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Sterndrive schizophrenia

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Bayliner builds sterndrive- and outboard-powered boats.

Bayliner builds sterndrive- and outboard-powered boats.

The sterndrive fiberglass segment is still navigating choppy waters. Quarter after quarter, the industry speculates that the segment has hit bottom, only to see it trend downward again. Many blame the decline on innovations in outboards. Others point to emission regulations that have increased the cost of sterndrives. Both are legitimate theories.

But there are positive signs, too. Sterndrive boats from Cobalt and Chaparral continue to outperform the overall market, and Brunswick’s Sea Ray brand has a strong backlog in some new sterndrive models. “Generally speaking, the sterndrive segment has done OK the past few years, just not as well as outboard boats,” says Jack Ellis, managing director of Miami-based Info-Link. “Most of the damage was done back in the 2007-to-2009 period, when every segment took a hit.” That was when new regulations forced sterndrive makers to add catalytic converters, causing prices to rise at the worst possible time.

“The sterndrive segment took the brunt of the hit and has yet to experience the recovery that the rest of the market is enjoying,” Ellis says, emphasizing that he does not want to “throw a wet blanket” on this market.

“It depends on how you cut the data, but in general most of the decline in sterndrive-boat sales over the past few years has been in the smaller-boat category,” he says. “I suspect this is partially due to economics since it may be more cost-effective to strap an outboard to the transom of a smaller boat than it is to install a sterndrive.”

That is attributable, in part, to emission regulations that require all sterndrive engines to have catalytic converters and, in part, to the economy, Ellis says. And although it’s hard to say which came first, some speculate that Volvo Penta’s discontinuation of its 3-liter sterndrive also has contributed to declining sales of small sterndrive boats.

“We’re in a totally different environment today, so sterndrive engines are apt to play a different role,” Ellis says. “I think companies that sell larger, higher-end freshwater sterndrive boats will do just fine.”

Cobalt, which sells nothing but sterndrive boats, is a good example of a company that is gaining a larger piece of the shrinking pie, he says. “It’s hard to say whether the segment, on the whole, is doing well or not,” he says. “There are those doing well and those not doing well. And Cobalt just happens to be one of the brands doing well.”

Uneven recovery

There’s no “magic bullet,” Cobalt communications director Gavan Hunt says. “If there was, everybody would already be shooting it. We have to do the same thing that has built many businesses in other industries. We take care of customers, and they spread the word. When people are enjoying what they’re doing, they shout it from the rooftops.”

People who follow the sterndrive segment are making the mistake of lumping the entire market together, and that’s not giving them an accurate picture, Hunt says. “It’s not that the whole sterndrive market is in rapid decline,” he says, although for those watching the total unit count it appears to remain in decline. “If you break it down it becomes more palatable, and for us it becomes a lot more palatable because we don’t sell boats under 20 feet.”

The most dramatic drop in sales has been in the under-20-foot category, which until last year was the largest in terms of sales, Info-Link data shows. That category went from almost 6,000 units in 2011 to about 4,200 in 2013. The 20- to 22-foot category continued declining but at a slower rate — from about 5,400 in 2011 to about 4,600 in 2013.

Over 23 feet, the market is experiencing gains. The 23- to 25-foot category has risen from about 2,200 sales in 2011 to about 2,500 in 2013, and the 26- to 28-foot and 29-plus foot categories also have shown growth, although both had totals under 2,000 units.

“If you look at many who build those boats under 20 feet, they switched from sterndrive to outboard power for various reasons — one of them being Volvo doesn’t build the 3L anymore,” Hunt says. Innovation also has added to outboard popularity, he says.

Revitalizing the segment

Mercury Marine says it wants to revitalize the sterndrive market by taking control and building its own engine blocks instead of getting them from the automotive industry, as it does today. “We’ll have more control over that product,” Mercury president Mark Schwabero, who was recently named president of Brunswick Corp., told analysts in November. “We believe we have an opportunity to revitalize the sterndrive market, and decisions we’ve made about taking control, I think, will be helpful.

“In the 23- to 36-foot category, sterndrives are on the incline,” he says. “And there are a lot more people that can afford a small boat than a big boat, so when you look at unit counts, which is what you’re talking about, the decline is happening in small boats.”

Brunswick dealers are buoyant about new-model sales, CEO Dusty McCoy told investors during an earnings call in late April. “They believe that we’re going to have a good year, consistent with what we’ve been thinking the overall year is going to look like,” he says. The one exception, McCoy says, is the under-40-foot sterndrive business. “As we look at that, it continues to be a tough world for that part of the business in the first quarter,” McCoy says. “I think when we told everyone what our view was at the beginning of the year, we did not view that segment as growing. We think dealers share that view.”

The company’s Sea Ray brand is “really beginning to attack the style of boat in that size range with outboard power rather than sterndrive power,” McCoy says. “That’s working well. Consumers are starting to move to that, and we’re absolutely fine with that from a top-line margin perspective.”

Consumer draw

Bill Watters, president of distribution company Syntec Industries, says that despite great new products, consumers have been slow to respond in fiberglass, particularly in the sterndrive segment. “A lot of the fiberglass builders have a lot of good innovation, but it’s just not coming back the way pontoon and aluminum boats are,” Watters says.

But new product can’t be underestimated in a category that has seen fewer dramatic changes in propulsion innovation than others have, which has prompted Sea Ray to make strides in model releases, as well. The sterndrive-powered 350 SLX has seen demand outstrip supply. “The 350 SLX has twin sterndrives, and it’s on fire, so it’s as much about new product as it is being powered by sterndrive. If the innovative new product is there, the success will be there with it,” MarineMax CEO Bill McGill told investors and analysts while discussing a quarterly earnings report that was released on the same day as Brunswick’s.

“Our backlog applies to sterndrive product, as well,” MarineMax CFO Mike McLamb added.

“The growth has changed; it’s a lot of money for boats these days,” Hunt says. “But there’s a lot of innovation in them, too, like in a luxury car.” Cobalt’s new A40 is another example of how the right product can spark sales, he says, adding that the boat was an “instant success” after its Miami International Boat Show debut.

Chaparral, another high performer in the marketplace, says it saw strong response to the 307 SSX Sportboat, introduced during the 2014 model year, and in larger Chaparral H2O models. Parent company Marine Products Corp. is the second-largest manufacturer of sterndrive boats in the United States, with a 13.9 percent market share in the 18- to 35-foot range, according to Jim Landers, vice president of corporate finance. Chaparral has 32 models from 16 to 37 feet.

“We have traditionally built a higher-end boat for a higher-end market,” Landers said during a presentation in April. “We realized a value-priced model would be a good way to grow. It’s called the H2O.” That could be why the company has been able to increase sterndrive sales even in those smaller size ranges.

Hunt anticipates that new jetboat builders will further take market share from smaller sterndrive boats. Chaparral is poised to take advantage of that with its new Vortex jetboat line, which began selling in the first quarter this year.

Sterndrive-powered boats will find success when the product hits the right note because, like outboards, their installation comes with specific advantages, such as the ability to give the boat a full swim platform and ample space in the stern for lounging and sunbathing.

“We need a little recovery in consumer confidence, and the [sterndrive] consumer will be there,” McGill says.

This article originally appeared in the June 2014 issue.

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