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The struggle to hang on until spring

For many, it's their toughest winter in the boat business - for some, their last


As some segments of the economy show signs of emerging from the deepest recession in generations, boat dealers and manufacturers continue to struggle with a long, hard winter. Many expect more to fail before spring.

The announcement by Yamaha that it is discontinuing its Century Boats line is just the latest example of manufacturers cutting brands. Several boat shows have been canceled, and those that are taking place this winter are largely scaled-down versions of past productions.

Late last year, the uncertainty surrounding Genmar's Chapter 11 bankruptcy and sale had other dealers worried that more brands would be discontinued, forcing even more dealers to close their doors and further flood the market with discounted and liquidated boats (see story on Page16). Few expected a loosening of wholesale or retail credit during the winter.

"It's kind of an ugly picture, to be honest with you," says Phil Keeter, president of the Marine Retailers Association of America. "There is going to be more contraction."

Keeter estimates between 400 and 500 dealerships will fail by mid-2010, and guesses about 500 of the approximately 5,000 dealerships nationwide already have gone under.


"I think it's going to be a long, cold, hard winter all the way across the board," agrees Chris Stevens, general manager of Grand Pointe Marina in Dimondale, Mich. "I think all the good dealers have made adjustments to inventory and staff and finances, but I feel there's a lot more fallout to come."

Regional influences

High unemployment will contribute to the list of failures, dealers say.

"This industry has not operated with more than 10 percent unemployment in a very long time, if ever, so you're going to have fewer customers," says Earl Stoltzfus, owner of Stoltzfus RV and Marine in West Chester, Pa. "So it's going to be a difficult winter."

In parts of Michigan, unemployment was hovering around 15 percent in December.

"There aren't a lot of bright spots in the luxury business," says Stevens. "It's tough to stay positive when we know all we have is snow and zero-  degree weather in these three months. If there is a positive, we think we're doing most things right, and we're in a pretty good position."

Still, Stevens speculates that several dealers in Michigan, Indiana and Ohio won't last until spring.

In Florida, 45 percent of homeowners with mortgages are underwater, meaning they owe more on their homes than the homes are worth, says Marty Pozo, vice president and general manager of Orlando-based Boat Tree. The family-owned dealership has gone from five locations to three in its effort to streamline its business.


"[Customers] used to rely on that [home] equity to buy boats and RVs and other recreational products," says Pozo. "Now that equity is gone."

Things are slow even in places that theoretically have year-round boating, says Pozo.

"Even down here in Florida, the winter months are traditionally the slowest months," he says. "People are thinking about Christmas and kids and other expenses."

Don Galey, owner of Galey's Marine in Bakersfield, Calif., agrees. "It's still a spring and summer activity," he says.

The economy has suffered in sunny California, too. Galey says he lives in the ninth-most depressed city in the country, and in the second-most depressed state.

"It's not over yet," he warns of the hard times.

Boat show challenges

Winter boat shows have also taken a beating. Some have been cancelled altogether - including the Boston In-Water Boat Show and the National Marine Manufacturers Association's New Orleans Boat Show.

"If dealers didn't go to Newport, they certainly wouldn't come to the Boston boat show," says Larry Russo, owner of Boston-based Russo Marine.

Russo understands the thinking behind the cutbacks. "The consumer will remember a flop," he says. "The consumer will not remember a show that never took place."

Boat shows have become increasingly expensive and much tougher to budget for in tough economic times, Galey points out. "It just seems like the cost is much higher every year," he says.

The Southern California Marine Association is considering attempting a combination show - boats, motorcycles and RVs - to help spread out the costs, he says.

Other shows, like the Washington Boat Show held in Washington, D.C., took 2009 off, and several more went on as scaled-back versions of their prior eminence.

Some show producers worried that Genmar dealers would opt out of shows and prompt other cancellations. At one boat show, three Genmar exhibitors pulled out, Keeter says.

Two of those only had Genmar products. One said he was getting out of the business, and the other was scrambling to find another line but didn't think he'd secure it before the show. The third had other boats, but because he carried Carver and Marquis, he had far more space than he needed since he couldn't order new models of his largest product.

The Genmar factor

Pozo had other concerns moving through the winter where Genmar was concerned.

Boat Tree carried Hydra-Sports and Carver, both Genmar brands, before the bankruptcy filing. Genmar owes Boat Tree more than $65,000, Pozo says. "And we don't think we'll see it."

