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New Merc boss knows the challenge well - Trade Only Today

New Merc boss knows the challenge well

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Mark Schwabero helped steer the Brunswick engine division through the bumpy 2008 marine marketplace with an eye toward the future

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When Mark D. Schwabero joined Mercury Marine in 2004, the boating industry was at a zenith. Companies were expanding, sales were on the rise, and Mercury had proudly unveiled its new Verado 4-stroke outboard.

Five years later, as he takes the helm of the Brunswick engine unit, the global financial crisis has cut deeply into the recreational marine sector. Wholesale and retail credit markets are drying up, consumer confidence is at record lows and unemployment is rising. Marine sales have plummeted, and most economists are saying the situation will get worse before it gets better.

Schwabero knows he has his work cut out for him. He has no doubt, however, that the company will prevail.

“I’m the 10th president for Mercury Marine,” he says. “I was here to celebrate our 70th anniversary this year. There will be somebody here to celebrate the 100th anniversary.”

The 55-year-old Schwabero has an extensive resume that includes more than 30 years as a senior executive. Before joining Mercury, he worked in the automotive and commercial vehicle industries, holding leadership positions with such companies as Hendrickson International, Pilkington Libbey-Owens-Ford, Bosch Braking Systems North America and Navistar International.

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Schwabero holds Bachelor of Science and Master of Science degrees in industrial and systems engineering from Ohio State University, where he was recognized with the university’s Distinguished Alumnus Award in 1991 and a Meritorious Service Award in 2008.

The continuity factor
Before taking over as Mercury president in early November, Schwabero directed the company’s outboard business.

“Mark has been an integral member of a management team that has secured Mercury’s position as the industry leader in technology, quality and operational excellence,” said Brunswick chairman and CEO Dustan E. McCoy in announcing Schwabero’s promotion.

He will lead a seasoned management team that includes Kevin S. Grodzky and Stephen M. Cramer. This trio has been jointly leading Mercury since Patrick Mackey’s retirement last spring.
Schwabero says the fact that he was with Mercury for several years under Mackey’s leadership is a distinct benefit.

“We’ve had a significant amount of continuity here,” he says.

Still, he holds no illusions about the challenges he and Mercury face in this economy. He talks candidly about the difficulties of the last year, and the rough road ahead. At the same time, he is proud of Mercury’s recent successes and remains hopeful, despite the gloomy economic forecasts.

In reflecting on the last year, Schwabero says the biggest challenge has been declining sales; he noted that the slowdown began in 2007, one of the lowest years on record for the marine industry.

A ‘global tsunami’
Things got progressively worse in 2008. The first half of the year was bad enough, with high fuel prices discouraging boaters from getting out on the water. Then came the collapse of sub-prime lending markets, followed by the domino effect of failing banks and other lending institutions.

“Everything came to a head when it got to a global crisis,” says Schwabero. “The global tsunami has not just been in the marine industry; it’s hit everybody.”

He says Mercury and its parent company took an aggressive approach to the deepening recession, with plant closures and staff reductions that accelerated as the economic crisis worsened.

Since the beginning of 2008, Brunswick has reduced its marine manufacturing footprint by an estimated 40 percent and lowered its head count by at least 35 percent, according to analysts’ estimates. Schwabero says that quick response has left the company better positioned than in previous downturns, when it was slow to cut production and ended up flooding the pipeline with excess inventory.

“We’ve really become committed to, and focused on, our customers — protecting our OEM and dealer channels,” he says. “We’re being responsible as a supplier and partner, not trying to flood them with product.”

Schwabero firmly believes the decisions Brunswick and Mercury have made have been the right ones.

“We could have done it in less steps, but I don’t think we would have ended in a different position than we are in today,” he says.

Prudence pays off
The end result is that Mercury is in relatively good shape in terms of inventory levels, according to Schwabero.

“The OEMs and dealers aren’t sitting flooded with engines, nor are we sitting with significant engines in our facilities,” he says.

He says keeping inventory levels under control is crucial, because the fundamental issues every industry is facing today are credit and access to cash.

“If there’s too much inventory, you’re tying up your cash, the dealer’s capital and the OEM’s capital,” he says. “The most prudent thing to do when credit is tight is run the business with inventory under control.”

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Too much inventory in the pipeline leads to heavy discounts at the retail level. That cuts into margins and profits.

“That is not a sustainable position to be in, so the better you keep inventory under control, the better position you’re in,” says Schwabero.

Mercury and other outboard makers are offering retail promotions going into the boat show season, from extended warranties to financing options to cash rebates. Schwabero acknowledges that the incentives are designed to help move excess inventory at the dealer level, but he says the main objectives are to stimulate consumer interest and deal with cash flow issues.

Schwabero expects those cash flow concerns to continue well into 2009 as marine sales are projected to fall even more this year.

“This [recession] is going to be longer and deeper than other downturns,” he says. “This isn’t about just the marine industry.”

Three priorities
Given those grim predictons, Schwabero outlines his own priorities for 2009, in no particular order:

• Managing the cost and cash side of the business as Mercury works through the current market conditions.

• Focus on quality — quality of the products, the services Mercury provides, and the decisions Mercury makes to support its customers through the current economic times.

• Continue to invest in and bring technology forward that’s going to benefit Mercury in future years.

It is these technology achievements that Schwabero is most proud of.

“We’ve been making significant investments over the past few years,” he says.

When Schwabero joined the company five years ago, Mercury had just launched an entirely new supercharged line of 4-stroke outboards — the Verado. The engine maker also improved its OptiMax direct-injected 2-strokes, leading to three consecutive awards from J.D. Power & Associates and propelling OptiMax to the No. 1 share position in direct-injected outboards.

In 2007, Mercury introduced the Axius sterndrive system and, through the Cummins MerCruiser Diesel joint venture, the Zeus pod drive system. Among other features, both offer joystick control, making docking and slow-speed maneuvering easier.

“Those were two really positive things — for ourselves and the industry,” says Schwabero.
All of these developments have allowed Mercury to expand its products into bigger boats and increase market share, says Schwabero.

“We’ve had good market share growth in wholesale and retail,” he says. “I see no reason we can’t continue some of the share growth we’ve had.”

Easier boating
He says the industry benefits from all the new technology because the products attract more people to boating by eliminating the fear factor — especially with joystick docking — and making it more affordable through better fuel economy and fewer service intervals.

The next step, he says, will be to build on this technology and leverage the benefits further.

“Anything we can do on fuel economy and service intervals, we make boating more affordable,” says Schwabero. That, he says, will attract more people, even in a down economy.

Besides trying to bring more people into the sport, Schwabero says there are a number of things marine businesses bear in mind in this climate:

“Stay close to your customer, whether that’s serving the product or understanding what their needs are,” he says. “Just recognize, in this environment, the cost equation is paramount as we work through this. That includes overhead, inventory, and being able to sustain the cost and cash of your business.”

This article originally appeared in the March 2009 issue.

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