costs of sterndrives. At the same time, outboard 4-strokes are more reliable, easier to maintain, have a lot better power-to-weight ratio today.”
Consumers also perceive outboards to be easier to operate and maintain, Russo says.
But Russo says it’s the small cruiser buyer who is challenged, not the propulsion itself. “That buyer ran out of credit,” he says. “He was not a high-net-worth guy to begin with. When the recession came, all that easy money dried up.”
At the same time, the price of boats has gotten “ridiculous,” he says. The buyers still in that cruiser segment compare a new boat for $275,000 and opt to spend $125,000 for a used boat instead. “We had so many boats in the marketplace, they’re choosing value instead of prestige, and that’s happening all the way up to the 50-foot segment,” Russo says.
Marine products are overpriced, compared with other consumer goods, he contends. “In this post-recessionary period, volumes are way down, so the price for finished goods is climbing because builders have to spread the overhead over fewer finished products,” he says.
Like everything else, boater preferences come down to price, says Volvo Penta’s Kull. “The automotive-block sterndrive engine is a tough product to beat in the over-130-hp market,” she says. “The boats where we see inroads from sterndrives to outboards are really on the smaller runabouts, from 16 to 18 feet. That is a new trend, frankly, and it came about when catalyzed sterndrive engines became a requirement in the United States. A catalyst will add 12 to 14 percent to the wholesale cost of a sterndrive engine. When you take that surcharge on, it’s more easily absorbed on a V-8 than a 3L. That’s really the separation line because it’s at the low end where the catalyst penalty becomes really significant.”
Inboards faced that same regulation, but it was before the recession, says Phil Estes, co-owner of Horizon Holdings LLC, the private investment firm that owns Malibu Boats. Sterndrives had to absorb that cost at the height of the downturn. “We had the benefit of it being introduced a little bit ahead of the downturn, so we didn’t have the cost increase right at the start of the recession.”
Installation is another hurdle for catalyzed engines. “It made the engine bigger, and that impacted builders, as well,” Kull says. However, catalytic converters make the engine safer and more environmentally friendly.
Speciale maintains that outboards have had heavy regulatory cost increases, just as sterndrives have. “We all want a clean environment and support most regulation changes from the concept point of view,” he says. “I believe that most of the technology changes we have seen over the past decade would have happened anyway because of the benefits they provided for the consumer. The regulations have pushed a few changes faster and have taken away some lower-cost products, like 2-stroke carburetor models, which hurt the consumer some from a low-cost-entry point of view.”
But when Yamaha introduced 4-strokes with performance characteristics similar to the old 2-strokes, the 2-strokes stopped selling. The cleaner engines are also more fuel-efficient, Speciale says.
Again, those changes came a few years prior to the recession. Lately, Yamaha’s improvements have come from customer feedback, not regulation, Speciale says. Reliability tops the list, followed by power and quietness in a lightweight package.
Boaters are looking for a more car-like, iPhone-like turnkey experience, Kull says. “Things we got away with on the marine side for so many years — carburetors, smoke, chokes, sputtering, smell, 2-stroke outboards — they aren’t playing in this crowd, so we are hurrying to keep up with a consumer who got a lot more sophisticated a lot faster than we did,” she says. “We are leaders at Volvo Penta, and we don’t take that lightly. We put 5 percent of revenue back into R&D. We don’t put out products we’re not 100 percent behind. They are so thoroughly tested that the sales team gets impatient.”
Versatility and pontoons
The versatility component of any boat, regardless of propulsion, can’t be underestimated, industry veterans say. “With the larger center consoles we’ve been selling, those were customers who may have been prospects for inboards in the past, but they find outboards provide them with a different level of performance than traditional inboards,” Pace says.
However, Kull says she hears “in the field” that outboard substitutes for traditional sterndrives aren’t selling as fast as many thought. “So whether those traditional fiberglass buyers are going toward aluminum now, I don’t know,” she says. “But as we move to the new sterndrive engines in the coming years, that’s where I think you’ll see new value, with much better fuel efficiency, variable valve timing, which provides tremendous torque, and acceleration at all ranges of throttle.”
Pace says family appeal is what’s luring customers these days, and versatility is the key to that. “Our customers seem to think outboards, particularly pontoons, are the best way for them to do that,” he says.
Pace believes that as the industry continues to rebound, the hard-core water sports enthusiasts will return and offset some of the wakeboard and water-ski segment declines and reignite growth in sterndrive and inboard products. “I don’t think we’ve seen the end of a trend toward outboards because of the huge number of pontoons being sold,” he says. “But I do think we’ll continue to see a healthy increase in sales of sterndrives as an industry.”
