Outlook 2009

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Some of the industry’s top thinkers in finance, manufacturing, retailing, marketing and other sectors assess what the coming year might hold

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Bob Apple
Senior Vice President,
Sales and Marketing
Volvo Penta of the Americas

Volvo Penta enters this downturn in a strong financial position, thanks in large part to the overwhelming success of the Volvo Penta IPS. The unprecedented depth and reach of the current economic crisis makes it difficult to predict our 2009 performance. However, we intend to use our financial strength and resources from the Volvo Group to come out of this downturn in an even stronger position, despite the uncertainties and challenges that lie ahead.

Available credit is one of the strongest prerequisites to economic improvement. When the credit markets begin to relax, recovery in the general market will commence. As a lagging market, the marine industry will follow sometime later. The question and the challenge are when? We believe that the first half of 2009 will be difficult, with the hope that the market finds the bottom quickly, as stimulus packages take root. Only then do we expect to see some stability with limited recovery during the second half of 2009 and through 2010.

Aging inventory presents another significant challenge. Since virtually all boatbuilders have drastically cut production rates, we should start to see some reductions in wholesale and retail stock. However, bargain hunters will likely take advantage of the buyer’s market, thereby triggering margin erosion. This pressure will create great opportunities for some, and lead to serious cash flow issues for others. We anticipate some painful consolidation throughout the entire value chain.

Maintaining positive cash flow will be the No. 1 objective for every entity, from the supply base to OEMs and dealers. Businesses that effectively manage their working capital and control expenses will have the greatest chance for survival.

New products bring even reluctant buyers into the marketplace. Even in the downturn, Volvo Penta will continue its robust investment in product development. In 2009, we will introduce the Volvo Penta IPS II, which moves us into the large yacht segment; and added features on established products to simplify boat operation, improve engine efficiencies and ease the manufacturing process.

The marine industry will face continued challenges in 2009. However, Volvo Penta remains upbeat and optimistic. Our continued investment in development, Volvo brand-name strength and modern and wide product range will help our OEM and dealer customers weather this storm and emerge stronger with the products that consumers demand.

Jonathan Banks
Executive Director
Sail America

These are extremely challenging times for the sailing industry. With a stalled economy, tight credit markets, waning consumer confidence, unemployment on the rise, and general uncertainty about the future, 2009 does not look great. It is difficult to predict when the market will turn around, but I am hopeful the economic stimulus packages will start to have a positive impact soon. Overall, sales in 2009 will be down compared with 2008, but the market will feel more active than the fourth quarter of 2008.

Despite the adverse economic conditions, I believe there are actually many positive market trends for sailing:

• Several sailboat dealers are reporting that inquiries have picked up in recent weeks. Hopefully, once the credit markets improve, there will be pent-up demand to satisfy. There are buyers out there, just not today.

• The aftermarket is holding up comparatively well. It is likely boat owners will hold onto their boats for longer and will continue to spend money on maintenance and improvements.

• Volatile fuel prices and the growing concern about our environment will result in a small transition from power to sail. We only need a 5 percent conversion to sail to double the number of sailboats.

• New markets, including minorities, women, kids and developing countries, all offer potential for growth. As an industry, we need to do a better job targeting our message and products to these important market segments.

• For many people, sailing is not a luxury, it’s a necessity. Sailing offers a healthy and affordable way to spend quality time with friends and family. I believe people will find ways to continue sailing.

At Sail America, we are focusing our efforts on how we can best serve the industry and our members during these challenging times. We have restructured our organization to reduce overhead and are focusing our efforts to promote sailing. We are working closely with our boat-show partners to help create the best sailboat shows in the country and increase sailing’s presence at other boat shows. We are also encouraging our members to take advantage of the many cost-saving membership benefits we offer. We will improve communications with our members to include regular conference calls, Webinars and networking events. We will also facilitate the sharing of success stories and best practices.

The sailing industry has weathered storms before and it will weather this one. The industry will emerge leaner and stronger, with a greater focus on innovation, meeting customer needs, and providing greater value.

