Industry leaders at the Trade Only-sponsored discussion see a flatter recovery than after previous recessions
A panel of 10 industry leaders met for a roundtable with Soundings Trade Only prior to the start of the Miami International Boat Show.
The wide-ranging, nearly two-hour conversation covered concerns of pricing the middle class out of boating, innovation versus the need to keep prices under control, the proposed SeeDealerCost.com website and the implications of rising fuel prices.
The panelists were Wayne Burdick, of Beneteau USA; Larry Russo, of Russo Marine; Jim Coburn, of Coburn & Associates; Mark Mansfield, of Cutwater Boats; Norm Schultz, of the Lake Erie Marine Trades Association; Bill Yeargin, of Correct Craft; Bob Staehle, of Kellogg Marine Supply; David Pugsley, of Brewer Yacht Sales; Ben Speciale, of Yamaha Marine Group; and Louis Chemi, of Navico Americas.
Coburn, a former president of the National Marine Bankers Association, made some observations about the economy before the roundtable began. Retail lending sources are again beginning to solicit dealers, he says. They are soliciting more business as their capital situation improves and their balance-sheet needs change again.
A recent survey found that 44 percent of U.S. banks believe loan criteria will return to precrisis levels after 2012, 27 percent believe the return will happen later in 2011, 17 percent think we are already there, and 12 percent never thought criteria/standards were tight.
"There are enough retail sources and direct boat loan sources at this time to handle the needs of the market," Coburn says. "The dealers simply got used to 'easier-than-it should-be' underwriting and some of them still do not like it and are having a hard time adjusting to this new reality.
"My findings while working with the banks is that most shops are using 680 to 700 as a FICO cutoff for marine and RV," he says. "I am aware of one shop that is using 720, which might be a little bit of overkill."
Coburn predicts diminished consumer confidence and job and income worries will keep new retail boat sales at bay in 2011. "Consumers, while tiring of having to stay on the sidelines, are ready to break out and purchase new items and commodities, such as boats," he says. "However, lingering high unemployment and the uncertainty it brings to those working or not will hold consumer spending back at modest levels."
The industry, Coburn says, will continue to grow slowly and the pace will be slower than it typically was after previous recessions and declines. "Any boat sales increases in 2011 [and likely 2012] will be on a flatter line than the supplier, manufacturers and dealerships would like," he says. "The banks I work with have projected modest loan volume increases over 2010 - all of them have budgeted increases."
The following are excerpts from the Feb. 16 roundtable discussion.
Q: How has today's boat buyer changed from prerecession years? Are they more value- conscious? Are they generally looking to downsize? Are we in danger of pricing the middle class out of boating?
Pugsley: Price does matter and it seems to matter more now than it ever has. People want the most bang for their buck. We are in danger of losing customers as costs at marinas rise. Slips are more expensive and the cost of entry into boating is higher. The trailer-boat market may be the one to benefit from this and maybe that's where the middle class will go for boating.
Schultz: There's no question the recession has changed people's buying habits, but they will return to their old ways because that's our culture.
Yeargin: The fear of pricing out the middle class is a decades-old concern. Boating is not the least-expensive thing you can do with your family, but it may be the best thing you can do with your family.
Russo: You can't change a consumer's DNA - if they want a certain brand of boat, they will buy that boat, but it may be a certified preowned boat rather than a new model. That's the market that's driven our business for the last two years.
Burdick: What we've seen since the fall shows is the most popular model is the 50-footer with all the bells and whistles. We aren't seeing downsizing, but we continue to sell to the same crowd. We need to bring in new boaters.
Staehle: We need to be much more conscious of recreational time management. We're fighting to get our share of consumers' time.
Pugsley: Generations X and Y don't have the money for boating, but they have the desire. As an industry, we're not looking at that hard enough.
Q: The industry has gotten significantly smaller and growth is slow. How do builders, dealers, equipment manufacturers and others get a larger piece of a smaller pie?
Burdick: I'm not satisfied with a smaller pie. We, as an industry, do a poor job of attracting women, who control more than 50 percent of the wealth. We also need to do more to engage the youth.
Chemi: Innovation is the key, but also simplicity. We need to make it simple to use a boat.
Russo: It used to be that all you needed for boating was water, a person and a boat. That's not the case anymore. We have smothered the fun with complexity and cost. New product sells, but it's a short shelf life.
Staehle: Maybe that's why the fastest-growing segment in the industry is kayaking.
Yeargin: You see overcontenting in the auto industry and people expect it on boats as well.
Mansfield: We're a small company. We build about 12 to 15 boats a month, but we are constantly updating our product. The technology factor is huge and innovation is key. When we hit a certain price point, we don't pass it along to the consumer, we eat it. It's hard to do, but we do it.
Schultz: We need to grow the pie because if it doesn't grow, we're all in deep trouble. We haven't done enough to appeal to minorities and that's a huge, untapped market. That's where we can develop a new market that we've shunned.
Q: Can the industry support the current manufacturing base?
Russo: There's been a 70 percent decline in retail sales in the past 20 years, but there are about 1,400 manufacturers, though many of those are custom boatbuilders. Even just looking at the top 300 brands, that's too many. There's no attrition. It's a crowded, cluttered consumer marketplace.
Yeargin: It's very difficult to kill a boat brand. Most of the time they reorganize in bankruptcy and come back. In 2009, retail and wholesale sales both went down, but if you're a manufacturer who made it through that, you're now selling at wholesale again, at least. It's a real surprise to me that the supply chain has held up as well as it has.
Q: There's been a lot of debate of late regarding the proposed SeeDealerCost.com website and its potential impact on dealers coming out of the recession. What are your thoughts?
Burdick: Dealers provide a service and a consumer's relationship with a dealer is a crucial part of the experience. To steal profit from a dealer would be suicide.
Speciale: I don't know how you would do it. We're not the auto industry and boats are highly customized, so there's no one-price-fits-all model.
Yeargin: I think you would need a higher-volume industry to make this work. The dealer adds value. The customer values the dealer and what they bring to the table.
Russo: If they couldn't get buy-in from the big manufacturers, such as Brunswick, they have no credibility.
Q: What do you see as the single biggest impediment to growth in the next 12 to 18 months?
Yeargin: Consumer confidence. People need to feel good to make a purchase. Also, the federal deficit is huge, but nobody seems to be talking much about this.
Pugsley: Fuel prices will have a big effect. Unemployment will have more of an effect on the smaller boat market.
Mansfield: Fuel prices are a big issue - we see it in every single sale. Also, the cost of ownership is an issue. Trailerability is key because slips cost so much.
Yeargin: Energy prices, fishing bans that are popping up all over the place and boats built in Asia competing in the U.S. marketplace are all big issues.
Schultz: The restrictions on access to the water are growing. Congress has more of a business mentality now. We need to put a full-court press on this problem.
Q: What do you see as growth areas?
Burdick: We need to do more to get the message out about the enjoyment of boating. I have a new sister-in-law whom I recently took boating with her small children. At the end of the day she was crying, saying it was magical and there's no other place on Earth like this. That's the message we need to get across about boating.
Pugsley: Dealers and manufacturers need to do more to work together. Also, boat clubs are becoming bigger in places like Florida, which gives people more access to boating.
This article originally appeared in the April 2011 issue.