Boat Builders and Dealers Get That Sinking Feeling
Buzz Hardy, the owner of Sundown Marine in San Diego, stands to lose more than $600 on each of the five sleek 17-foot Glastron Futura powerboats now on sale at his dealership for $13,600, a 20% markdown from his asking price six months ago.
Such close-out prices are a first in Hardy’s 13-year career as a boat merchant. But, with Sundown’s 1989 boat sales down 25% from the previous year, and with 1990 off to a less than auspicious start, Hardy just can’t afford to watch his showroom become a perpetual dry dock.
“Nobody was buying. Nobody was even looking,” Hardy said. “It’s not that people were out there wanting to buy but couldn’t get credit. They just flat weren’t coming into the store.”
The price cuts by Hardy and several other Southern California boat dealers were a symptom of a significant slump in recreational power boat sales nationwide last year, the first decline in boat sales after seven years of growth.
According to figures compiled by the National Marine Manufacturers Assn., boat sales dropped last year to 638,000, a 15% decline from the 749,000 units sold in 1988. The sales figures include sailboats and power boats. Total dollars spent on all boats and boating accessories fell to $17.1 billion in 1989, from $17.9 billion in 1988.
Industry analysts have blamed everything from bad weather and rising interest rates to the San Francisco earthquake, which hit just a few days before one of Southern California’s biggest boat shows, for the seven-month slump. But the one thing on which everyone agrees is that dealers were stocked with more boats than they could sell at a time when consumers were looking elsewhere for recreation and entertainment.
“The market was contracting, and we continued to build into that down cycle,” said Greg Proteau, spokesman for the National Marine Manufacturers Assn. in Chicago. “It’s very hard to just turn off the switch, and it’s going to be a little difficult to turn it back on.”
The power boat industry has gone through tremendous change since the end of 1986, when most boats were assembled by dealers who had to buy the boat shell, engine and trailer from separate specialty manufacturers.
At about that time, Brunswick and Outboard Marine, two of the nation’s largest producers of powerboat engines, began to realize that there were profits to be made by integrating the industry, and embarked on plans to bring the disparate aspects of boat making under one roof.
In December 1986, Brunswick took the first step by spending $425 million to acquire Bayliner Marine, which is generally regarded as the first boat company to package boats, engines and trailers at reduced prices. Outboard Marine soon followed suit, and, by February, 1989, had spent $230 million to buy 10 smaller boat manufacturing companies, including Chris Craft and Four Winns, two widely recognized brand names.
The acquisitions appeared to be to everyone’s benefit, said Outboard vice president Wayne Jones. “Dealers like the idea of not having to be the final assembler. Boat manufacturers can do their job more cheaply by prerigging all the controls in a boat. And consumers like the one-stop shopping.”
But many dealers now say they were taken in by the acquisition frenzy, encouraged to take on more boats than they could sell by smaller manufacturers who were eager to look attractive to the big buyers.
“During that period of acquisition, a lot of boat manufacturers exaggerated their production and filled the dealer pipelines with excessive inventory,” said Tom Fetter, owner of Kettenburg Marine in San Diego, a large distributor of marine parts.
But rising interest rates and declining consumer confidence soon led to a slip in sales by early spring, marking the start of what many analysts describe as a leveling off period for the boating industry.
Last week, Outboard Marine projected net losses in the $15-million to $19-million range for the first quarter ended Dec. 31, with total sales down about 12% from last year. Although a $100-million pretax restructuring charge last year makes it difficult to compare Brunswick’s earnings in 1989 with the year before, securities analysts put the marine segment’s losses, excluding extraordinary charges, at about $10 million for each of the last two quarters.
Stock prices of both publicly held companies have recently traded at or near their 52-week lows.
In an effort to streamline its costs and to combat massive declines in powerboat sales, Brunswick last summer reorganized its marine group, closed six plants and laid off more than 4,000 workers. But some predict the decline will continue at least through the end of the year, if not longer.
“The boat business is in trouble and it has been for some time,” said Merrill Lynch securities analyst Harold Vogel. “The consumer is tapped out. They’re borrowed up to their necks. Their houses aren’t increasing in value. I personally think it’s a recession, and that it’s not going to turn around any time soon.”
Despite that bleak prognosis, many local dealers remain optimistic they will be able to ride out the storm.
Several dealers interviewed said they are coping with the sales slump by stepping up advertising, cutting prices and passing on manufacturer-sponsored financing programs.
Hardy of Sundown Marine said that some customers have been buying boats from him through an aggressive loan-financing program made available through Outboard Marine that required no down payment.
Gene Ciccarelli, a principal of Newport Pacific boat dealership in Newport Beach, said he cut about 3% from his boat prices about six months ago in order to make the boats more attractive and to eliminate a “negotiating buffer” that allowed “a silver-tongued attorney to get a better deal than a blue collar worker who doesn’t have the same verbal skills.”
He also put younger people who are willing to work for less money onto his sales force and and trained them to drum up prospective customers with telephone and direct mail solicitations.
Other dealers are consolidating their operations or offering a wider array of recreational products to their customers. Sea Ray power boats in San Diego, recently joined forces with Winnebago dealer Herb Hulet in an effort to “hedge our bet into the ‘90s,” Hulet said.
Although the sales slump has changed the way a lot of powerboat dealers do business, it appears to have had less effect on dealers who sell big, expensive yachts.
Bud Sperling, co-owner of Pacific Yacht Sales in Marina del Rey, said that, although he saw fewer first-time buyers last year, he more than made up the difference in sales of larger boats, many priced at more than $200,000.
“We’ve tended to sell more and more boats in the 38-foot to 58-foot category,” Sperling said. “We’ve also tended to see people graduating into larger and larger boats.”
Indeed, the operative phrase for the 1990s, according to the National Assn. of Marine Products and Services, is “Fewer but larger,” with weaker companies closing shop and profitable ones consolidating and winning larger shares of the boating market.
By 1994, according to a study published by the association, the number of healthy dealerships nationwide is expected to drop to 8,000 from a high in 1988 of 10,000.
On average, the surviving dealers are expected to generate an average of $2.4 million each in sales, up from an average of $1.3 million in 1988.
“As an industry, we overproduced,” said Joseph Kaswell, editor of Marine Industry, a national trade magazine. “Until that pipeline gets cleared out, we’ll have a period of adjustments, and then we will be able to grow from there. For consumers, it’s a very good period. But we’ll be losing dealers, and we’ll be losing manufacturers, and they’ll be slashing prices to try to survive.”
