The current state of the boating industry has inverted an old business maxim and turned it into a troubling question: Could a rising tide sink all boats?
Since the Great Recession, the marine business has undergone a drastic transformation, shrinking while at the same time becoming more profitable. According to NMMA, in 2006 the industry sold 198,400 new outboard-powered boats; in 2018, after reaching an 11-year high, the number was 177,600 units. In 2006, the average price of an outboard-powered boat over 21 feet was $27,892, while in 2018 the number was up to $74,605.
What’s the meaning in those numbers? Manufacturers are selling fewer boats for more money at higher margins. Profits are up, but so is the average age of the buyer, which reached 58 in 2018.
That statistic would be fine if the industry was also cultivating a next wave of boaters who would be ready to move up to bigger, more expensive boats when the clock inevitably runs out on the current swell of baby boomers with money and free time. The low-cost, entry-level boat has been one of the most notable casualties of the rebound.
“Why would builders go downscale and build a basic boat when they can make more money with bigger, more expensive boats?” asks Bob Steinway, who ran Bayliner in the 1990s and is now president of Link Recreational in Minong, Wis. “Their job is to make as much money as they can, but at some point they have to ask themselves: How are we going to bring in new customers?”
Not everyone shares his view. “I don’t see the negative,” says Jack Springer, CEO of Malibu Boats, which also produces Axis, Cobalt and Pursuit models. “We all hear people complaining about price, but when we give them the option to take new features, they take them. People are concerned about price point, but they’re more concerned with enjoying their time on the water.”
On one level, the reasons for the steep increase in boat prices are multifaceted and complex, ranging from material costs to government regulation. “Over the last decade, the price of aluminum has gone up 90 cents to a dollar per pound,” says Doug Smoker, president and CEO of Smoker Craft. The current trade war and tariffs have added to such headwinds.
In addition, historically low unemployment has increased the cost of skilled labor in many parts of the country. A hidden part of that labor cost includes new-boat development, since builders are turning out more new models than ever, but there are still roughly the same number of mold-makers serving the industry. The law of supply and demand has driven up costs of molds and, therefore, the cost of bringing new boats to market.
In some cases, trends have increased costs, particularly in the fast-growing towboat market. “Fifteen years ago, 95 percent of our owners water-skied and 5 percent wakeboarded,” Springer says. “Now it’s flipped to 95 percent wake.” Changing production to match the marketplace requires larger boats with more cockpit space, ballast tanks and advanced hull designs, all of which add cost.
Tech On Deck
By far though, the trends that have pushed prices up the most are attitudes about electronics and engines. “As businesspeople, we are trying to provide customers what they want, and customers consistently demand more content and technology,” says Bill Yeargin, president and CEO of Correct Craft.
What were once expensive add-ons, such as radar and chart plotters, have become standard equipment for many offshore fishing boats. The same can be said of joysticks and stabilizer systems. They provide a direct benefit to boaters, but they also add significant dollars to a boat’s price. And where such systems were once relegated to larger boats, their popularity has moved them to smaller and smaller vessels.
“People love their electronics,” Springer says. “Besides all the other stuff, they want their music on demand. They want to be connected. They want all these systems to work together.” That all costs money.
“The world has gone power mad,” Steinway says. “Twenty years ago, a guy would buy a 16-footer and put a 50-hp on it, maybe a 90, enough to pull a skier or get anywhere he wanted to go. Today, he’s looking at a 150 or two 90s.”
Thom Dammrich, president of the National Marine Manufacturers Association, agrees that the trend is toward more content and bigger engines. He notes that Scout’s new 530 LFX center console can be rigged with six outboards. Considering that power accounts for 35 to 40 percent of a new boat’s cost, many industry insiders see the movement toward more and bigger engines as the greatest contributor to price increases.
And while more horsepower costs more money, an influx of technology — or an abundance of regulation, depending on how you look at it — has contributed, as well. “When the government said they needed to put catalytic converters on the 3-liter sterndrives, that drove up the cost of those engines by $1,500, and they no longer made sense,” says Joe Lewis of Mount Dora Boating Center and Marina in Mount Dora, Fla. “At that point, it made more sense to go to outboards, and eventually that small-block engine went out of production.”
