||U.S. Boat Industry No Longer Foundering, But Recovery Remains Murky
The U.S. recreational boat industry has likely stopped sinking, but it faces a slow recovery and an unpredictable future.
Sales of recreational power boats fell to a record low of 132,000 vessels last year, a 55% decline from 2006 and down 14% from 2009. While the industry is widely seen as having bottomed out last year, the momentum behind an upturn remains unclear. Some projections have sales rising as much as 10% this year, but few forecasters are willing to say when or if sales will ever return to the 300,000 boats a year the industry averaged in the 14 years prior to 2007.
The dynamics that sustained the industry for years changed significantly during the economic recession. Largely gone are the easy access to credit and the disposable income from rising real estate values, factors that helped send first-time boat buyers to showrooms and prompt existing boaters to move up to more expensive models.
Rising fuel costs and elevated unemployment levels, especially in such coastal states as California and Florida, have further dampened enthusiasm for boating among those who own boats. The average annual number of days owners used their boats dropped by more than a week between 2006 and 2009.
"I think we'll be a lot smaller industry, but that doesn't mean we'll be a less profitable industry," said Phil Keeter, president of the Marine Retailers Association of America, who expects boat sales to eventually plateau at about 200,000 units a year. "I don't think boating is going to go away."
Keeter's sentiments are shared by many in the boating industry who are counting on lower overhead costs, slimmed down boat inventories and fewer dealers and boat brands to create a healthier industry for the survivors.
Brunswick Corp., the largest boat and engine builder in the U.S. by annual sales, closed 17 plants, furloughed 45% of its worldwide work force and eliminated eight boat brands since 2007. The company estimates those moves will lower expenses by $420 million a year. Brunswick's remaining brands include Bayliner, Meridian, Sea Ray, Lund, Hatteras and Mercury engines.
"While we were going through this (downturn) we knew we had to come out differently," Brunswick Chairman and Chief Executive Dustan McCoy said during a presentation to investors. "We had to have a significantly lower cost base. We had to come out of this much more efficient."
McCoy's goal is for Brunswick to earn as much money from an industry that sells 200,000 boats a year as it did when industry sales were 300,000 boats a year. McCoy projects Brunswick should be able to break even if industry sales are no better than 135,000 boats this year.
The Illinois-based company also sells bowling, billiards and fitness equipment, but hasn't reported a profit since 2007. However, McCoy expects the company to earn between 5 cents and 40 cents a share in 2011.
"Brunswick did a pretty good of (showing) just how lean they could become," said James Hardiman, an analyst for Longbow Research. "If they hadn't, they would not be in business right now."
The number of U.S. boat dealers has fallen by more than 40% in recent years to 3,100. Boats from those shuttered dealerships flooded onto the used-boat market at rock-bottom prices. That depressed demand for new boats, which accounted for just 15% of all boats sold last year.
"Our biggest competitors became our own boats that were being repossessed," said Irwin Jacobs, cofounder of boat maker J&D Holdings LLC in Minnesota.
Jacobs previously presided over Genmar Holdings Inc., the second-largest U.S. boat builder behind Brunswick. But the privately held company's debt problems forced it into bankruptcy in 2009. Genmar, which had annual sales of $1 billion before the downturn, was sold last year to California private equity firm Platinum Equity for about $70 million. Jacobs managed to buy back six of Genmar's boat brands, including Carver, Marquis and Larson, and three of its factories. Jacobs sees J&D's sales reaching about $200 million this year.
"For the first time in two years, I have some sincere optimism," he said.
The glut of boats on the market from failed dealerships has eased in recent months, forcing more boat buyers to consider new models at full price. Sales from regional boat shows this winter have been running ahead of last year, with demand strongest for smaller, lower-priced motor boats and pontoon boats.
Kurt and Robin Anstaett were among those looking at pontoon boats at last month's Chicago Boat, RV & Outdoors Show. The suburban Chicago couple are building a waterfront home in Michigan.
"We'll buy a boat, but we're not sure what kind of boat," said Kurt Anstaett. "People are definitely buying boats. The dealers aren't giving them away."
But loans for boats from banks, credit unions or finance companies remain tight and consumers are cautious about taking on additional debt, dealers say. Unlike auto companies, boat manufacturers don't operate finance companies for their retail customers.
"People are still scared" of buying, said Warren Moulis, owner of a Brunswick dealership in Fox Lake, Ill. "If (Brunswick) could do the retail side financing, our industry would be back on its feet in no time. People are sick of sitting around. They want to get out on the water."
(Source: Dow Jones Newswires, 02/25/11)
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