Jim Coburn
First Vice President, Consumer Lending, Flagstar Bank
President, National Marine Bankers Association

From a lending standpoint, the process of a “marine finance makeover” will continue throughout 2009 and 2010. What this means is lenders will continue to improve their underwriting to maintain profitability and keep the funds flowing. Higher credit score requirements, shrinking loan advances, increasing down payments and reduced debt-to-income factors are just some changes that will occur. It will take us back to underwriting guidelines from 15 or more years ago and will negate a below-prime market that was created from what became easy credit. Below-prime quality, in terms of finance, is proven to be unsustainable.

Changes like these must be embraced by the entire marine industry — dealers, manufacturers, consumers and services — for everyone to succeed. Boating and marine markets will not go away; they will just change in terms of sales and share. Market share, like credit guidelines, will return to numbers similar to 15 years ago. Be ready. They are still good numbers.

We may not feel real economic improvement in the marine finance industry until very late 2009 — more likely in 2010. We expect repossessions to increase at record highs throughout all of 2009 before easing in 2010. Boat sales will continue to decline at record levels in 2009 and finally show modest, but steady increases in 2010.

Consumer boat loan rates will remain relatively low and as appealing as they have been for the past several years. We expect a modest rate increase sometime in 2010 as the market improves. Business loans for floor plan are another matter. Credit quality of boat dealerships will continue to decline in 2009 (high unemployment and fewer consumers equals fewer sales), making it tougher to obtain new floor planning, renewals or favored rates from financial institutions.

All of this is resulting in industry-wide consolidation, similar to what we will experience in other industries like automotive and housing. There will be fewer dealerships, manufacturers and financial institutions as 2009 unfolds. This means that sometime in 2010 and beyond, “the best-of-the-best” will survive and ultimately thrive.

The key is for all of us to move forward and make our necessary adjustments. Remember that overall marine finance performance and demographics are, and will be, superior to that of other consumer finance products. We must respect and appreciate that value.

Thom Dammrich
President
National Marine Manufacturers Association

It is widely accepted that significant correlation exists between new-boat sales and consumer confidence; therefore, it is helpful to examine fluctuations in confidence levels to understand how recreational boating may fare in 2009.

Consumer confidence hit an all-time low in October and bounced back in November. To smooth short-term changes, we track the trailing 12-month (TTM) average of the Consumer Confidence Index (CCI). Since 1967, we observed six peaks and five valleys (as of early December, we haven’t hit the bottom of the current downturn.) The average drop from peak to valley is 42.8 percent, and the average time from peak to valley is 30 months. In the current cycle, the TTM CCI peaked at 107.8 in August 2007.

January 2009 marks the 18th month from the last peak. A 42.8 percent drop from the peak would indicate bottoming out when the TTM CCI reaches 61.5. Through November 2008, the TTM CCI stands at 62.8. If past is prelude, then we can expect new-boat sales to begin improving as soon as the third quarter of 2009 or as late as the second quarter of 2010. Either way, 2009 will continue presenting challenges for the boating industry. The good news is that once we reach bottom and head up the TTM CCI curve, we can expect the upside to last 62 months, the average time from valley to peak since 1967.

Boating participation in the U.S. peaked in 1997 at 34 percent of adults. By 2005, participation dipped to just 23 percent. Through Discover Boating efforts, boating participation grew 6 percent in 2006 and nearly nine percent in 2007, returning to almost 30 percent of the adult population. (Final 2008 figures won’t be available until after this article is published.)

In the next 40 years, the U.S. population is projected to grow by 50 percent — from 300 million to 450 million people. If we can get one-third of these new Americans interested in boating through industry promotions and Discover Boating, it would represent 80 percent more people boating in the next four decades. We don’t even need to convert a lot of these potential new boaters into boat owners to have a significant, positive impact on new-boat sales.

Boating will not disappear. Prepare yourself now so you’ll be positioned to take advantage of great opportunities once we begin our ascent toward the next peak.

Phil Dyskow
President
Yamaha Marine Group

We are living in difficult and challenging times, and in 2009 we will take aggressive action in response. Potentially, there will be some favorable impact that will trickle down to the marine industry from the actions taken by Congress, the Federal Reserve and the U.S. Treasury, but that won’t be enough. That’s why Yamaha will do on a micro scale what the U.S. government is doing on a macro scale: We are providing a multi-faceted economic stimulus package for our dealers. We have already begun implementing a series of stimulus-based action steps. We don’t have a magic wand, and we are limited financially just like everyone else. However, we are committed to focusing our resources towards helping dealers sell more product.

