Down but not out - Trade Only Today

Down but not out

‘Thrashed’ in the marketplace, the sterndrive segment is innovating and showing signs of life
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Innovative new engines and drives have helped the gasoline sterndrive remain viable.

Innovative new engines and drives have helped the gasoline sterndrive remain viable.

Everyone has watched sales of sterndrive-powered boats drop during the past decade, and major builders of such boats have quietly shifted with the market. As of 2015, all had begun branching into other types of power.

Some major builders began a migration to outboard boats four or five years ago; Brunswick-owned Bayliner, for example, had sterndrive power in 90 percent of its new models in 2010, but only about a third were sterndrives in 2015. Now the majority are outboards.

Cobalt has remained steadfast in its dedication to sterndrive power, yet the company unveiled Marker One, an outboard-powered pontoon boat that made its debut in model year 2015. Others, such as Chaparral and Glastron, began offering lines of jetboats in addition to offering outboards on certain models.

Despite this shift, all of the major 10 or so builders that account for most of the sales have remained committed to sterndrive engines. And many point out that although sterndrive sales continued to decline in 2015, sales of units larger than 25 feet have risen.

“Actually, our larger sterndrive segment for boats over 23 feet showed impressive growth in 2015, and we see this trend continuing in 2016,” says Ron Huibers, president of Volvo Penta of the Americas, one of two major marine sterndrive manufacturers.

The lean toward power diversity is not only seen in gas sterndrives, although it is certainly most obvious in that segment. Volvo Penta has also seen “impressive growth” in diesel sterndrives, which have traditionally been popular in Europe and are making major inroads in the North American market “as an attractive alternative to traditional inboards,” Huibers says.

Mercury offers its in-house-built MerCruiser 6.2-liter V-8 in 300- and 350-hp configurations.

Mercury offers its in-house-built MerCruiser 6.2-liter V-8 in 300- and 350-hp configurations.

A perfect storm

Builders point to the rising number of larger sterndrive boats sold, but the bulk of the market was in smaller units prior to 2006, and the overall market has sunk 81 percent since then.

In 2006 there were 66,675 units sold, accounting for about 22 percent of all powerboat sales, according to data from Florida-based Info-Link Technologies, a company that compiles boat registration and sales numbers. During the following five years — from 2007 to 2011 — the segment would plummet year over year, seeing double-digit declines as high as 35 percent. Last year, 12,766 units were sold, accounting for 7 percent of all powerboat sales, according to Info-Link managing director and owner Jack Ellis.

“In my opinion this thrashing, for lack of a better term, is due to a perfect storm of factors,” Ellis says. “A number of things happened all at the same time. The market tanked around 2007, and meanwhile, there are fewer first-time boat buyers. And most of the sterndrive boats are entry-level family runabout-type boats. There are plenty of larger sterndrive boats, and they’ve done OK, but most of the volume is in the smaller boats — or it was.”

Right around the time the Great Recession hit, emissions standards became mandatory, and sterndrive engine manufacturers were required to catalyze their engines, adding cost with little perceived value. Meanwhile, outboard technology made huge strides during that time, rolling out cleaner, quieter and more efficient engines than ever, Ellis says.

And then there are pontoons, which have made a huge resurgence as the only segment that has recovered to prerecession levels. Gavan Hunt, marketing vice president at Cobalt Boats, says it’s not coincidental that his company turned to that platform with the Marker One line.

“There are several things eroding sterndrive sales, or that at least compete with sterndrives,” Hunt says. “One of them is outboards. One is the inboards, with wakesurfing boats. And one of them is pontoons. So we’ve decided to attack on the pontoon front and respond to that because that market has shown significant growth. There is a movement toward higher quality in that segment, and Cobalt is excited about Marker One’s opportunity to separate ourselves from the crowd.”

And then there is what Ellis has dubbed the “California effect.” It used to be the leading state for sterndrive sales — by a lot. In 2005 10,000 sterndrive boats were sold in California, Ellis says. Last year, the number was 425. That’s a 95.75 percent decline in a decade. (Because all of the data for the year have not come in, Ellis says the count could tick up to 450.)

The effect extends to all of the Western states. In 2005 13,500 sterndrive boats were sold in California, Nevada, Arizona, Oregon and Utah. Last year, residents of those states purchased a combined 750. “If we could get rid of the Western half it wouldn’t look so bad,” Ellis says. “It would still be bad, but it wouldn’t be so bad.”

Volvo Penta’s 5.3-liter V-8 is built using the Gen V General Motors engine.

Volvo Penta’s 5.3-liter V-8 is built using the Gen V General Motors engine.

Builders adjust

Rec Boat Holdings, which includes Michigan-based Four Winns, Glastron, Wellcraft and Scarab, is making changes across several lines, says RBH president Roch Lambert.

“On the Four Winns side we are expanding a little more,” Lambert says. “We had one small [outboard] boat for a long time, and we have a 270 and a 24-footer coming out in a month at the Miami [International Boat Show]. Those are available with a sterndrive or outboard configuration. And then we have an additional model that probably won’t be available until late spring.”

