Boat inventory is leaving showroom floors twice as fast today as it did a couple of years ago.
Sounding Trades Only reported that Bruce Van Wagoner, president of GE Capital’s commercial marine lending group, delivered that message during an address on the state of the marine industry via podcast last week with National Marine Manufacturers Association (NMMA) president Thom Dammrich.
“That’s a very promising indicator,” Matt Gruhn, president of the Marine Retailers Association of America, told Soundings Trade Only. “We’ve traditionally been known as a two-turn industry, but I think it’s really a little less than two turns, so for us to be up and over that, it means we’re managing our inventory better.”
Inventory more than a year old is at a historic low of 13%, compared with 47% at the recession’s peak, Van Wagoner said in the podcast.
The decision to buy a boat can still be impulsive if consumers see what they want, Dammrich pointed out. That’s why “dealers really need to make sure they have adequate inventory levels,” Van Wagoner said.
“The dealer’s risking losing a sale to a spontaneous buyer if what that person’s looking for is not in stock or if they don’t see a range of choices,” Van Wagoner said. Inventory is one-third less than it was at its peak, he said.
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National Marine Manufacturers Association (NMMA) President Thom Dammrich is asking members to raise $125,000 this year to get as much representation on Capitol Hill as possible through the political action committee.
“As you know, the boating industry faces significant legislative challenges that could negatively impact the boating industry — and your bottom line,” Dammrich said in a letter. “Recreational boating must support candidates who share our goals and are sympathetic to our positions. A strong BoatPAC is vital if we are to protect our industry against harmful legislation.”
Soundings Trade Only reported that the BoatPAC has already raised $59,000, Dammrich said in the letter.
Recreational boating had direct industry sales last year of more than $32 billion and supports hundreds of thousands of jobs, Dammrich said.
“It is time to stop imagining and start executing,” Dammrich said. “Political visibility will be crucial in this upcoming election cycle. We ask you to join our campaign to grow the industry’s political strength in Washington, D.C., by supporting the National Marine Manufacturers Association BoatPAC.”
A variety of issues confront the industry today, including potential punitive tax measures on boating, the introduction of E15, an activist regulatory agenda, trade barriers in expanding markets, intellectual property protection and enforcement, small vessel security initiatives, punitive measures against wood importers and greenhouse gas regulations, Dammrich wrote.
The National Marine Manufacturers Association (NMMA) announced today (Oct. 11) that Progressive Insurance will be the title sponsor of its 18 boat and sportshows from 2012-2014.
“We’re thrilled to have Progressive Insurance on board as the title sponsor of NMMA boat and sportshows,” said Ben Wold, executive vice president of NMMA in a press release. “Our involvement with this great organization will help bring boating to more consumers and reach millions of potential show attendees, elevating the NMMA shows’ brand. In addition, this partnership will provide new resources to invest in our shows to help grow attendance, improve the consumer experience, and ultimately attract more customers for our exhibitors.”
“We’re excited to collaborate with the NMMA and support the boating industry,” said Rick Stern, Progressive’s boat product manager. “Seventy-five million people participated in recreational boating in 2010, and hundreds of thousands of them attend boat shows. This sponsorship is a great opportunity to let boaters know that with Progressive boat insurance they can go wherever they choose, whenever they choose and have peace of mind they’re protected with our flexible, year-round coverage.”
After several years of low tide in the marine industry, 2011 may be the year that finally lifts all boats, Specialty Fabrics Review reported.
“The marine industry is starting to see signs of recovery as we move past the recession,” says Jeff Malehorn, president and CEO of GE Capital’s Commercial Distribution Finance (CDF) at the Miami International Boat Show, held Feb. 17-21.
A survey released by CDF showed that 38% of respondents expected sales to increase in 2011, and 54% said the best time for dealers to increase inventory levels is now. Sales of lower-ticket items, such as aluminum boats and recreation boats, are rebounding faster than luxury yachts.