It began on Dec. 3 with a program designed to help Yamaha full line outboard dealers improve cash flow during the winter months. The Yamaha Marine Interest Deferral Program allows authorized participating dealers to defer the interest due on eligible boxed Yamaha outboards in inventory already under interest payment to GE-Atlanta as of Nov. 25. In addition, as a retail incentive for the boat-show season, Yamaha will apply an interest credit to the dealers’ GE-Atlanta account for eligible Yamaha outboards sold, retail registered and paid off in full to GE-Atlanta during the applicable deadlines. Yamaha boat companies Skeeter Boats, G3 Boats and Century Boats will also offer an Interest Deferral Program to their dealers for eligible boats in dealer inventory based on similar terms and conditions. One dealer has already told me this program will make the difference between staying in business and closing down.

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What will roll out over the weeks ahead is the most aggressive marine retail promotion program in Yamaha’s history. We will give consumers in every segment of the boating market a reason to buy, and every dealer — full-line or package, freshwater or marine — an incentive to sell.

I don’t have a crystal ball, but my belief is we will see some initial signs of modest recovery in the second half of 2009. I am confident there is pent-up demand from many boaters who are now sitting on the sidelines out of fear. We and our dealers will fight that fear in 2009. It won’t happen without extraordinary effort, and Yamaha is going to help provide it.

Geoff Eisenberg
CEO
West Marine

West Marine has a broad and deep view into the boating market. With more than 340 stores in the U.S., Canada, Puerto Rico, and Turkey, a direct business that serves boaters in more than 100 countries, and a wholesale business, Port Supply, that serves boating industry customers throughout the world, we’ve seen firsthand how the global economic and social shifts have affected boating. Though we can map the recent trends geographically and in various segments, we cannot accurately predict the shape and timing of future trends.

Boaters have obviously been doing less boating, and some have exited the boating lifestyle. But we believe this material drop-off in activity is temporary, and those same unique and life-enriching passions that boating generates in so many millions of people will return as other components of their lives return to more of a “normal” state.

West Marine remains financially strong in this environment of shrinking revenues. When the P&L is challenged, we focus even more on the balance sheet and cash flow statement, as the management of assets becomes even more critical.

All periods in life and in business offer opportunities, and this period is no different. While we are controlling costs and being conservative with our investments, we’re working on so many significant strategies and initiatives to improve our performance to customers that we can be sincerely optimistic and can look past the gloom-and-doom that seems to be so pervasive in the media and the culture. This is not to suggest we live in a bubble or don’t suffer from the realities of the current market; it’s just that our team’s “Make it Happen” attitude and our commitment to executing our long-term plan, allows for a healthy and balanced work environment.

Appropriate investment, dedication to innovation, expanding core competencies, continuous improvement … all these basics of good business must continue to be guiding principles during this downturn. Now is not the time to hide under a rock and hope things get better. As a wise friend of mine says: “Hope is not an effective growth strategy.”

In 2009, West Marine is excited to be opening two new flagship prototype stores in Brick, N.J., and Jacksonville, Fla. Is this any time to invest millions in new store prototypes? We believe it’s a perfect time, because a) we’re very careful with the dollars and cents, and b) we’ll get to learn, make improvements, and be prepared for adding many more of the stores when the time is right. If we wait until “things get better,” we’d delay the significant value generated by the innovation.

And finally, I think we in the boating business are a bit different than others in the economic puzzle. Boating has mattered for thousands of years, and it’s going to continue to matter. With the pressures and challenges of life, the joys and thrills and interpersonal bonds that are created on boats will assure the continuation and future health of the boating lifestyle. If you’ve never experienced the rush of having the spinnaker up in the middle of the night surfing down the waves in a squall, or watched your little boy and girl go completely bananas when they reeled in their first fish, or simply noticed the entire family was cleaning the boat after going on a trip to the lake, you might underestimate the long-term potential of our industry.

I hope you’ll see the future of boating as bright, and help make it brighter.

