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How student loans crimp boat sales

NMMA’s Dammrich calls for interest-rate relief, contends heavy debt burden is choking the middle-class recovery

Thom Dammrich says there’s a simple solution to the boating industry’s problems — forgive, or at least lower, the interest on student debt. The National Marine Manufacturers Association president says a crisis in homeownership is hurting the U.S. marine industry, but he maintains the situation could be eased if the burden of student debt weren’t so high.

Homeownership rates have dropped to historic lows, prompting the middle class to feel the strain of rising rents, according to a report released in July by Harvard University’s Joint Center for Housing Studies. In contrast to falling homeownership, rental markets continue to grow, fueled by another large increase in the number of renter households, according to a release announcing the study results.

However, with rents rising and incomes well below pre-recession levels, the United States also is seeing record numbers of cost-burdened renters, including more renter households higher up the income scale.

Declining homeownership is leaving millions of Americans stuck in rental housing, according to the study — a trend that could have big implications for the marine industry. And depending on where you play, those implications could be positive or negative.

“A huge issue for boating and for our country is the amount of student debt and the interest rate on that student debt,” says Dammrich. “While mortgages can be obtained in the 3 to 4 percent range, the rate on student loans can be 6 to 8 percent. The country must address the student loan burden on young people and at the very least lower interest rates significantly — perhaps to the fed funds rate. That would free up so much spending power, it would have a significant impact on our economy and, therefore, on the housing market and new-boat sales. And it is an easy fix, in my mind.

“A middle class that is thriving will lead to healthy new-home sales,” Dammrich adds. “And fixing the student loan problem will be a big part of getting the middle class thriving again — at least the younger segment of the middle class.” Although the country has seen improvements in housing, Dammrich has said since the onset of the recession that new-boat sales will not reach their full potential until there is a full recovery in housing.

Graduation mortar board cap on one hundred dollar bills concept for the cost of a college and university education

Graduation mortar board cap on one hundred dollar bills concept for the cost of a college and university education

However, the rise of rental housing might be mirrored in the rise of boat clubs and peer-to-peer boat companies. Freedom Boat Club president and CEO John Giglio certainly thinks that’s the case, as he continues to add franchises to his group. The company announced the launch of a dozen new franchise-owned clubs in the past 18 months, including West Coast and East Coast locations, in addition to several target areas in which it plans to expand.

“I believe that many of the same principles that pertain to the housing collapse translate directly to boat ownership,” Giglio says. “Consumers are looking for alternative means of getting on the water. Freedom Boat Club memberships have exploded over the past five years as a result of the economic downturn.”

The nation’s homeownership rate has been falling for eight years and was down to 63.7 percent in the first quarter of this year from a peak of more than 69 percent in 2004, a New York Times report said of the Harvard study. But even as the market continues to improve — sales of existing homes rose in June to their highest level in nearly 8-1/2 years, the National Association of Realtors reported in July, and first-timers make up 32 percent of the buyers — it is leaving millions of Americans unwillingly stuck in rental housing.

The flip side of the decline in homeownership is a boom in rentals and a significant rise in the cost of renting. On average, the number of new rental households has increased by 770,000 annually since 2004, the center’s report said, making 2004-14 the strongest 10-year stretch of rental growth since the late 1980s.

“As difficult as banks made the mortgage process of purchasing a home, they were even more stringent with boat financing as a luxury item,” Giglio says. “Again, this has served as a major driver to the increase in our business. Consumers did not want to give up boating, even though many had to give up on boat ownership.”

People in their 40s and 50s have been hit particularly hard by the housing bust, according to a New York Times report. Notably, that is about the same as the average age of new-boat buyers.

A cool factor

“It’s interesting to speculate how this age group views boat ownership, with the loss of equity in home property,” says David Scott of Martin Flory Group, the firm that handles public relations for peer-to-peer boat company Cruzin. “Factor in the overwhelming adoption of both new technologies and social media, and it’s no surprise that boat sharing is booming. Owners look for a way to offset costs and keep their boats and homes. Those who are trying to get out from under a mortgage rent until they can afford to buy.”

The shift isn’t just about financial hardship, say some who are growing peer-to-peer boat businesses. There’s also a certain draw — and coolness factor — among younger generations in participating in the sharing economy, Scott says. “And from my experiences with this age group, that’s a real truth. And it’s so natural for them to turn to P2P for their various needs.”

“Not content to limit themselves to their parents’ or peers’ interests and leisure activities, millennials desire unique experiences,” says Jaclyn Baumgarten, Cruzin’s founder and CEO. “As a result, Cruzin is an ideal gateway to get this age group exposed to the thrill of boating. It’s a cost-effective way for them to have great on-the-water experiences with their friends and, in turn, get them excited about buying a boat. With our platform, people who buy a boat and place it into the Cruzin community can defray the costs of ownership. And millennials with boats still want new experiences, so as they travel they’ll rent a boat or simply try a new type of boat. They remain very involved in the sharing economy.”

However, Dammrich maintains that the drop in homeownership is indicative of a struggling middle class, which ultimately is bad for the industry, whether you’re a boatbuilder, dealer or boat club. He points to a family depicted in a newspaper story that couldn’t afford a new home on the $100,000 salary they were earning.

“Clearly the global financial crisis of 2008 to 2010 was the worst since the Great Depression,” Dammrich says. “And the recovery from it has been slow — steady, but slow — much like the recovery from the Great Depression, [which also] took years. We have seen improvements in housing, but I have said all along that new-boat sales will not reach their full potential until we see a full recovery in housing. That someone making $100,000 a year cannot afford a house is disturbing. But, then, he is in a wealthier community and admits he could move to another community where housing is more affordable, but he likes the schools where he is.”

Many people face tough choices in a still-struggling middle class, Dammrich says — to rent and stay in a wealthier school district or move to a worse one and buy a home — and those types of choices are bad for boating, plain and simple. “Clearly, this family will not be buying a boat before they buy a house. Yes, they may go the boat club or rental route, but if his dream is owning a home, it is unlikely he will spend on boating until he gets a home.

“New-boat sales and homeownership are highly correlated,” Dammrich adds. “The middle class has not recovered completely, and that is certainly a headwind for new-boat sales, but also a headwind for boat clubs and rentals. I don’t know the facts on this, but I suspect that most folks in boat clubs could afford to own and some migrate to ownership after trying it through a boat club. I think a stronger middle class and recovery in the housing market will boost new-boat sales and membership in boat clubs and boat rentals.”

This article originally appeared in the September 2015 issue.



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