Industry began 2011 with optimism, but high unemployment, debt-ceiling battle soured consumers
In the fall of 2008, the confidence most Americans felt in the U.S. economy fell right out from under them. News stories were peppered with frightening terms —“toxic assets,” “bank bailouts,” “global recession.”
Three years later, the headlines are less apocalyptic. But starting perhaps with the March earthquake and tsunami in Japan, consumer confidence has tumbled again and the economic news has become increasingly dismal.
The marine industry began this year on an optimistic note, buoyed in part by improved consumer attitudes evident at the winter boat shows. But spring and summer brought extreme weather to much of the country — from tornadoes and floods to severe drought and wildfires — costing a cash-strapped nation billions of dollars. Congress, meanwhile, was bogged down in a prolonged battle over the nation’s debt ceiling as Democrats and Republicans refused to compromise. Wall Street saw its longest losing streak in three years.
In August, Congress raised the debt ceiling and took a step toward long-term deficit reduction, but the Dow Jones industrial average tumbled 2.2 percent the following day. Consumer confidence plummeted during the month. The country was becoming increasingly polarized about how to handle unemployment and the rest of the economy’s problems.
In early August, Standard & Poor’s downgraded the nation’s credit rating for the first time in history. That month, no jobs were added to the overall work force, prompting another political melee.
President Obama addressed the nation in early September with a plan to increase employment. Pundits immediately speculated that Congress would battle over the measure for several months before passing bits and pieces of it or that political rancor would keep government gridlocked. The next day, a Reuters headline screamed: “World stocks fall on fears that jobs plan will stall in Congress.”
Richard Collins, general manager at Raymond’s Boat & Motor Sales in Gravois Mills, Mo., a Lake of the Ozarks dealership, says that’s just what he had feared prior to the speech.
“I think we’re teetering on the edge” of a double-dip recession, Collins says, especially if Congress continues the bickering he believes has led to the most recent beatdowns in consumer confidence.
“The only thing anyone knows for certain is that there’s so much gridlock in Washington, nobody knows what’s going to happen, and both sides are willing to take us to the brink in order to get their way,” Collins says. “I think that’s sad.”
Effect on boat sales
New-boat sales trend directly with consumer confidence, says Thom Dammrich, president of the National Marine Manufacturers Association. As confidence has declined since 2008, so have sales.
“For our industry to grow, consumer confidence must grow,” he says.
The NMMA’s 2010 statistical abstract shows that as the gross domestic product plummeted in 2008 and 2009, boat sales declined about 24 percent. As the GDP grew 2.9 percent in 2010, powerboat sales declines were halved, to about 12 percent.
“Consumer confidence averaged 54.6 in 2010, hitting a low of 46.4 in February and ending the year at a high of 63.4,” the NMMA report says. “Beginning in January 2010, consumer sentiments stabilized after two years of steady decline, primarily reflecting substantially improved short-term outlooks.”
That was during the winter, when builders and dealers seemed to breathe a sigh of relief after the boat shows. Many said attendees, though still cautious, were in a good mood for the first time in years.
At that point, talk of a double-dip recession had all but ended. But as the summer of 2011 drew to a close, consumer confidence was at 44.5 percent, the lowest it has been since April 2009.
“Consumer confidence keeps going down, the market’s volatile, we’ve had a pretty bad year for weather, and now we’re getting into more weather and we’re going out of season for boating in most parts of the country,” says Phil Keeter, president of the Marine Retailers Association of America.
The fall boat shows will offer insight about the way consumers are dealing with the uncertainty, says Keeter, who is retiring as MRAA president at the end of the year. “I don’t want to be pessimistic, but I [see] this fall as being a trying time.”
Translating to marine?
The decline in consumer confidence has not been visible at all dealerships.
“We haven’t noticed a change,” says Joey Simmons, general manager of Caruthers Marine in Vicksburg, Miss., a dealership that mainly sells pontoons and fishing boats. “People aren’t necessarily optimistic, but they’re just to the point where it is what it is. They’re not going to let what’s going on up there [in Washington] affect how they fish.”
