Some industry observers expect the marine sector to experience an unprecedented number of dealer bankruptcies in the first quarter of 2009, due to a tightening of floorplan financing.
“We also expect to see a number of manufacturers shut down,” said Hayley B. Wolff, senior equity research analyst from Rochdale Securities, in a recent report on Brunswick Corp. and the marine industry in general.
“The industry needs a shakeout,” she said.
Wolff said the sales decline the industry saw in 2008, especially in the second half, will continue into 2009, to the tune of 25 to 40 percent. Compounding weak consumer trends is the reality that potential buyers are unable to secure financing, and roughly 75 percent of boat purchases are financed, she noted.
Wolff says Brunswick would do well to focus on its core competencies. She said the acquisition strategy that started in the late 1990s cost shareholders billions of dollars, as the company was forced to sell these assets years later at pennies on the dollar.
“It needs to reinvest in its core business and return to making good boats that it sells to a passionate customer base,” Wolff said in the report. “The cash from running its business that way should be returned to shareholders. While that seems relatively simple, it requires discipline to be willing to return capital to shareholders, rather than make acquisitions that make the company bigger.”
Rochdale analysts do not expect the industry to return to recent highs. For one thing, consumer spending habits likely will undergo a structural change, and demand for “big ticket toys” will be pressured for years to come, according to Wolff’s report. There are also issues of time constraints, shrinking portfolios, the availability of insurance in certain regions, and last year’s high fuel prices.
“These factors support a permanent contraction in the marine industry,” said Wolff.
“We believe that the marine industry will not recoup all of the volume that it lost in the current downturn and may remain a shadow of its former self."
“However, those companies that survive will be the ones with good cash flow, great product and strong dealer bases,” she said. “Companies such as Grady-White and Hinckley will survive, as will many others. Larger multibrand entities, such as Genmar and Brunswick, also will make it out the other end, but likely will end up producing far fewer units."
The report goes on to say that a similar landscape exists on the retail side.
“Retailers with good brands that have developed a storage and service business are more insulated from the downturn,” Wolff wrote in her report. “Also, those who have chosen to go deep with fewer brands likely sit in a better inventory position. There are companies in tenuous financial positions that will likely not survive."
“Hopefully the manufacturer and retailer base will finally shrink, making for better returns for those who survive.”