Leaders tell dealers to manage tightly - Trade Only Today

Leaders tell dealers to manage tightly

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Industry ‘giants’ say a new but better world awaits the survivors of this game-changing slump

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A panel of “industry giants” gathered Nov. 19 at the Marine Dealer Conference & Expo in Las Vegas to discuss the most pressing issues in the boating industry. The more than hour-long conversation drew a standing-room-only crowd, as the panel talked about issues ranging from inventory management to their outlook for 2009.

The panel included: Brunswick chairman and CEO Dustan McCoy; Cobalt president Paxson St. Clair; Yamaha Marine Group president Phil Dyskow; Genmar Holdings chairman Irwin Jacobs; MasterCraft president and CEO John Dorton and Volvo Penta of the Americas president and CEO Clint Moore.

The discussion was moderated by Liz Walz of Boating Industry magazine.

Here is an excerpt of comments from the discussion, broken down by topic.

Inventory management
St. Clair: “I think while we did have too much inventory last spring, inventory management is more about the philosophy and the relationship that you have with the dealer network. I do feel good about the system we have, where we do track inventory online in real time. And it gives us an excellent opportunity to make sure we’re building the right boats and we see retail sales when they’re happening — they’re not happening too often right now, but we see a lot.”

Dorton: “I think the downturn’s [helped] make us all aware of how important it is for the dealers to remain healthy. I think we’ve got a better view of what an unhealthy inventory level can do to your [business]. When I got to MasterCraft, we had six models; today we have 32. So one of each, for a dealer in a small market, is not going to happen. So we try to get a wide enough assortment so the consumer can get good selection and hopefully get the guy that turned off CNBC and the Today Show and all that and was brave enough to go out and shop for a boat.”

Jacobs: “My biggest concern … is to protect the dealer by making sure we take back our boats from those dealerships that either aren’t making it or the floorplanners have had to take the boats back. I’ve worked 35 years to build our brands up to what they are; I’m not going to allow people to go out there [and] run some auction sale. We’re being very protective from the standpoint of making sure whatever our contract is with you, forget about it, because we’ll take back everything that there’s a problem with. That’s the single biggest thing we can do to protect the dealers out there today because God knows where these boats end up.”

Dyskow: “I think it’s important to remember the most effective inventory management tool that’s available to all of us, and that’s focusing on retail promotions. Any amount of money that we as manufacturers can invest either now or in the boat-show season is probably the most effective tool that we have available to us to help people manage their inventory. The most cost-effective way to manage your inventory is through retail.”

McCoy: “The finance companies are making a lot of money off of us as an industry because of the way we all run our businesses. Why can’t we make boats in your dealership more ‘just in time’ rather than having you buy year-round. We’ve got to ask ourselves, On a boat this size, will a customer wait a week if you’re assured you’ll get it in a week? Will you wait a month if you’re assured you’ll get it in a month? We all know right now there are hundreds of millions of dollars in boats sitting out there and that’s how we’ve been running our system and it’s been working very well, but this is an opportunity for us to rethink this.”

Jacobs: “These are unprecedented times and I’ve basically offered to pay more money for floor plan to make sure that they have a [viable] business and no one wants to spend more money than they have to spend, but if [floorplan financers] aren’t here, I’ve got to tell you, none of us would be in this room right now. I don’t care who you are or what you say. This is an impulse industry to a great degree, too; people see something, they go to boat shows, there’s excitement out there by seeing the product. We better protect these people [floorplan financers] and make sure they’re around because we’ve seen Bank of America, we’ve seen so many finance companies over the years; they’re in, they’re out. Key [Bank] now, they’ve stepped out. There are basically two people that are really committed to this industry and that’s GE and Textron.”