Around the same time, new efficiency standards hit outboards. Out went many of the low-cost, high-emission, 2-strokes in favor of 4-stroke, fuel-injected outboards that cost more but start easier, run cleaner and smoke less. Over time, additional improvements made 4-strokes quieter as well, with those improvements adding cost.
Boaters not only embraced the new technology, but they came to demand it, despite the hit to their wallets. “Outboards have gotten extremely expensive,” says Rob Parmentier, president and CEO of the Marquis-Larson Boat Group, whose brands also include Carver. He says Suzuki offers something of a bargain in the outboard world but hasn’t made enough of a dent in the market to put any downward pressure on Mercury and Yamaha, which offer more technology and dominate at higher price points.
Used is the New, New
About 75 percent of first-time buyers are entering the market by buying a used boat. For many builders, that’s a perfectly logical and healthy development. “There can be a lot of value there,” Dammrich says.
But there are downsides. “Most of those deals happen in the driveway, so the industry doesn’t see those sales,” Lewis says, “and there’s a lot that can go wrong.”
Pitfalls include limited or no warranty, a boat that’s not fit for the buyer’s purpose, an engine that runs poorly and, of course, a lot of repair needs. “If we get a used boat that’s in decent shape with clean engines, we can sell it in a heartbeat, and it’s a good deal,” Steinway says, “but most of what we see needs a lot of work. It becomes a rebuild project for us, winter work, so the key for dealers is how much you buy it for and what you can sell it for.”
The cumulative effect is that the better-suited a used boat is to offer a satisfying experience that creates a boater for life, the less of a bargain it becomes. “We often have to be the bearer of bad news when people come in here with a used boat they bought off the street,” Lewis says. “The result is that they have a bad experience and they get out of boating. They’re gone. If the industry could drive preowned sales through the dealer networks, that would help. We could ensure a better fit and an experience that will keep that buyer in the sport.”
“There’s a lot of people doing well with the high-end stuff, and for them it doesn’t make much sense, but there’s a lot of other companies that ought to dip their toe in the water,” Steinway says of the entry-level market.
At least a few are. Bombardier has had a hit with the Sea-Doo Spark ($5,399), and Lewis says he sees a lot of the new Bayliner Elements ($15,099 for the E16) on the water. Tracker Marine rolled out its Bass Tracker Classic, a 16-footer with a 50-hp outboard and $10,995 price tag (including trailer), and sold so many so fast that the company stopped taking orders by early spring because it met the production quota for the year.
Smoker Craft is also targeting this part of the market. Later this year, the company plans to roll out a pontoon line aimed at entry-level buyers. The details aren’t finalized, but the new series is expected to come with a 60-hp engine and a trailer, and to have models outfitted for different uses, such as cruising or fishing, with a cost of around $20,000.
“We have a sense that people are looking for something like this,” Smoker says. “It’s a concerted effort on our part to try to win back that entry-level buyer. The challenge is that the boat still has to meet high-quality standards and look good.”
While encouraging, the yet-unnamed Smoker Craft project raises another question: What is the price point of an entry-level boat? For some, it sits in the $10,000 to $15,000 range, though others believe it’s around $20,000 to $25,000. Personal watercraft, which have served as an entry point for many boaters, have drifted toward the higher end of that range in recent years.
For that reason, Bryan Seti, general manager of the Yamaha Watercraft Group, says his company has maintained the EX Series, which starts at $6,799. “We know our first initiative is to get people on the water,” he says. “But we look at them as lifelong customers, and our goal is to create options for them as they move up.”
Yamaha sells about 5,000 PWC a year, and economies of scale help the company control the price, but those same economies are what keep some others out of the market. “It’s a Catch-22,” Lewis says. “That low-price boat will bring people in, but once you start talking to them about their needs, you realize that basic boat won’t fit the bill. So you up-sell them out of that price point to a boat with more features, which is good, but it undercuts the volume the manufacturer needs in order to make the low-price boat work.”
Still, there’s another way to look at it. “Builders ignore the entry-level category because it’s hard to make money at,” Smoker says, “but we’re looking at it as a way to expand our customer base. That’s the thing: It has to reach new buyers. It can’t be in place of other stuff we’re already doing.”
The average buyer, Lewis reiterates, is in his late 50s. “How many more boats will he buy?” Lewis asks. “If we don’t start reaching new customers, in 10 years we’re going to be facing a stark reality.”
This article originally appeared in the July 2019 issue.