Dave Geoffroy
Executive Director
Southern California Marine Association

As we approach the start of the 2009 season, the outlook for a challenged economy in the months ahead cannot be denied. In some ways, both recreational boating and American automobile industries face similar problems with tight credit, low consumer confidence, unstable financial markets and products that are not totally in sync with what consumers want to buy. In 2009, SCMA will make a concerted effort to reintroduce family-affordable, entry-level boats to the Southern California marketplace, starting with the 53rd annual Los Angeles Boat Show in February.

In recent years, the marine industry has excessively focused on moving buyers into larger, more expensive models like automakers with inefficient SUVs, vans and large trucks that commanded greater profit margins. Unfortunately, economic realities could not sustain this trend, and it’s time we all look once again to what has made boating so popular for so many decades — affordable family fun. For that reason, SCMA is actively promoting a special exhibit at the 2009 L.A. Boat Show promoting 50 boats that all sell for less than $20,000. And because of impressive technological advancements by boat, engine and propulsion manufacturers, not only are these boats well within the budgets of most families, they are also more dependable, fuel-efficient and environmentally friendly; selling features that deserve to be brought to the forefront.

Although the pool of prospective new-boat buyers may be smaller for the short term, boats will still be sold. What we as an industry must do is concentrate on building existing relationships with customers through better service and quality while impressing non-boaters that boating is a highly valued lifestyle that’s fun and affordable.

At SCMA, we’re convinced boat shows will be an even more important medium than ever before in spreading this message. For that reason, it’s imperative that show promoters and exhibitors work together in order to make the coming winter and spring boat shows as successful as possible. To achieve this, promoters and exhibitors need to advertise, promote and support their local boat shows like never before.

As an industry, we are also facing the uncharted waters of a new presidential administration. For that reason, we must be extra vigilant in our efforts to monitor and react to potential legislation that might be detrimental to our industry and boaters. Likewise, matters concerning water access will be vital to the ultimate growth of recreational boating in the future. As an industry, we have made significant progress in recent years in saving marinas and launch ramps from non-boating redevelopment. This fight needs to be vigorously continued.

During the past half-century, recreational boating has endured a number of business cycles. We’ve profited in the good times and have tightened our belts through the downturns. I’m confident that, as an industry, we’ll be able to do the same once again. In the end, those of us with the commitment and adaptability to weather this storm will ultimately find ourselves with a reward of larger market share and renewed profitability. Anyone can hold the helm when the sea is calm.

Irwin Jacobs
Chairman
Genmar Holdings

Jacobs told Soundings Trade Only he’s confident the industry will see a turnaround this year, and sooner, rather than later, at least for companies with the “right products.”
“I believe the first quarter … with the changes in Washington and this change psychologically of what’s going on in our government, both here and around the world, I think all of this is going to have an effect,” Jacobs says.

“I think Miami’s going to be a very big decision maker for the year,” he adds. “If this thing continues to go as I hope and think it will, you can see a decent Miami boat show for certain people. I think Miami could be a turning point. Not like a rocket, not at all; it isn’t going to be for everybody. You better have the right products.”

Jacobs says the election of Barack Obama should help restore consumer confidence, which is crucial to the success of the boating industry. People who have money to buy boats will do so once confidence is restored, he says.

“There’s some things happening that I think are very positive. I’m watching Obama doing things I have not seen being done. I am proud as hell he’s the president-elect of our country right now, and I didn’t think I’d ever say that but I am, because he’s doing what’s necessary — meaning the stimulus package, meaning taking care of the thing in Detroit. I agree with that 100 percent, based on the emergency need of what it is,” Jacobs says.

“The people’s he’s bringing in are very qualified people. Everything he’s doing, I think, will start a psychological, positive impact on people’s minds,” Jacobs says. “There’ll be some comfort for the first time that Washington’s actually doing something worthwhile.”

Jacobs reiterated his intention to start a retail financing component this year, to help with the credit crunch being felt in the industry.

“It isn’t like there’s no one buying a boat; there’s finance that’s needed today,” he says. “We’ll be doing programs and things to support our dealers out there. We will not be sitting back doing nothing about it.”

Bob Johnstone
Chief Operating Member
MJM Yachts

“We live in interesting times” is an understatement. For 2009, three major market drivers have converged.