Credit Availability
McCoy: “We are actually in the wholesale boat financing business with our own capital, in partnership with GE, and we think it’s a good business and an important business to support dealers. We got into a joint venture to learn the business; we knew we really didn’t understand the financing game, we knew we didn’t understand how to work with dealers, and we got in with what we think is the very best partner in the world, GE. That’s wholesale. In retail, we also believe we need to be a player in retail. In many of the other motorsports industries, the OEM is in the retail side of the business and does very well in supporting the dealers. So, maybe we’re too tepid, maybe we’re too slow, but what we’ve begun to do is, in fact, establish businesses there. It’s probably something we need as an industry to have more OEM involvement in. It’s something we’re going to continue to work on.”

Dyskow: “We’ve experimented this fall with a small engine retail financing program for engines under 25 horse, and we’ve got reasonably strong participation versus previously when we’ve offered this type of program. It’s given us enough interest and confidence for the boat-show season [so] we’ll probably expand on that and perhaps offer retail financing for repowered customers and consumers. The challenge that we have as a company is, as an engine manufacturer, we only make one piece of the package, so offering a financing program for the entire package is a stumbling block for us unless we get some participation in that process with our partners.”

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Jacobs: “I can tell you it is the most important part, the retail finance piece, to get your people stimulated again with your customers. We will be in the retail finance business. It may happen in late spring, it may happen in early summer. We are committed. Retail financing is the single most important tool that the dealers are going to need to get running again. As we know, it’s very difficult; if you can’t get someone financed with a 725 [credit score], something’s wrong out there. We will take the lead in doing this.”

Marketing
Dorton: “We chose not to take the ‘it is what it is’ attitude. So we began to think, we’re in a microbusiness. We only need to sell 4,000 MasterCrafts to the world a year. That’s not a big number. If you’re GM, you’ve got 4,000 cars you’ve got to sell in one dealership. Micro-thinking tells you, hey the customers are out there. Instead of picking up the phone and calling your friends and complaining about how bad things are, you’ve got customers driving up and down … your streets, they’re in restaurants, people are making money, even in bad times. We’re fortunate enough to have picked a very high-end customer. We did that 12 years ago; we focused on the affluent buyer. That’s a group that loves boating; they have enough money, no matter how high gas prices get. They value the quality of their life. We have a solution that brings people into the factories, and it’s been extremely successful. I’m not going to tell you a whole lot about that because you have to figure out your own. I think it’s critical to think micro. There are buyers out there. Give them a different package. It’s not enough to say, ‘Hey, drive into my parking lot, pick out a boat that’s still in shrink wrap.’ You’ve got to create an experience. That may be, in a case like this, taking the boat to the customer, taking two or three and having a nice demo, having a wine and cheese just for that customer.”

St. Clair: “We talk too much about business being off 20, 25 percent, but we fail to talk about and recognize the 80 percent or whatever percentage of those customers that are still out there. It has been proven … that we can have a huge national campaign and there’s going to be dealers in certain markets that are successful and dealers in certain markets that are not so successful. Remembering that 80 percent; that’s going to be a key to the future.”

Dyskow: “I think the biggest contribution we can make right now to the health and success of our dealer network is to provide retail promotions to help move the product that they have in stock and hopefully give them an opportunity to offer more. What we’re going to be doing during the boat-show season this year, in addition to the traditional programs that our customers have come to expect … we’re going to offer some form of retail financing, even if it is only on the repower side of our business. The resources that we have as manufacturers need to be applied to help dealers retail the products that they have. We’re going to pull out all the stops for the boat show period and have the most aggressive retail programs we’ve ever had.”

Moore: “As long as I’ve been with the company, we’ve had a very simple philosophy and strategy when it comes to marketing. It’s our belief that the best decisions about how to prioritize marketing funds are made at the local level. In our case, somewhere between 10-12 percent of our revenue is sent back to our boatbuilders and to our dealers to let them make the decisions on how best to market their products. It seems to work quite well for us. Those of you that are Volvo Penta dealers know that you get a check every quarter that’s money you can spend as you see necessary, to do a promotion or to pay floorplan, or whatever it is.”

