A Perfect Storm for Boat Buyers
Loren Simkowitz is a boat owner who made tens of millions in commercial real estate. In a recent interview shown on BTC he said "You make money when you buy a boat or a property, not when you go to sell it." What did he mean? Simply, that if you buy low -- and well below the market, when you go to sell, chances are that inflation, increased scarcity, greater demand or all three will maximize your selling price.
A confluence of events has hit boat sales hard and there are few if any companies that have not had a double digit sales decrease this year. Some industry observers are saying this is the worst selling season since the late 1970's when interest rates were pushing 20% and the only boats sold were for cash. (Many of those cash buyers sold their boats 4-6 years later for what they had paid and in some cases for even more!) So, what exactly are the factors that have caused the second biggest boating sales down-turn since WWII?
The "Perfect Storm" for Boat Buyers
- The U.S. home mortgage crisis and the related problems we all know about.
- Over-building by some builders the last three years.
- Builders stop paying dealer floor planning in April.
- Fuel prices spiked at the beginning of the selling season.
- Up to two years of unsold new boat inventory here and there around the country.
- Several boat builders went OB leaving orphans in the field.
- Consumer Confidence dropped in May.
- Some boat dealers close and inventory was liquidated.
- Credit tightened the last couple of months.
- Stock market has a 400 point down day.
For some brands, all of this adds up to a lot of boats for sale, both new (2008), and non-current: 2006 and 2007. Other brands have not been hit so hard and have a manageable amount of inventory in the field. The best run brands have been closely watching field inventory and have cut back apace with the market. But even here, the buyer is in the driver’s seat.
Builders are Now Subsidizing Sales
Generally speaking, prices from small boats to large ones have descended to levels previously unheard of. In the winter dealers had "Boat Show Specials," then they cut prices as they always do in mid-Spring when the market is spongy. In April, the builders who are paying dealer floor planning interest expenses stop, which encourages dealers to drop prices even more.
Late this spring when boats didn't move in sufficient quantities, many boat builders themselves stepped in. Some companies are offering large cash rebates from the factory, one is advertising boats below dealer factory invoice on non-current inventory, others are subsidizing boat loan interest rates for consumers, some are offering subsidized fuel for two years, a couple are offering all of the above.
Price is Not the Problem
Some builders tell us none of their incentives are working to motivate buyers no matter how generous. Others tell us that showroom traffic is incredibly light no matter how much advertising they do.
The reason, or course, that Americans are not buying boats has nothing to do with prices. It has nothing to do with $4-$5 fuel. It has only to do with their fear of the future might bring.
This is an American phenomenon. It is not global. Europeans are snapping up American-built boats this summer as quickly as they can be unloaded from ships. One boat builder told us his only problem was finding enough cargo space for his boats going to Europe.
The Sky is NOT Falling
It is a scenario our friend Loren Simkowitz knows well. Times when fear grips the real estate market are times when he sharpens his pencil and buys. He has a PhD in economics and he knows that the economy has always come back before. He knows that Western governments have learned during the last 70 years how to overt complete financial melt downs.
Savvy boat owners who know that the sky is really not falling, know that if they can eliminate most of the depreciation hit that occurs when boats are bought in good times, then they then have an asset they can enjoy, and it won't devalue more than a stock, bond or Florida condo, and maybe not as much. There are many boat owners who have bought at the right time and right price who have fared quite well.
All Assets Can Devalue
Traditional assets such as stocks, bonds, gold, real estate and business properties are supposed to appreciate and be "safe", but of course, they all go through their troubled times as we are seeing now with real estate.
Floating Assets
Unlike with boats, you can't ski, fish or cruise in in your municipal bond or on your GE stock. Boats are an asset that you can enjoy and they do not have to be a rapidly depreciating asset if bought at the right price at the right time. In our opinion, this summer is one of those right times.
Rising Prices for Next Year’s Models
In the last week we have polled a number of Large U.S. boat builders as to what their price increases might be for 2009 model year. It is no secret that resin prices have been spiking in tandem With crude oil. Fiberglass is also way up as are metals. Several builders noted that stainless steel bow pulpits have gone up as much as 40%. Engines are up 3% to 7%. Virtually all components are up.
Boat builders are fighting hard to hold prices. But generally speaking it seems as if the larger boats might experience price increases of about 7%. Builders of smaller boats are more optimistic that they can hold increases below 5% or so.
But no matter what the magnitude of the increase, there is still an increase, and this ads value to any good deal you make this summer.