Glastron added 18- and 20-foot jetboats to its lineup two years ago. The brand also will offer an outboard boat, a 240 that was introduced to dealers at the company’s September meeting. Scarab had been dormant for some time, but it also has been resurrected with jet power, and it added a 25-foot model in the early spring.

“We are diversifying our propulsion offerings in pretty much all the brands we have,” Lambert says. “Except Wellcraft — we are adding a long list of new models, but all will remain powered with only outboards.”

Last year, Chaparral Boats debuted a Yamaha outboard-powered 250 SunCoast — the first outboard that Chaparral has produced in many years, parent company Marine Products Corp. CEO Richard Hubbell told investors and analysts during a quarterly call in late 2014.

The company also introduced its Vortex jetboat line in early 2014 and has since opened a new 150,000-square-foot plant at its Georgia campus in response to increased demand. It includes six boats in the lineup and earned the National Marine Manufacturers Association Innovation Award for its optional aerial surf platform.

Through 2010, Chaparral was 100 percent sterndrive. Since then, about 15 percent of the boats have been jet-powered, and 5 percent have been outboard-powered, Ellis says. Monterey was 100 percent sterndrive through 2012 before introducing some outboards in 2013.

Regal was all sterndrive and inboard until recently, when it rolled out the 230 OBX, its first foray into outboards. Sea Ray was almost exclusively sterndrive and inboard until 2012; since then there has been a “significant increase in the number of outboard boats,” Ellis says, with roughly one-third of all recent-model-year boats being outboard-powered.

Lambert agrees that a combination of factors have hit sterndrives hard. Sixty-five to 70 percent of that market used to be entry-level, but the buyer has more choices now, he says.

“The emissions technology has increased costs, so entry-level sterndrive boats are significantly more expensive than 10 years ago because of the catalytic converters,” he says. “The 3-liter engine has disappeared — not quite yet, there are a few left in inventories — but they are going to go away. That has incentivized some of the builders to go with outboard power because we knew we were going to lose those entry-level people.”

Committed to sterndrives

Another category that has cut sterndrives has been the inboard wake and ski segment, which has also enjoyed decent success in recent years, says Hunt. But he says Volvo Penta’s new Forward Drive will help Cobalt capture some of those customers.

Engineered with two forward-facing, counter-rotating props that pull a boat through the water rather than push it, Forward Drive is said to produce higher top speeds and faster acceleration than comparable inboard shaft single-prop systems.

“Volvo’s FWD drive is a super-exciting opportunity for us because it gives us the ability to enter the surf market and afford us broader bandwidth,” Hunt says. “We have the newest 0, which is at boat shows this winter, and we’re going to continue to broaden that.”

Though it is more expensive than a traditional sterndrive, “you get a long list of benefits with [Forward Drive],” Lambert says, adding that RBH offers the drive only on 22-foot and 24-foot boats because it would be cost-prohibitive to put them on smaller models. “Now our job is to make sure we sell those benefits and justify the increase in costs.”

Volvo Penta continues to pursue its “easy boating” vision to attract more people to boating through technology. “When you look back over our 108-year history, we have seen advances in many areas that make boating today safer, more fun and with the cleanest environmental footprint to date. With our history, we have seen swings in different segments,” Huibers says.

The company’s Forward Drive “is enabling the creation of an entirely new class of boats optimized for wake surfing and water sports, as well as cruising, fishing and general family fun on the water,” Huibers says. “We are seeing a number of these new sterndrive FWD-powered boats in dealer showrooms this year from more than a half-dozen builders.”

New gas engines have “unprecedented power density” that makes it possible for builders to downsize to smaller-displacement power plants with no sacrifice in performance, Huibers adds. “Our new V-6 280, for instance, provides the same performance as our earlier V-8, so boatbuilders can design new boats with a smaller engine compartment. And the engines are lighter in weight, more fuel-efficient and cleaner-burning — important considerations for today’s boat buyers.”

“We don’t see sterndrive going away, for sure,” Lambert stresses. “The bulk of the negative impact is probably behind us. They all have catalytic converters. MerCruiser and Volvo have both migrated their engine-block technologies. The challenging economic news is hopefully behind us. I do believe we’ve hit bottom. I think we’re going to see some energy in that segment moving forward. I think we’ve hit bottom, and people will psychologically adjust to where the platform is. I think if we do our job well in designing boats the right way to take advantage of that propulsion, we will see new energy there.”

Hunt agrees there will always be a buyer for sterndrives. “I think there’s intrinsic value of sterndrive propulsion with the way the platform is designed, the way the dual propellers are completely under the boat, so you can have the activity platform behind the boat, you can put a ski or wakeboard on and jump behind the boat without concern of the engine in the way. There are a lot of conveniences with dual-propeller sterndrives that outboard motors will struggle to ever replace,” Hunt says.