Demographics: Members of the boomer generation are entering their 60s and downsizing from larger power or sail liveaboard vessels to boats that are easier to handle, less expensive and that address day-to-day boating needs closer to home.

Rising costs: They further precipitate the downsizing trend with fuel being the major component. Who is going to bet with a boat purchase that lower fuel prices are here to stay once they’ve experienced $5?

Consumer confidence: Wham! Alvin Toffler’s “Future Shock” was right. The 2008 economic downturn has boat owners thinking twice about money tied up in boats. “Honey, do we really need that 50-footer tied up at our dock? How about something smaller that we can hop in with friends and go out to dinner or for a sunset cruise?”

MJM tooled up from the start with pre-preg epoxy/kevlar boats to double fuel efficiency; with upscale Down East styling; and with easy-to-drive features (thrusters & IPS drives) in truckable sizes (less than 12-foot beam and under 13.5 feet high when loaded) to address the two-season north/south lifestyles of 60- to 90-year-old boaters — no need to run the boat 2,000 miles twice a year, or own two boats. A revolutionary MJM 40z is being launched in January to get us through 2009.

No matter how great a brand or boat line you have, history tells us there’s only one way out of a slump: innovation. Remember 1982 when P/Es were at 5-7 or 1991’s luxury tax? Styling changes or price deals on existing models won’t cut it. It takes truly new products that you can’t buy used to get people excited.

This is particularly true if one is to succeed in the 30- to- 60-foot core market where there’s a glut of very nice brokerage boats at half the price of equivalent new boats. The importance of unique, new product cannot be overstated. The money is there more than ever for the right product. The key is igniting people’s interest, to lure them out of their funk so they visit dealerships to see the new, new thing. When they get there, they may even decide that last year’s model is really the boat they wanted to buy all along. It’s happened before. And remember, boating is still the best adventure a family, or couple, can enjoy together. What better time than now to leave the troubles ashore. Life’s short. Time to buy a boat!

Phil Keeter
President
Marine Retailers Association of America

At the 2008 Marine Dealer Conference & Expo in November, I listened as two well-known economists painted a very dismal 2009 for our industry. Their predictions were followed by six industry leaders and five industry financial representatives who, almost to the man, predicted no recovery until at least the last quarter of 2009. I thought to myself, “What do these poor dealers have to look forward to and what will they do?”

But then I looked around at the 200-plus dealerships attending the convention and watched as they made copious notes as the marketing panel, the Top 100 dealers’ best practices panel, the Marine Industry Dealership Certification best practices on service and the various individual presenters on sales, dealership practices, etc., made their presentations. I then realized that these dealers are accepting the economic downturn for what it is and are looking for ways to move forward in spite of it all.

I, too, believe that 2009 will be a flat year as far as sales are concerned. I see no indicators that tell me anything different. I believe that dealers must adjust as necessary as it relates to staffs, overhead and inventory. But they must continue to pursue the consumer in every way possible. Searching for new leads must be a daily task for the sales departments. They must put in play some of the ideas they heard in Vegas. They must call other dealers and find out what they are doing and copy those plans if they’re working. They must implore their manufacturer partners to help them in obtaining leads. There are several companies in our industry whose sole function is to help dealers with that task. Becoming a Marine Industry Certified dealer gains immediate access to the leads from Discover Boating.

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I also think every dealer must seek out as many financial partners as they can. Local banks and credit unions that have not been real active in our industry should be cultivated. If dealers can find new customers they need to be able to get them financed. Dealers need to seek out the help of their boat manufacturers with various financial institutions. The manufacturers will have to get on board with this or they may find their dealer networks unable to take product.

I believe 2009 will be one of the toughest years the recreational boating industry has seen. For the last 25 years, I’ve preached that manufacturers and dealers need to work together better to solve problems. This coming year that sermon needs to be taken to heart even more. The consumer still wants the lifestyle we sell so we just have to get more innovative as to how we get them to buy it.