The biggest obstacles to growth, according to the marine dealers and manufacturers surveyed, were consumer demand (70%) and reduced level of showroom and field inventory (40%).
Editor’s Note: This thorough story about the RV and boat industries was written by Reagan Haynes and is taken from Soundings Trade Only Today.
There’s a long-standing belief that the RV market leads the boating industry by about six months. Feedback from those in the RV and marine trades indicates that formula is holding true in this recession, even though the numbers show both industries are tracking similarly.
Still, there are leading indicators on the RV side that are hard to ignore. Fleetwood Enterprises Inc. and Monaco Coach Corp., two of the RV world’s largest manufacturers, filed for and emerged from Chapter 11 restructurings. While some components of the brands were lopped off or modified (or sold off entirely), both remain in business, giving the industry a much welcomed sense of stability.
Meanwhile, the marine industry’s second-largest manufacturer, Genmar, remains embroiled in a difficult bankruptcy process, with no clear sense of what the final outcome will be. That not only is a concern to dealers and industry insiders, but some believe it’s one reason lenders are more hesitant to loan money to marine businesses than their RV counterparts.
The marine and RV industries share some of the same impediments to recovery, including financing and the fact that they sell “luxury” items.
Manufacturers seem to be approaching the recovery differently, too. Some boatbuilders are keen to offer more modest and affordable options to consumers, while many say RV manufacturers are looking for the next big “wow” factor to spur consumers to trade up before they’re quite ready.
Both industries have had to deal with credit crunches that have stunted their rebounds, and most forecast a long, drawn-out recovery. Suppliers and vendors to both marine and RV manufacturers have faltered precariously. Weakness in consumer confidence is keeping sales difficult to come by.
Those customers who are buying are tending toward smaller boats and RVs. They’re the “bottom-feeders,” as one insider says – looking for, and often finding, a steal. But if the RV industry is a leading economic indicator, there are some reasons to be hopeful.
Credit seems to be easing slightly, as RV dealers find both wholesale and retail financing options through local lenders who are looking to replace lost car dealership clientele. Shipments are increasing, meaning at best that improved sales are ahead and, at worst, that dealers are clearing and replacing their aged inventory with new models.
And whether the numbers support it or not, the prevailing perception is that the RV industry is doing better overall – a definite boost at a time when everything hinges on consumer confidence.
Both the RV and marine industries have lost dealers and manufacturers. The RV industry has counted 170 dealerships that have gone out of business since 2007, out of a total of 3,000, according to Phil Ingrassia of the national Recreation Vehicle Dealers Association (RVDA). It’s a small percentage, but it’s much higher than the typical 15 to 20 closings the RVDA tracks in a typical year.
The Recreation Vehicle Industry Association (RVIA) estimates that about 50% of its work force has been laid off, according to spokesman Kevin Broom. The RV industry has about 80 manufacturers – down from about 100 – whereas the marine industry has about 1,500 boatbuilders, according to Scott Stropkai, an RV industry analyst with Statistical Surveys Inc. (SSI) in Michigan.
Some think the marine industry must contract more to shrink capacity to demand, but experts say it won’t become as small as the RV industry. “This is an industry with lots of small niches, more so than the RV industry,” so it needs more manufacturers and dealers, says Thom Dammrich, president of the National Marine Manufacturers Association (NMMA).
The NMMA estimates that around 20% of boat dealers have failed – some 1,500 of approximately 6,000. The marine industry is losing dealers more quickly than the RV industry because so many are undercapitalized and overstocked, says Phil Keeter, president of the Marine Retailers Association of America (MRAA). RV dealers tend to have one or two brands, while it’s common for boat dealers to carry five or more, making the RV dealer more stable.
“The (boat) dealer shouldn’t buy so much stuff; he shouldn’t try to be everything to everyone,” says Keeter. “He ought to be more focused.”
Just as unemployment numbers tend to be a lagging economic indicator, the RV industry seems to be a leading indicator, says Mac Bryan, vice president of the RVIA. Though sales dipped similarly through 2008 and the first two quarters of 2009, according to SSI data, the perception is that the RV side is rebounding ahead of the boating industry.