Certified preowned
Dyskow: “Next month at our Yamaha University course here in Las Vegas we’re going to announce a certified pre-owned program for outboard motors that will include warranty coverage and a number of other benefits. We’ll roll that out sometime in January, hopefully in time for the boat-show season.”
St. Clair: “Good used boats are the ones that need the pre-owned label the least, and if we’re not careful we could have problems with something like that.”

Model year timing
St. Clair: “We’ve had a lot of discussion over the years as to what we should or should not do. The bottom line is we change when our dealers want us to change, and it’s usually sometime in the beginning of the year or the first part of June or the first part of July, depending on the year. And we’re just going to continue to do what our dealers ask us to do, regardless of what kind of other mandate there is out there.”

Jacobs: “This year, I got a bunch of calls [and people said] let’s change the model year. This is after we came out with 92 new models for our company that we were getting ready to launch for the 2009 model year. I got these calls in the middle of the summer when we were already launching, and I said, ‘Aren’t you a little late?’[I tried to do this] three years ago, and we did not have any success at it. I’m here to tell you that … you can’t have half the industry agree and half of it not agree. I would say right now this is not the time to deal with this with the complexities that are out there today. Wait until the market gets some normality to it.”

Expectations and advice
Moore: “The prediction from my company is that this storm is only going to get worse. We don’t see it getting better; we only see it getting worse. And if there’s going to be some change, it’s going to be in the last half of the year. I think we’ve just got to get our costs under control; we’ve got to manage our cash better than we’ve ever managed it. We’ve got to focus on the parts of our business that we have control over.”

Jacobs: “About 30 days ago, I would have agreed with Clint, but I’ve changed my mind and frankly there are some things going on out there right now that are changing. You do have to focus on the ones that are buying [boats], not the ones that are not buying, and there is a market out there. Call me the eternal optimist … I am convinced that we will see some changes, late in the first quarter even. Not for everybody, but for the people who have the tools and the product, I think there’s going to be some business out there.”

McCoy: “I think we all ought to expect 2009 is going to be more difficult than 2008. This thing’s going to be U-shaped, it’s not going to be V-shaped, and my judgment is we’re not down the left side of the U yet. We’ll get there sometime in 2009. We’ve got a lot of unemployment to work through the system, banks are accumulating capital, but they’re not loaning yet because they’ve got their own balance sheet issues. And they’ve got to hold onto their cash until they get their balance sheets cleaned up. We’re going to see a lot of folks go bankrupt. Having said that … there are still people buying boats and we can still stay in business. So the one piece of advice I’d give is get your costs as low as you can get them and prepare your business and yourself to get through this, because those who come out the other side are going to be in great shape, and we’re going to have a real opportunity coming out the other side.”

Dorton: “We’ve got to be very nimble, very reactive, very responsive. You’ve got to be prepared. If you continue to focus on the consumer, and have a micro mindset, you begin to think about what the consumer on the other end looks like. How are their buying habits going to change, because they now have cash on the back end of all this? They’re going to have a different sense of what they deserve from the manufacturers, and from retail. It’s not going to be the same world after this. We can’t tell you what’s going to happen in the future, just be prepared.”

Dyskow: “The first half of the year, at least, will probably be tougher than what we’ve seen in the last half of 2008, but I agree with Irwin; there’s going to be some upside potential. We’re not going to get a stimulus package for the marine industry. Nobody cares about the marine industry; we’re viewed as a luxury goods industry, but there is going to be trickle-down effect, as things start happening, as the credit market is eased — knock on wood — as some of the trickle-down effect of other elements of the stimulus package have some impact. We’re going to see some of that affect our businesses, but I don’t think it’s going to happen much until the second half of the year. Make sure you’re managing your business tighter than you ever have before. Look at all of the overhead that isn’t directly related to selling and providing good service to your customers and hunker down.”

St. Clair: “One of the things that I think is encouraging is that we’re all building far fewer boats than we did and we’re going to go into the spring with far fewer boats and total dealer inventory. And with that I hope there’s an opportunity to get dealer profitability back where it needs to be, which is a critical piece of the puzzle.”

This article originally appeared in the January 2009 issue.

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