Wanda Kenton Smith
President, Marine Marketers of America
President, Kenton Smith Advertising and Public Relations

The marine industry has been hit hard and fast by conditions I’ve referred to as the “perfect storm,” whose wake, I believe, will leave a trail of devastation behind. I expect the industry will lose an unprecedented number of dealers, manufacturers and a whole set of associated feeder companies in the process who, despite Herculean efforts, are simply unable to sustain themselves through this tumultuous economic downswing. With lenders drying up and wholesale credit tightened to near lockdown mode, consumer credit scrutinized like never before, stocks and home values plummeting, fuel futures and employment stability uncertain, coupled with the continued negative media onslaught that feeds the frenzy, I anticipate that retail activity will likely continue its sharp decline for boats and all other higher-end discretionary goods in the short term. Complicating matters, I am concerned about the glut of non-sold boats that will be dumped in the market by liquidators, adding to the complexity and challenge for future boat sales. Even with a post-election consumer stimulus package in the offing, I believe any recovery in 2009 will be tepid and sluggish at best.

The entrepreneur in me, however, always seeks opportunities. At the recent MRAA convention, BoatTrader.com’s trend update revealed its Web traffic was up 22 percent, with 73 percent more searches this year than last. This is good news. Prospects are obviously thinking about boats and are actively engaged in online research. Even now, there is a spark of retail sales activity, with buyers taking advantage of outstanding deals. Smart marketers will find innovative ways to maintain visibility of their brands, products and services to promote sales, perhaps investing in more low-cost, guerrilla-based, response-oriented initiatives. Manufacturers and dealers who have remained closely connected to their customers and who have continued to market are in an excellent position to earn sales and gain market share.

Through this terrible sifting process, which may continue to batter us another nine to 18 months, survivors will recognize the need to drastically redesign their business models to the new emerging financial realities. I don’t believe it will be business as we knew it anytime in the near future, if ever. We must adjust and rethink every aspect of our business. We’ll learn hard-fought lessons from our own restructuring modes that should allow us to operate leaner, more efficiently and hopefully back to a profit position in the future.

Luke Kujawa
President and COO
Crystal-Pierz Marine

What will 2009 bring for the marine industry? I guess that is the million-dollar question. In this current environment the margin for error in answering that question needs to be very wide. The stock market is no longer our stable indicator of the economy but rather the tail wagging the dog as it reacts violently to any news or lack thereof. While the “expert’” overall outlook for 2009 seems to be dismal at best, there are still niche markets and focused marine dealers who will fare just fine. Aggressiveness and grassroots guerrilla sales and marketing will rule the day. Most have so substantially slashed their budgets, overhead, inventory, and overall operating costs, comparisons to recent history seem irrelevant.

It is a new day and a new industry landscape. Volume is no longer the battle cry, and, from a dealer’s perspective, even market share has lost its luster. Making a buck and taking care of customers is back front and center where it belongs. The consumer is more savvy, value conscience, tentative and more connected than ever. We are fighting for their discretionary time as much or more than we are their money, so the buying process has to be easy and on their terms. The guerrilla sales and marketing [people] need to use whatever communication channels they are comfortable with, and the list is getting longer. Adapt, evolve and prosper or do it like you always did it and go away.

Dustan E. McCoy
Chairman and Chief Executive Officer
Brunswick Corp.

 We believe the marine industry will go through another difficult year in 2009 as a result of the many economic challenges that remain from 2008.  Until the housing, banking, auto and other industries can stabilize; layoffs and job cuts decelerate and stop; consumer confidence ceases to erode; and stimulus and infrastructure improvement proposals materialize; the marine industry’s consumer base largely will remain under stress and unable to grow.

Notwithstanding our view concerning 2009, the year will also serve as the period during which the foundation will be established for better markets that should follow 2009. Indeed, we believe that for many in the industry, using 2009 as a period to plan and position for the ultimate recovery is important. Each of us must use this time to examine our business models, our costs, our footprint, our employees’ skills and more to ensure a productive transition from a declining to a growing market.

Tom Murray
Marine Business Specialist, Virginia Sea Grant Program,
Virginia Institute of Marine Science, College of William & Mary

Contraction will continue through 2009, but recent indicators suggest we are beginning to bottom out. The climb ahead, however, will be steep because of badly damaged consumer confidence. While macroeconomic conditions will set the boundaries for discretionary income, consumer confidence will continue to dictate discretionary spending, the foundation of the recreational boating industry. In view of this, most recent economic indicators do hold some positive news after a dismal 2008.

