Inventory buildup shows signs of easing


There's still a lot of product out there, though, and the 2010 models are on the way


Supply and demand: It seems like a basic enough concept. But when dealers are expected to anticipate consumer behavior a season or even 12 months ahead, things can get tricky.

That was especially true last year, when an already softening marine market was crippled by the mortgage crisis and the subsequent avalanching economy.

As homes went into foreclosure in record numbers, boat repossessions skyrocketed. As those repossessed boats hit the retail market, dealers are forced to compete with prices thousands of dollars below value. Some dealers have gone out of business, pumping more liquidated inventory, some of it new, into the marketplace.

Manufacturers responded more quickly to weakening demand than in the past - quickly shutting or furloughing plants and laying off workers - but few, if any, saw a recession of this magnitude looming. Nor did anybody anticipate the exodus of marine lenders from the floorplan business, which included the departure of Textron and KeyBank. Drying up wholesale dollars further hindered many dealers, even those selling boats, since many couldn't replace boats sold because of increased rates or diminished lines of credit.

All of these factors have had a hand in the surplus inventory on the market now. Depending on whom you talk to, there is between four months and two years of inventory out there. The real figure is probably somewhere in between.

"The only reason there's a lot out there is because demand fell off so abruptly," says Thom Dammrich, president of the National Marine Manufacturers Association. "It did not tail off gradually - it just fell off a cliff - and nobody was expecting that. Clearly, if they had anticipated it they would have stopped building much sooner."

Phil Keeter, president of the Marine Retailers Association of America, estimates there is about a year of inventory right now. Dealers tell him 2006 models are mostly gone, that there are some 2007s, and a glut of 2008s, Keeter says. Builders moving new model releases to September should help alleviate that, since the 2009s will not be considered aged until after the busy season.

"I think the fact that you're seeing so many factories shutting down, and operating at 25 percent or 50 percent of capacity, clearly the manufacturers realize there is tons of inventory in the distribution channels," says Don Parkhurst, who heads up marine lending at SunTrust Bank.

SunTrust is seeing more activity in marine retail lending now than in the fourth quarter of 2008, Parkhurst says, mostly with sailboats and used boats. Back then, Parkhurst says that during a typical week he was writing deals on one 2006, a couple 2007s and a couple of 2008s. Now he isn't seeing any 2006s, maybe one 2007 per week, and several '08s and '09s.

That's a good sign, though it must be tempered. "While there have been some signs that at least the pace of the economy falling off a cliff has slowed, I still think there is ... probably a year of tough economic news yet to come," Parkhurst says.


The effects of the General Motors bankruptcy had yet to radiate into the economy, and credit card delinquency is expected to rise from 10 to 12 percent by mid-2010. "In the media there's a lot of blowing sunshine right now, but I think these people are going to look silly as the data rolls out," Parkhurst says. "There are going to be some pieces of good news that will show things are not getting as bad as they were as fast as they were, but people who are saying things will bounce back and be beautiful right away, that's not going to happen."

However, consumer confidence is on the rise, and the stock market has shown improvement since bottoming in March, Parkhurst says. Another positive for dealers is the Small Business Association's new marine floorplanning program. That should help, as dealers increasingly compete not only with repossessed boats but also new boats as dealers go under.

Competing with the lower prices of liquidated vessels can make it even tougher for dealers to move aging new product. Larry Russo, owner of Russo Marine, a dealership based outside of Boston, says he was sandwiched between two dealers at the Massachusetts Marine Trade Association meeting in June, each of which had a new 2006 in stock.

Russo shared with them what he does. "We learned a long time ago that once a boat gets to be more than two years old, you take it out of new inventory and reclassify it as preowned," Russo says. "You take the same customer to a 3-year-old preowned boat, say, 'It's preowned, but I'll give you a new warranty.' He gets to tell his friends he got a 3-year-old boat that looks brand new that had a brand-new warranty with it. He's thrilled."

Russo adds: "It's the same boat, the same salesman, and the same price, but the way you categorize it makes all the difference in value. Nobody wants to buy a 3-year-old leftover, but they love a 3-year-old preowned that looks new: 'Hey, nobody even used the toilet in this boat.' "

There are few, if any, 2006 models at dealerships around Seattle-based Lake Union Sea Ray, says company owner Kevin Roggenbuck. Even 2007s are scarce in Roggenbuck's market, which has five locations in the Pacific Northwest, and he thinks there is only about three or four months of built-up inventory there.

"Local manufacturers that aren't as widely distributed might be impacted a little bit more, so there might be a few more months inventory out there for them," Roggenbuck says. "But we're a Brunswick dealer, and Brunswick has done an excellent job of reducing production, helping us move our inventory and not pushing more onto us."

Roggenbuck says 2008 boats account for about half his inventory, and his dealerships are selling about 75 percent 2008s over '09s by making deals, which means margins are smaller, but product is moving.

Roggenbuck hopes for a permanent shift to a fall model rollout. "Bringing '10s in the [fold] in July isn't going to do any more than make the '08s and '09s look older than they are," he says. "I think the model year starting in June or July was too early anyway. It always created the situation where you had three model years in stock. This way, when the '10s come out, we'll have the opportunity to present them as brand new, exciting inventory and hopefully clear out the '08s and '09s beforehand."

Keeter thinks manufacturers might have to consign inventory to dealers, or explore the possibility of setting up regional warehouses so dealers aren't stuck having to find credit to keep boats in showrooms.

In 2010, the NMMA for the second year will allow dealers to have a 50-50 mix of new and aging inventory at its shows, Dammrich says. "I talked to a boatbuilder in February who said, 'We're just going to have to go back to the 1960s, when there was no floor financing and we made boats when customers would buy them, and we didn't have huge showrooms,' " Dammrich says. "So what we're talking about is not new - it's old."

This article originally appeared in the July 2009 issue.


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