Pontoons have evolved into the “Swiss Army knives of boating pleasure,” Russo says. “The sterndrive owner is now looking at it, where it wasn’t even a consideration 10 years ago,” he says.
Innovations in the segment have factored into that, Bass says. “They have put a lot of money into R&D. I think it’s a combination of them taking advantage of this wave and the value.”
Yamaha works closely with several pontoon builders, Speciale says. “Four-stroke motors have been married well with these boat designs and consumer preferences,” he says. “That’s because of the smooth power, quietness, smokelessness and easier daily maintenance without the need for 2-stroke oil.”
The growth of Yamaha’s VMAX SHO 4-strokes on larger pontoons has been “one of the most gratifying things we see,” Speciale says. “It has the performance that consumers want, but unlike a 2-stroke, it’s very quiet and does not burn oil. It delivers the power to pull skiers and tubers while carrying a heavy load with lots of people. Though launched primarily for bass boats, it’s great to see it used in pontoon applications. As the pontoon market has grown, the high-end niche requires that more aggressive look.”
Perhaps it’s that shift toward versatility that has prompted some boatbuilders to expand their propulsion offerings. Lambert says the reason his company is venturing into sport jetboats is to increase consumer options.
Sea Ray cites a similar motivation for branching out into new propulsion systems. “We are committed to the sterndrive engines, and Mercury is obviously committed to it,” Sea Ray marketing director Joe Cacopardo says. “If you notice, we now have three drive options: outboard, sterndrive and jet. What we’re trying to do is, no matter what it is a customer wants to boat on — salt water, shallow water, lakes — we’ve got a runabout in the size and with the propulsion system that will match your needs. Years ago we just had sterndrive options, and outboards for a bit. Now we recognize the need to offer more options. Now we have an outboard on our Venture cruisers. We’ve gotten some positive feedback from that, as well. There have been great improvements in outboards, sterndrives and jetboats, so it’s a good time to have multiple options. We really don’t want a potential customer saying, ‘I really wanted an outboard instead of sterndrive, so I’m going to walk down the road.’ ”
For customers doing an analysis of the price of power, comparisons of outboards against gasoline or diesel sterndrives won’t be favorable, Kull says. “But I think once you look at the whole cost of ownership — filling up at the dock and overall longevity — I think you come away with a different result,” she says.
Volvo Penta is making a concerted push to bring diesel sterndrives to more American boaters, Kull says, calling them an underrated power option. “If you go to Europe, you’ll see lots of diesel sterndrive-powered boats. It is a segment that has not really caught on here, probably because of water differences,” she says.
It’s up to Volvo Penta to help educate consumers and boatbuilders about the benefits, and the company wants to do that, in part, through its 900 dealers in the United States and 60 OEMs signed in this country and Canada. “We need to talk to builders about the cost-effectiveness of building a sterndrive boat,” Kull says. “We need to talk to dealers on how to sell that against other types of propulsion, and really talk to consumers about why they want to buy diesel sterndrives, including regarding cost of ownership over a long period. The cost of fuel is less, the life cycle is longer, and those are all things we need to bring to the table. We’re working to do that now.”
Mercury’s saltwater push
Mercury’s upcoming endeavor, as outlined by Dustan McCoy, the CEO of parent company Brunswick Corp., during first-quarter earnings discussions, is designed to enhance Mercury’s position in saltwater markets.
“In general, Mercury’s position in saltwater markets has been good but not great in terms of business performance,” Bass says. “But if you look at our current products, we believe we should do better. We believe we have the best product for those consumers. We’re talking openly about that being an area of focused growth for us. Consumer research is not only feeding product development; we can see some of the positive feedback from the 4-stroke 150 in saltwater applications.”
The company is getting aggressive on promotions in those markets to support its long-term strategy, and new engineering segments are augmenting its ability to create more and larger products, says Mercury spokesman Steve Fleming. “We built larger testing facilities, which are really going to enable us in product development, particularly in the saltwater market product lineup,” he says.
The 17,000-square-foot, $20 million expansion is attached to the Fond du Lac, Wis., headquarters, Fleming says, and features two new 18,000-gallon testing tanks built to help with the development of larger engines.
“As a general statement, we believe our best saltwater days are still ahead of us,” Bass says.
This article originally appeared in the June 2013 issue.