The Conference Board’s widely tracked “Consumer Confidence Index” (1985 = 100), which had declined throughout 2008 to an all-time low (35.8) in October, reversed to increase slightly in November to 44.9. The board’s six-month “Expectations Index,” which had plummeted from 68.7 at the same time a year ago to 35.7 in October, showed moderate improvement to 46.7 in November.

The percent of consumers who expect business conditions to worsen in the next six months declined to 28.1 percent from 36.5 percent between October and November, while the percentage expecting conditions to improve rose from 9.6 percent to 11.4 percent. The percent of consumers expecting fewer jobs in the months ahead declined from 41.5 percent to 33.3 percent, while the percent expecting more jobs increased from 7.3 percent to 9.2 percent. The proportion of consumers anticipating an increase in their incomes increased from 11.1 percent to 13.3 percent.

Consumer apprehension will continue to be fueled by uncertainty over disappearing net worth, resulting from losses in the financial markets and eroding home equity. On a composite basis, U.S. home prices fell 17.5 percent from September 2007 to September 2008, declining at a somewhat slower rate (4.0 percent) in the third quarter. Middle America’s discretionary spending, which plummeted during 2008, will continue to be weak.

In 2009, consolidation will continue at all levels of the industry. New boat and accessory sales will decline and inventories will languish. Industry at all levels will continue to retrench with the primary business strategy consisting of cost cutting and capital retention.

Have we bottomed out? It appears so, but the climb back will be steep.

The fundamental economic dilemma faced by most American households is how to achieve a long-term recovery of household financial stability. The psyche of American consumers (many of whom, in the words of noted economist John Kenneth Galbraith have “assumed affluence” and have never endured substantial economic losses) may be indelibly marked by the recent financial trauma. Even with a seemingly positive, though modest, upturn under way, consumers will adopt a much more cautious outlook toward debt and discretionary spending. This new attitude will likely have long-term consequences for all discretionary spending, including the recreational boating industry.

Darren Plymale
General Manager – Tampa Bay,
Board Member
Galati Yacht Sales, LLC

Our industry trends continue to challenge both our dealers and manufacturers to work closer together on their combined market approach. This coming year will test the true measure of this partnership. The strength of these relationships will gauge our industry’s ability to weather the storm as we battle for the consumer’s discretionary dollars.

Galati Yacht Sales continues to place an emphasis on servicing our existing customer, while creating ways to expand our customer service levels. As with any business today we are cost conscious about ways to save valuable resources allowing us to continue supporting our customer experience through a rigorous marketing schedule. Today’s marine company has to control expenses and manage their business to scale. It is our obligation to expand ways to generate revenue while controlling cost. By accomplishing this, our industry will become stronger as our market returns.

Galati Yacht Sales has been extremely fortunate to have earned the Boating Industry Top Dealer Award for the second consecutive year.

The combined innovation of our fellow dealers and the sharing of “best practices” will promote quality initiatives for our industry to grow. It has always been our approach to learn the marine community’s proven strategies. This formula of giving and sharing has expanded our capacity while providing the consumer with a better product.

Larry Russo Sr.
President & CEO
Russo Marine

It wasn’t such a bad year for Russo Marine. Our aggressive sales and marketing strategies served us well. We managed to significantly reduce our inventory, improve our margins, show a 23 percent increase in sales with our Sea Ray brand, reduce expenses and earn a reasonable profit for the year.

That said, our fiscal year ended one day after “Meltdown Monday,” Sept. 29, so we had already booked a pretty good year. What has transpired since is another story. The banking crisis and the resulting stock market drop has weakened the recreational marine industry and it has brought business to a halt in many markets across the country — some worse than others. The Northeast was the last to feel the strain.

This story, however, is about outlook, not look-back. What is done is history. What really matters is what we are going to do going forward. I don’t have any more visibility than anyone else, and the batteries in my crystal ball are dead. What I do know is that there will be business out there for those who are positioned to take it. The year 2009 will be a decent one for those opportunists who have the resources and the strategies to make things happen. Sales will be the natural byproduct of those professional marine dealers who embrace the change and possess the ability to create winning strategies. Those retailers with the right brands, the right facilities and smart people will outperform the market.