Simmons says he sold an engine on an early September day this year, which is something that did not happen last year. The customer “was holding off because of the economy, but finally said, ‘Forget it; I’m gonna fish again,’ ” Simmons says.
That was not the case at Raymond’s Boat & Motor Sales, which caters largely to affluent buyers, Collins says.
“I think the keyword in any of this is uncertainty,” he says. “If someone is lucky enough to have their job, I think they have four or five friends who don’t have jobs and haven’t worked in six months or a year. I think people who would normally trade with us are saying, ‘We can wait this out.’ ”
Boating as an escape
People who are looking to escape the negativity might turn to boating, says Erik Smentek, general manager at Tilly’s Marine in Ventura, Calif. “The nice thing about our industry is we’re able to give people a way out of all the negative stuff that’s going on,” he says.
After a strong June, July and August were down slightly at Tilly’s, Smentek says, but he’s unclear whether that was because of cool, foggy weather or the reversal in consumer confidence.
Times are still tough at WaterSportsCentral in Buford, Ga., but co-owner John Crowe says things are better than they were after the financial crisis initially struck. A historic drought on Lake Lanier in the summers of 2006 and 2007 had taken their toll even before the long recession began.
“I’m optimistic that this is a great country, and I’m very big on family boating and promoting the family boating lifestyle,” Crowe says.
The back-to-school slowdown started earlier this year and seemed to last a bit longer, but sales in the second half of August and early September have been surprisingly encouraging, Crowe says. Attitudes have remained more positive this year than they were last year, Crowe says, although he suspects that as a MasterCraft, Crownline and Premier dealer his clientele is a bit more insulated from market ups and downs than others.
It’s all about politics
Confidence won’t return until people have a renewed faith in government, says Brian Schneider, vice president of operations at Tradewinds Marina in Baltimore. “I think [political strife] has had a big effect,” he says. “With Maryland being almost a total government employee state, things have been really quiet.”
Schneider says Congress should reduce the number of government employees, even though he believes that would translate to lost sales.
“Spring was good — much better than last year, without a doubt,” he says. “But there was so much more potential that I thought was building up and it just died.”
Talk of cutting government has not affected Caruthers Marine, the Mississippi dealer in Vicksburg, despite a strong base of government workers there, Simmons says. That might be because many people are working under contract for federal agencies, but are not directly employed by the government, he says.
“One of my guys who works here, his wife works for a contract company,” Simmons says. “They’re the people who go out and find the contractors for the government here in Vicksburg for the [Army] Engineer, Research and Development Center. They’re constantly signing new contracts, so for the near future they’re looking good.”
When Americans believe politicians are more concerned about re-election than about jobs, that hurts businesses, Keeter says. Collins says people who are on the left and right politically have lost faith in their government.
“We found in this debt ceiling debate that our politicians were more interested in their political careers than their country, and that was dealing with money that was already spent,” Collins says. “When you see [House Majority Leader] Eric Cantor saying that in order to help victims of hurricanes and tornadoes we’re going to have to find offsetting funds from somewhere else, that’s not America. People need help now, not in six months after they debate over what they’re going to do.”
Washington needs to give people an incentive to risk money in the economy, Crowe says. “If the consumer felt like the government was helping businesses to create more jobs, we feel like our business would pick up considerably,” he says. “The people I’m talking to would just like to see it get over with: Just make some decisions that will encourage the businesses to hire.”
Consumer confidence won’t rebound until employment and the housing market improve, Dammrich says. American consumers and businesses also need more access to credit, he argues.
“It will also be important for the administration to ease onerous and costly regulation on business and create policies that stimulate consumer demand,” Dammrich says.
Because 97 percent of boatbuilders are considered small businesses and 95 percent of dealers have annual receipts of less than $10 million, it is paramount that policies protect small businesses and encourage growth, he says.
