Despite the credit crunch, there was an air of optimism at the NMBA’s annual conference
The U.S. economy will continue to suffer the effects of tight credit and a “deleveraging” cycle, as a society that had become increasingly reliant on borrowing digs itself out from under a mountain of debt.
That was the scenario outlined for members of the National Marine Bankers Association by financial strategist Gina Martin Adams, who spoke in November at the NMBA’s annual conference in Palm Springs, Calif.
“Household liabilities are now at an all-time high relative to both assets and net worth, and debt is about 125 percent of disposable income,” says Adams, institutional equity strategist for Wachovia Capital Markets. In spite of a radical shift in consumption patterns, “The worst has passed and there is hope and light at the end of the tunnel,” she says. But real recovery, she predicts, won’t occur for another 18 months or longer.
Meanwhile, banks are lending to one another again, she told the NMBA audience, although spreads have tightened.
Since the end of 2001, non-financial debt — debt held by governments, households and companies outside the financial sector — has increased 8.4 percent annually, says Adams. That compares with a nominal 5.3 percent increase in the gross domestic product.
During the short-lived 2001 recession, debt was 188 percent of the GDP. Now it is 225 percent, Adams says.
In today’s economy, Adams adds total non-financial debt has grown 180 percent, while household indebtedness alone has jumped 270 percent.
Pleasure boat spending has contracted by 33 percent, Adams says. If this recession follows the pattern of previous downturns, that’s about as bad as things should get, she says.
“Boats run on dollars, not just fuel,” says NMBA president Jim Coburn. “The marine industry must appreciate the value marine finance brings.” Marine loans are still superior in performance terms to other types of lending, he says, although the consolidation in the marine banking sector will mean fewer dealers, lenders and banks.
Coburn says signs of recession first appeared in August 2005, followed by the mortgage meltdown starting in August 2007, followed by the credit crunch in spring 2008.
A brighter future
Coburn is bullish on the long-term outlook for boating. “There will always be a marine market and it is considered resilient and will come back,” he says. “It’s not true that boat buyers can’t find financing. It’s just not true. There are the same number of lenders out there today as there were 15 years ago [in spite of notable lenders such as Wachovia, Regions, Citizens and Key Bank exiting], so that is not a reason for a lack of boat sales. Credit is available and there are front-end profit margins.”
Coburn says there were many signs pointing to the economic downturn and plenty of blame to go around, especially with improvident loans to homebuyers and a sub-prime and collateral value fallacy. He sees healthy lenders gaining and stealing market share and developing new segments to navigate a down market.
Boating has survived other crises, Coburn noted, pointing to the 1970s when President Carter proposed a ban on weekend boating. Although the ban never became reality, gasoline was in very short supply, highly priced and in some cases rationed.
“That was a huge crisis [that we survived],” says Coburn.
Adams, too, offered a rationale for optimism about the future, citing declining fuel prices, among other things.
“Energy price adjustments could help ease the pain,” says Adams. Consumers will resume spending, she says, thanks largely to a huge economic and monetary stimulus, but they’ll be spending at a slower rate than in the 1980s and ’90s.
Baby boomers will continue working in their senior years, partly as a function of longer, healthier lives and partly out of economic necessity because of shrinking investment income. Adams says fewer teenagers than ever are working, but not out of laziness; seniors in the work force are taking their jobs away.
Meanwhile, the industry continues to work at the government level to improve its prospects. The 2009 congressional regulatory agenda of the National Marine Manufacturers Association will focus on additional tax relief, water infrastructure and credit, the bankers were told. The industry also will pressure the Treasury Department to channel bailout money to specialty marine markets.
Attention also was focused at the conference on new generations of boaters and their economic value to the industry.
“Ignore Generation Y at your absolute peril,” Adams says. “This generation born between 1985 and 1997 is well-educated and they are the future, driving a lot of trends in the U.S. without the credit.” Generation Y, she says, comprises 27 percent of the U.S. population.
If Generation Y decides to get its feet wet, the marine industry has a new target to bolster sales, she says.
Meanwhile, in an effort to help dealers survive the downturn, the NMMA has redirected its Grow Boating funds. However, the trade organization says past campaigns were successful. Nearly two out of five boaters are now aware of Discover Boating in spite of a $2 million budget cut in the program, according to the NMMA. Respondents aware of the 2008 Discover Boating campaign were significantly more likely than unaware respondents to be actively shopping or seriously considering the purchase of a boat in the next three years (17 percent vs. 10 percent).
Other discussions, backed by PowerPoint presentations developed by the NMMA, demonstrated the value of individual recreational boaters.
The lifetime value of one boat owner to the marine industry is quantified as $131,500, according to a study of consumers 55 and older, conducted by Michigan State University. This excludes purchases for accessories and marina expenses.
The average boater in the study has purchased 4.1 boats for an average value of $32,084 per boat. With 5,000 new boaters every year, the economic impact is $650 million and increases every year. A small increase in the number of new boaters can create a significant impact, the audience was told. Targeted consumers will be given complimentary tickets to boat shows to increase attendance and the opportunity for a purchase.
This article originally appeared in the January 2009 issue.