The New Normal In New Boat Buying

After every great American economic crisis and financial downturn the face of boating has changed. Little wonder since boating is probably the most tenuous major item on anyone’s shopping list. With each financial disaster follows two to four years of economic hardship for the boating industry and as it struggles to survive it morphs into a different form. That process is going on right now before our eyes. Join us as we look at the future of boat pricing, boat selecting, and boat buying.

The Great Recession has caused things to dramatically change in the boat business and boat buying will never be the same. Get ready for the New Normal.

1. Higher New Boat Prices. In our 41 years in this business we have never heard so many builders say publicly that they are going to raise prices and let unit sales and market share fall where it may. The reason for that is most builders have been operating in the red or at breakeven for two or three years, they expect sales to be low in 2010, and since there will not be much “volume” to generate profits, it will have to come from the boats that are sold. The “rainy day” reserves of even the most frugal company have long since been emptied, loan sources have gone dry, so there is only one recourse for builders – consumers will have to pay up.

Most of the field inventory that has glutted the boat distribution pipe for the last three years that has resulted in the best deals in a lifetime has mostly been sold off. What is left in will be sold off within the next six months in most cases, so if a consumer wants a new boat, he will have to pay retail. Making matters worse for consumers is the fact that resin and fiberglass prices have gone up 15% within the last three months.

If all of this wasn’t enough, there will be new, higher standards for boat-building as the ABYC (American Boat and Yacht Council) works with their European counterparts to bring ABYC and CE standards together. Currently boat builders must make some modifications to their boats to sell them in Europe. The new regs will make American boats safer and better, but will also add some cost.

And don't forget that all stern drive and inboard gas engines must now have catalitic converters. Add $3k per unit.

2. There Will Be Fewer Builders, Fewer Brands. Huge economic upheavals nearly always result in numerous boat companies going out of business. After the 1979-82 period of high interest rates (hitting 22% at one point), power boating recovered but the sailboat industry did not. Cal, Ranger, Erickson, O’Day, Pearson, Morgan, Irwin, C&C and others – virtually all of the premier production sailboat builders in America – died out in the next decade.

After the perfect economic storm of the 1989-92 period of the stock market collapse, the 10% Luxury Tax on boats and the Gulf War, American powerboat companies crumbled into the dust in the years following. Pacemaker, Uniflite, Tollycraft, Jersey, Trojan, Egg Harbor, Blackfin, Phoenix and others quietly disappeared in the aftermath. Some companies that remained in business, or brands that were resurrected, could never regain their old mojo.

The last year we reported on a number of Chapter 11 cases, most of which have come out of court protection to fight another day, but a number of lower-profile companies have already shut their doors. More are still in “hibernation,” and even companies that are in business have been so weakened by the Great Recession that we fear that if history is any indicator, five years from now the number of builders will be greatly diminished. This is not a happy prospect for consumers as it means less choice and generally higher prices.

3. Fewer Boat Models. Most builders offer 20 models or more. This is a staggering number given the low number of units which are sold. Builders are looking hard at anything they can do to eliminate cost, and that includes triage among its models for many companies, as slow sellers are discontinued. During 2008 and 2009 every boat builder who could consolidate production of different brands into one factory has done it. In some cases high price-point brands are being built along side low price-point brands. With time, and perhaps better times as well, the least profitable models in the factory, no matter what brand it is from, might be dropped from the boats offered.

4. Fewer Dealers, Fewer Boats in Showrooms. Already 10% to 20% of American boat dealers have gone out of business. Others are so weakened that their future is in doubt. The best have other sources of income such as marina slip rentals, repair, or a profit center in another industry all together. There is only one national boat floor plan lender, GE Capital, and its loans have been greatly curtailed to the marine sector. With limited floor plan money available, the number of boats in inventory will be quite a bit less than it was before. Some dealers will have few if any boats in stock. Increasingly, consumers will go to a dealership only to see a color brochure.

5. More Factory-Direct Brands and Sales. Importers of large boats like Nordhavn, Kadey-Krogen, Fleming, Cheoy Lee, and others have long since given up on dealers and now have their own U.S. company-owned dealerships or sales offices. Other builders of large boats also basically sell their boats from the factory. A couple of years ago Regal Marine started dealing directly with customers sent to them by dealers for their 52-footer, the largest boat in its line. The dealers sold the boat to the consumer and did the aftermarket service, but did not have to stock the boat.

In other cases the last year, builders were so strapped for cash, that they sold boats directly from their factory to consumers, and shared commission with the appropriate dealer in order to keep is distribution network in tact. This was done out of necessity, but with floor plan curtailments it will increasingly be the norm for certain brands and certain size boats.

Builders of large boats which typically are now only building 20 to 30 boats a year, or even less, will naturally sell pretty much factory direct.

6. Boats Built to Order. For all of the reasons listed above all but the smallest, least expensive boats will be built to order. That is to say, a consumer will decide with the dealer about what options are wanted, a deposit will be made, and an order will be sent to the factory and construction will commence. In this way neither the dealer nor the builder has had to gamble that the money invested in building and stocking a boat will be sold at a fair price in a timely fashion. This is boat buying and boat building the old fashioned way – cash on the barrelhead and one at a time.

There are two corollaries to this development, one good and one bad. The bad one is that consumers will have to wait to have their boats built. That means that boaters will have to plan ahead in order to get the boat they want for the next season. The longer a builder is back-ordered, and the larger the boat it is, the longer will be the wait. The good news is, particular for boats over 50’ – the builder will be happy to make minor, customized changed for the buyers. In boats over 60’, depending on the builder, the factory may be willing to make major changes, meaning the customer can get exactly what is wanted.

7. High-Speed Not So Important. Few people are talking about going faster these days. Rather the emphasis is on fuel economy and safety. For example, at one time bass boat builders promoted the speed of their boats. Today, they are more interested in other aspects of performance and holding down the speed to help keep their customers safe, much the way the PWC industry has done by limiting their watercraft to around 65 mph.

8. More Utility. Consumers the last couple of years have been looking for more utility, and that trend will continue as builders are nearly all introducing “hybrid,”, “cross-over” and “multi-use” models in nearly all classes. Builders are doing this to appeal to a wider audience of buyers. For example the offshore big game fishing market has been soft for a couple of years so builders are now emphasizing the cruising aspects of their boats. The old “Fish & Ski” concept for freshwater boats is coming back once again. The whole idea is to be able to do a lot of watersport activities from one platform and keep the whole family happy.

9. “Value” is Now King. At the same time that boat builders are talking about raising prices, consumers are trending to lower priced models and lower price-point brands. Because of the Great Recession few people are bashful these days about making “sensible” expenditures, forgoing the glitzy top-of-the-line status product for a more utilitarian brand. So while boat builders may be raising prices, boat consumers will be looking for more stripped down boats, or boats with fewer amenities and boats of lower "status" because its perceived “value” is high.

10. Research and Longer Sales Process. Recently the owner of a brand that builds boats in the 50-foot range told us that his average customer takes two to three years to make a decision. While we doubt that most boat buyers for smaller boats will take that much time, our studies indicate that buyers are not so apt to shoot from the hip these days. They are thoroughly researching several boats in class before they zero-in on a brand or model. Increasingly, powerboat buyers are becoming far more knowledgeable before they buy. They are using the Internet (and BoatTEST.com) to become familiar with the amenities, equipment, performance, and cost of boats and are relying more on their own judgment as to what boats fill their needs and provide “value.” Finally, brand loyalty is probably lower than ever before, simply because with the Internet it is so much easier to become familiar with unknown brands and products which were never considered before.