Wells Fargo lowers its 2019 estimates

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Wells Fargo has lowered its new-boat sales estimate to 1 percent growth in units and 5 percent in dollars for 2019. Wells Fargo CEO Bruce Van Wagoner told Trade Only Today that unit sales were down 4.7 in the first quarter of this year. Unit sales for the rest of 2019 would need to be at least 2 percent to achieve that forecast.

Van Wagoner emphasized that the industry is “strong” right now, but said Wells Fargo was concerned about rising inventory levels because of the weaker first quarter. Inventory levels are 20 percent higher than a year ago.

“The industry is working from a very strong foundation, with 11 percent retail growth in 2017 and 10 percent last year,” he said. “We expect dealers and manufacturers to do just fine this year, but they have to anticipate that the growth won’t be as robust.”

The new-boat market is in a “very healthy” position in terms of aging products, which are at “historically low levels,” according to Van Wagoner. “But turns, still near historically high levels, have come down a bit because of the buildup in inventory we’re seeing today. Payoffs in the first quarter were less than what we’d hoped for. April has bounced back pretty well as far as activity, and we’re hopeful that sales pull-through will be strong for the May-June-July sales period.”

Boatbuilders should “provide whatever support they think is appropriate to their dealers,” said Van Wagoner, to take advantage of the selling season. “It will cost people more money with the selling season behind them later on, than to deal with it now,” he added.

The recreational vehicle industry created too much inventory last year and has spent this year trying to push that excess inventory through its dealers. “Aging is up substantially in the RV industry and turns are down as result of those inventory levels,” says Van Wagoner. “RV had a much bigger buildup than the marine business did.”

Wells Fargo is hoping to avoid the same situation in the marine space.

“Pro-active” boatbuilders may provide more discounting, said Van Wagoner, while “dealers may also be more aggressive to turn over inventory” this year, in order to avoid inventory buildup later in the year. “As happened in the RV industry, that might cause some tighter margins as a result,” he said.

Van Wagoner believes that boatbuilders tend to be more cautious about inventory levels as a result of the last recession. “We believe it’s the case that they have to be thoughtful and monitor the situation closely over the next month or two,” he said. “We want to make sure they don’t over-supply the industry,” he said.

Wells Fargo will continue to communicate with boatbuilder and dealer clients over the next three months—the busiest part of the sales season--regarding sales and inventory levels.

“We think the 1 percent growth rate this year is very do-able, especially if the manufacturers stay engaged with their dealers,” he says. “We don’t think it will be a problem to reach that.” 

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