As recently as 10 years ago, people who did not have a large investment in the stock market paid scant attention to it, Keeter says. But now that the media talks constantly about what is happening on Wall Street (and smart phones come equipped with apps providing world market updates) even those who aren’t directly affected change their spending based on what the market does, Keeter says.
One man who had put a deposit on a Nauset 36 backed out after a recent stock market plunge, says Dawson Farber, chief executive at Nauset Marine in Orleans, Mass. “The guy who had a deposit on it said, ‘I lost more than the value of the boat this week. I’m retired. I can’t do it,’ ” Farber says.
Other than that, Nauset’s sales remained brisk throughout the summer, he says.
“The recent drop in the stock market kind of put a fear back into me,” says Simmons, the Mississippi dealer. “I thought things were turning around and now here it looks like things are back down.”
Simmons says he considered canceling an order that he had just placed for boats, but “people kept coming, so I’m ordering more boats for next year.”
Crowe, the Georgia dealer, says that although business is better overall these days, he notices a difference in floor traffic when stocks plunge.
Many dealers didn’t think financial crises in Europe affected consumer spending in this country until those problems spilled into the New York Stock Exchange.
Amid heated debates about the euro in debt-plagued Italy and Greece and whether financially stable Germany would agree to bail those nations out, Brunswick Corp. sold U.K.-based Sealine. Though perhaps unrelated to the financial crisis in Europe, the sale indicated a shift from the company’s statement about a year ago that it was confident about its portfolio and would shed no more brands in the near future.
“I think that 10 years ago, all this conversation about what the market was doing in Europe, I don’t think it would have made a hell of a hill of beans of difference in our industry,” Keeter says. But after the banking crisis in 2008 consumers become nervous when they hear about stocks plunging, he says.
Weather a boost?
Severe droughts and tornadoes have taken a toll, but some dealers have gained business because of them.
New Jersey-based Stone Harbor Yacht Sales hauled about 140 boats out of the water in fewer than 48 hours as boaters prepared for Irene, which was downgraded from a hurricane to a tropical storm by the time it reached the area, says sales manager Tim Keane.
Less than 24 hours later, 120 boats were returned to the water. “So from that perspective we had a little bit of a windfall for the marina,” Keane says.
In Massachusetts, Nauset Marine hauled nearly 500 boats from Town Cove in Orleans, and 70 percent of them were put back into the water after Irene, Farber says.
As the Mississippi River flooded areas around Vicksburg, business picked up for Caruthers Marine because people bought boats to prepare for rising water, Simmons says.
On the other hand, with the vitriol about government spending growing, Collins thinks the public is worried that the burden of dealing with natural disasters or extreme weather will be left to them. “We’ve had some really hot weather, flooding and that tornado down in Joplin,” Collins says. “That just brings a lot of uncertainty.”
Although many marine industry business owners hesitate to make predictions, some think that no recovery in confidence and the overall economy will occur until after the next election.
“I don’t know what to look for next year,” Keeter admits. “We’ve got a political situation coming up here. I find it all very unsettling. I don’t know how the normal consumer will react to it all.”
On a brighter note, dealers now have more leverage to control the amount of inventory they take from builders, and Keeter thinks they will use it to their benefit to avoid having more than they can sell.
One dealer told Keeter that at his most recent dealer meeting he told the builder he could only take 25 percent of the inventory he was asked to order. “He said, ‘There are so many boat lines available. If you don’t allow me to buy the inventory I know I can sell, I’m just going to switch brands,’ ” Keeter says. “Dealers are getting a little more bold about that.”
Keeter says most dealers he talks to are going to remain conservative about ordering for 2012.
Collins says dealers in the Kansas City and St. Louis markets are concerned about keeping inventory in check. “I don’t think anyone’s too optimistic,” he says. “I think we’re hoping we’ve hit bottom and that we’ll start moving up.”
A self-described optimist, Crowe is confident that the country will rebound. “As we move forward with new ideas to help our energy issues and our economy, hopefully that will help consumer confidence,” he says. “I believe as the political process starts, those discussions will start happening.”
This article originally appeared in the October 2011 issue.