Our industry will experience significant shrinkage in 2009 through dealer and manufacturer bankruptcies. These will be natural forces at work to rid the industry of unnecessary brands and retail outlets. Other recreational industries have a dozen or so brands. Only in the marine industry do you find hundreds of brands in the marketplace. This has been the root cause of low profit margins for years. There are too many brands and too many dealers chasing fewer and fewer buyers. This downturn should go a long, but painful, way to improving profitability for the survivors.

I am most concerned that our biggest challenge will be how to compete with the aged, unwanted, new and pre-owned liquidated product that will be forced into the market from bankrupt companies. I would hope that anxious floorplan lenders will choose to use their manufacturer repurchase agreements to redistribute product back through the existing system. Surviving manufacturers, and their respective dealers, should be their “first choice” to assist in relocating and reselling inventories. If these repossessed inventories are allowed to fall into the hands of liquidators, auction houses, and other non-marine entities, it will destroy the profit-margin opportunities of the already weakened manufacturers and their dealers. The opportunity to resell this product should be placed in the hands of those qualified parties that have a long-term, vested interest in the future recovery of the recreational boating industry.

Van W. Snider Jr., CAE
President
Michigan Boating Industries
Association

We have a unique challenge compared to other regions of the country. As I write these comments, Michigan, the home of the domestic auto industry, has an additional question yet unanswered. Will the federal government financially assist the American auto industry in an appropriate and beneficial way?

Will the federal government, auto companies’ management, and organized labor be able to work together to ensure the recovery and viability of the auto industry in the international marketplace? What happens to the auto industry directly impacts our industry, which is no surprise to anyone.

Michigan boat dealers can attest to the importance of a successful recovery of the auto industry, an industry that directly and indirectly employs a significant number of citizens in our state and others. Historically, auto workers, from those on the assembly line to management, have bought our products. Auto companies previously issued bonus checks either before, during or shortly after the February Detroit Boat Show; many were used to purchase boats, motors and/or accessories. Needless to say, 2009’s industry performance will be positively impacted by an auto industry recovery. The fact is, however, the auto industry will never be the same. There will be fewer auto workers, lower-paying jobs and an overall downsizing of that industry to be able to compete in today’s market.

I don’t claim to know when Michigan’s economic outlook will brighten. However, there seems to be consensus that Michigan will continue to struggle through 2009 and won’t see any significant improvement until sometime in 2010.

On the bright side, efforts are under way to grow the tourism industry by capitalizing on Michigan’s fantastic beauty, its abundant natural resources and variety of outdoor recreational experiences.
Boating is a lifestyle choice for significant numbers of Michiganders. Even in a down economy, Michigan continues to maintain strong boat registration numbers, and boaters find ways to continue boating.
Michigan boating businesses are working hard to survive. I suspect we will lose a small percentage of businesses, but those that are able to weather this downturn will be stronger and ready to capitalize on the turnaround when it happens — and it will happen.

Mike Wallenhorst
Global Marine Market Manager
Ashland Performance Materials

In tough markets, we absolutely need to all tighten our belts responsibly and, more importantly, focus on positioning our businesses for the future.

Virtually all companies are struggling as a result of the current recession, so it is vital that we stick together and maintain or strengthen our relationships with our partners. If you haven’t already, now is the time to get closer than ever to the companies that you rely on for success.

It’s only together that we’ll be able to find good innovative solutions to reduce our collective costs throughout the supply chain. In the resin and gelcoat business, we are constantly working with our suppliers to balance reliability of supply, inventory levels and cost, while not foregoing quality. In this market, with highly volatile petroleum-based raw materials, we also remain alert to the global oil and petrochemical industries and try to anticipate the emerging issues or trends in the supply chain. We also work with our boatbuilders to find the right balance of product, quantity and price so we can cut costs out of the system while still manufacturing efficiently and ensuring fresh material.

More than ever, we are focused on the future. Many companies, including Ashland, still have significant investments in innovation and continue to deliver value in new products. With production slowing, it’s time to re-evaluate materials and manufacturing processes to incorporate the latest innovations. When the market recovers, we will all be ready to meet demand and exceed our customers’ expectations.

This article originally appeared in the January 2009 issue.

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