A big impact on Canadian market - Trade Only Today

A big impact on Canadian market

Most of the boats sold there are built in the U.S. and the exchange rate is making them much pricier, contributing to a sales slowdown
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Chaparral and Robalo builder Marine Products Corp. cited a decline in Canadian sales because of the strong U.S. dollar.

Chaparral and Robalo builder Marine Products Corp. cited a decline in Canadian sales because of the strong U.S. dollar.

American-built boats are costing Canadians about 20 percent more than they did a few months ago because of a weakening Canadian dollar versus the strong U.S. dollar.

That can mean trouble for Canadian dealers that sell U.S.-built boats — the bulk of the market in Canada — as they raise prices to cover fluctuations. It also was a much-discussed component of the earnings releases of publicly traded marine manufacturers and suppliers in late April and early May.

At Brunswick Corp., retail demand dropped sharply in Canada, largely reflecting weakness in March — by far the most significant selling month of the first quarter — according to CEO Dustan McCoy.

“We anticipate the retail boat market in the second quarter and third quarter will likely remain difficult and down versus a year ago, as consumers react to the price impact of the strong dollar level, which is making products more expensive in Canadian dollars,” McCoy told investors and analysts during a call to discuss first-quarter financials. “Overall, we believe the Canadian market will be down for the full year.”

Chaparral and Robalo builder Marine Products Corp. also cited a decline in Canada because of the strong U.S. dollar. “Other economies around the world are suffering a bit,” says Marine Products CFO Ben Palmer.

Malibu Boats has partially offset the unfavorable exchange rate and declining Canadian sales, president and CEO Jack Springer says. “We knew there would be some headwinds in Canada and certain international areas due to the strength in the U.S. dollar over the past nine months. In Canada, a boat now costs 15 to 20 percent more than in the fall.”

The National Marine Manufacturers Association announced a free webinar in collaboration with the U.S. Department of Commerce to help educate manufacturers on how to keep exporting when the exchange rate is less than favorable.

“The biggest challenge of having a strong dollar is U.S. exports become more expensive for buyers in other countries,” says an email the NMMA sent to announce the webinar. “However, a strong dollar won’t last forever, nor does it have to hurt your exports.”

Dubbed the “loonie,” the Canadian dollar had dropped about 10 percent from a year earlier as of January, according to economists. At the same time, the U.S. dollar has strengthened in value. The Automobile Protection Association tells Canada’s CBC News that Toyota and Honda, among others, raised prices in the first week of January. Several luxury brands, including Lexus, Acura and BMW, also have made pricing changes.

The Canadian dollar rallied in April, but the Canadian market is expected to be unfavorable for U.S. boatbuilders for the rest of the year.

“In general, the Canadian market is heavily supplied by U.S.-based manufacturers,” McCoy says. “And with the Canadian-U.S. dollar relationship, the price of boats for most Canadians has now gone up, say, 20 percent in round numbers. What happened is, we saw January and February start out actually quite nicely at retail, and that was not a surprise to us because our view was that at boat shows and other places that dealers were selling products they had purchased at exchange rates that were very different than the current exchange rates.

“Once those boats generally begin to sell out, March experienced a significant decline at retail,” McCoy says. “And in our view, it’s going to be a tough place to be for the remainder of this year. Eventually what’s there at retail, that’s going to get sold out. Eventually dealers are going to need to replenish, and the market will settle down. But for 2015, it’s just going to be a difficult place to be, and that’s the toughest outside United States market we’re dealing with.”

Rest-of-world sales decreased 3 percent, reflecting the weaker demand in Canada, says Brunswick president and COO Mark Schwabero. Canada alone declined 12 percent on a constant currency basis.

“I think about two-thirds of the boats that we make, or about 70 percent of the boats that we sell in Canada, are actually made in the U.S. because we’ve got a Princecraft brand that sits in Canada that manufactures in Canadian dollars and sells in Canadian dollars,” CFO Bill Metzger says. “Most every other boat that’s sold up there is something that’s imported in from the U.S. It is a sale that’s transacted in Canadian dollars, but dealers are generally buying in the U.S. dollars.”

This article originally appeared in the June 2015 issue.

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