Economies of scale

With so few units being built, some wonder about the costs associated with manufacturing sterndrives. If fewer than 14,000 were sold last year, assuming that each builder makes and sells about half, that would amount to about 8,000 units apiece, generously. “The decline in volume has certainly increased the costs of production for manufacturers,” Lambert says.

In the past year Volvo Penta recommitted its relationship with General Motors to use its automotive engine blocks; MerCruiser ventured out to manufacture its own. Each touts the benefits of its chosen path.

“Our long-standing relationship with GM gives us access to the latest advances in automotive engine technology and economies of scale that cannot be achieved in a low-volume custom manufacturing operation,” Huibers says. “GM builds about 4,500 Gen V blocks per day and has fielded more than 1.7 million units. These engines are proven performers. The technologies built into the Gen V engines have never been available in any marine gas engine.”

Though MerCruiser was unavailable for comment during the busy boat show season, Brunswick executives have said that building their own marine-purposed blocks allows the company to have more flexibility and reinvigorate the market through technology.

“There are lots of things going on in automotive today with [corporate average fuel economy] requirements that may make sense for automotive but aren’t necessarily adding value for marine applications,” Mark Schwabero, then Mercury president and currently COO of Brunswick Corp., explained to investors and analysts in late 2013. “We think having control and having purpose-built product for marine makes sense. We believe we have an opportunity to revitalize the sterndrive market, and decisions we’ve made about taking control I think will be helpful.”

Continuing to invest

No question, MerCruiser and Volvo Penta are continuing to invest in the sterndrive platform. As in the auto industry, technology drives market trends, Huibers says.

“It’s interesting that in many ways the boating industry follows the automotive industry in terms of technology and trends,” Huibers says. “Think about it. When convertibles went out of style, new innovations brought them back. Likewise, when muscle cars went, new technology brought the even more powerful, reliable and fuel-efficient muscle cars of today. Not that long ago, minivans were the hottest sellers in the industry, and they gave way to SUVs and crossovers. Look at the boating industry. The same thing happened with outboards. With 2-stroke outboards, we saw the market decline. With the introduction of 4-stroke, we saw what technology has done for that segment.

“No doubt the sterndrive segment recovery lags behind others,” he adds. “There have been changes in water sports and boating styles, and until now there has been little in the way of new innovations in marine sterndrive technology. That is why we continue to invest to bring new technology to the marketplace, including our next generation of the most power-dense engines yet, combined with our new Forward Drive to give boaters more versatility. We continue to invest and will bring out more new innovative products over the coming years, as we have in the past.”

More options in all segments

RBH began offering jet propulsion on Scarab and Glastron after withdrawing from the jetboat market, but continued to make its Rotax engines available to some builders.

“It’s consumer demand,” Lambert says of the decision. “When BRP exited it left a void, and we viewed it as an opportunity to come in. We’re building pretty significant volume. It’s a significant portion of our business now, and it’s growing.”

Though it offers an alternative, the companies still compete with the pontoon and towboat side.

“Jet propulsion has different attributes than sterndrives do,” Lambert says. “There are pros and cons. Do they compete? Of course they do, but we don’t sell one over the other. We tell our customers, ‘Here’s what one does; here’s what the other does.’ ”

Even outboard builders are offering customers more diversity as consumers increasingly research online and walk into dealerships sure about how they want their boats powered.

“As Scout entered the larger offshore center console performance boat market, we found a need to offer more than one outboard brand,” says Dave Wallace, vice president of operations for Scout Boats. “Our customers are specific on what they want with their new Scout, whether it’s a custom color, special option or a specific outboard brand. Outboard boats are now upwards of $1 million, and the customer deserves to choose the outboard they want. We do not want to lose a sale because we can‘t give our customers what they want.”

Technology has increased builders’ and consumers’ desire for diversity, says Mercury Marine president John Pfeifer. “Boatbuilders are doing a great job of creating versatile products, and engine manufacturers such as Mercury can add to that with innovations such as joystick and Skyhook GPS technology,” Pfeifer says. “OEMs have different strategies for each builder — some exclusive, some non-exclusive to one brand of propulsion. Their decision is driven by multiple factors, including what market segment they are in.”

“I think the industry overall is seeing more manufacturers with non-exclusive OEM deals,” Pfeifer adds. “We are in more OEM contracts with the builder than we were two or three years ago, and we think our new technologies are opening these doors.”

But not everyone is going for diversity in propulsion. Regulator Marine continues to offer Yamaha exclusively and does not plan to change, says company president Joan Maxwell.

“Every company has to make their own decisions based on what their customers want and what fits best in their business strategy,” Maxwell says. “We at Regulator feel we know more about what power package best fits our boats than anyone else. Since the mid-’90s we began a long relationship with Yamaha. As partners, we run the boats together, trying different packages to find the optimal performance for each particular boat.

“We learned long ago that a customer does not separate that engine from that boat,” Maxwell says. “An engine problem immediately becomes my problem, so we feel confident that our partnership with Yamaha leads to a better customer experience.”

This article originally appeared in the February 2016 issue.

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