Boat Tree also carried Century, and Pozo says the dealership learned the brand was being discontinued from Soundings Trade Only's daily e-mail newsletter. The dealership had just consulted with a Century representative the week before and was planning to order product.

Pozo says the family will take its time looking for a replacement brand.

"We're going to be very selective ... and make sure we partner with the right manufacturer," Pozo says. "We wouldn't consider going back with Genmar unless it was after years ... because of the experience that we've had and the promises we've been made and the commitments that haven't been honored. It's left a bad taste in everybody's mouth."

Stevens says the uncertainty that has surrounded the second-largest boatbuilder is making retail lenders more cautious.

"It's not helping the retail side," Stevens says. "There are a lot of question marks from dealers to retail customers. It's putting a lot of strain on the retail success of 2010."

Credit still crunched

Though Boat Tree has its own F&I department, the banks it deals with have become more stringent, says Pozo - something dealerships have gotten used to in the last year, but something they worry will inhibit already-slow winter sales. Banks are requiring higher down payments, higher credit scores, documentation and tax returns, but Pozo says deals still are getting done.

Boat Tree is one of many dealerships trying to persuade local banks to get into wholesale financing to help fill the gap left by the departure of major national floorplan lenders.

"They're not used to that type of business, and we're having to educate them some," Pozo says. "A lot of banks don't know much about the marine industry, and they're just scared."

The dealership was doing its floorplan financing almost exclusively with Textron when that lender announced it was exiting marine in December 2008.

Convincing local lenders to extend lines of floorplan credit would help ease a situation that experts don't see changing anytime soon - certainly not during the winter months.

Relying on GE, the only national wholesale lender left in the marine industry, some dealers say their rates have become exorbitant - another factor that will contribute to dealership stresses. Galey says GE is assessing him a 2 percent surcharge for the first time.

A shakeout takes shape

Dealerships that have barely hung on through the summer and fall will not likely make it, but those who can eke it out through the winter probably will survive, speculates Thom Dammrich, president of the National Marine Manufacturers Association.

Galey's Marine continues to compete with heavily discounted prices, Galey says.

"Yes, there are still dealers going out of our industry, and we're going to lose some really good dealers, but we're also going to lose what I call sandlot dealers, who never had any business being in the industry to begin with," he says. "The dealers remaining are those good dealers - the ones who do have good service, and they will benefit with that market share when things bounce back."

Stevens says he knows of four dealerships that have filed for bankruptcy or sold their brands in his area, but who have hung on to their used-boat and brokerage businesses, marinas and service shops.

"I think you're going to see more of that this winter with a lot of the bigger dealers," says Stevens. "It's good for that dealer, but for the dealers like me who are paying interest on this old product, we're taking a beating. And these guys get their slates wiped clean and probably come away more profitable than they would have been if they had kept those boats and kept paying the juice on them."

Manufacturers have mostly cleared inventory, but dealers realize that more bankruptcies means more inventory on the retail side.

"I don't understand the folks who say that it's coming to an end," Stevens says.

Stevens thinks the banks and liquidators still have tons of boats they're trying to unload at auctions and sell at discount to large retail dealers.

"The longer it sits in their inventory, the cheaper it's going to become," he says.

Used boats carry the load

In past downturns, winterization and storage were the cash cows that helped dealerships stay afloat, but this time, many say it's their used-boat and brokerage businesses.

"There's a huge audience out there who can't be moved to buy a new boat," says Russo. "There's this consumer stigma about showing up with a new boat. We've seen our fall business go to preowned boats in percentages like we've never seen before."

Russo, like many dealers, is adopting an auto-industry-type approach to used boats.

"We don't sell used boats; we sell preowned boats, and we have preowned certified boats, which is Boston Whaler or Sea Ray, and nothing more than five years old," Russo explains.

In November, only one of the 18 boats sold at Russo Marine was new. In October, nine of 32 were new. In the past, used boats have accounted for only a third of unit sales at Russo Marine.

"Conspicuous consumption is being put aside right now, but it's not getting in the way of people who want to buy boats," says Russo. "They just buy next-to-new boats, and they come here to do it because we offer an alternative," he says.

In December, Russo says he had 70 used boats available.

Pozo says the used and consignment business has been a major contributor to Boat Tree's bottom line. The dealership has even partnered with American Marine Liquidators.

"There's a lot of inventory out there, and it seems like everybody today, because of the economy, when they come in, they come looking for deals," Pozo says. "The repossessed product and consignment provides that product for that customer."

This article orginally appeared in the February 2010 issue.


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