“We’re definitely seeing the RV side recover quicker than we’re seeing the boat side recover, although there are still some similarities where maybe larger motorhomes and larger boats are softer, and smaller boats and smaller trailer sales are improving,” says Chris Hoover of Ron Hoover RV and Marine Center, which has five locations in south Texas.
The RV industry definitely leads into recessions but not necessarily out, according to Mark Bretz, of Bretz RV and Marine in Missoula, Mont. This time Bretz saw the same early decline on the marine side. “I think that these industries were probably aware something was going on that wasn’t good for close to a year before a lot of other industries felt that,” Bretz says.
A shorter boating season makes the industries tough to compare in terms of who is first in or out of a recession, says Earl Stoltzfus, who has owned Stoltzfus RV and Marine in West Chester, Pa., for 42 years.
In 2006, the RV industry shipped 390,000 units. The 2009 projection was at 146,000, but a 27% increase is forecast for 2010 over “admittedly weak numbers,” Bryan says.
Bretz isn’t comforted by the new projection. “I just think that manufacturers are out of sync with retail,” he says. When dealers saw their business plummet, they quit buying. Now inventory is so low that they are buying to restock.
“But on the sell-through rate, it’s still not very good,” says Bretz.
Like many, Stoltzfus thinks the RV industry is healthier because major manufacturers have already worked through Chapter 11 restructurings. Though the largest boatbuilder, Brunswick Corp., responded quickly to the downturn by downsizing, the future of No. 2 Genmar has been up in the air since its Chapter 11 filing last June, leaving dealers, suppliers and consumers fearful of the future, he says.
Stoltzfus worries that Genmar is repeating the pattern of an RV manufacturer that hurt its dealers and customers in the Chapter 11 filing process. Though the assets were sold to a solid builder with a good reputation, they were sold on a net-net basis with no liabilities. That means approved warranties will not be paid and dealers are not able to sue for damages, he says.
“You don’t do that and get away with it,” Stoltzfus says. “They are currently trying to mend their ways, but it’s going to take a long time. They’re going to get a much smaller portion of the industry. The portion that is taking care of consumers and dealers during this time, they are the ones that will get more market share.”
The major RV bankruptcies came early in 2009 and were resolved during the summer, giving more weight to the idea that the RV industry leads marine. Bretz predicts that RV manufacturers will have a tougher recovery because, in the past, RV builders who filed for Chapter 11 typically didn’t emerge from bankruptcy, yielding their market share to survivors. This time, the same number of major builders is competing for a smaller market.
“Maybe these industries will end up like the airline industry – to be a survivor you have to go through every few years and do a bankruptcy again,” says Bretz. “I think part of it will make businesses, unfortunately, less afraid of debt, because it appears that if you take on a bunch of debt and don’t manage it very well, you get a get-out-of-jail-free card.”
However, the prolonged uncertainty caused by Genmar’s unsettled Chapter 11 is scaring off potential lenders, Hoover says. A banker that RV and Marine Center deals with told Hoover that, from a lending perspective, RV manufacturers are more stable than marine manufacturers. That makes banks hesitant to issue marine dealers floorplan money.
“Two of the three biggest RV manufacturers … both filed and both emerged, [so] it seems like just a hiccup,” Hoover says. “There’s still some question on where the marine manufacturers are.”
The marine industry is operating with only one national wholesale lender – GE – and the RV industry with three – GE, Bank of the West and Bank of America. Still, Stoltzfus says the two industries have suffered equally but that the RV industry has moved further beyond its low point. He believes he is paying more than he should for GE’s wholesale dollars but says he has no shortage of credit.
Bretz says there’s a mixed message being sent. “Legislators are saying they want to grow business, but meanwhile the banking regulators are being incredibly onerous on banks in many cases, and until that changes, I don’t think you’re going to see significant expansion” into RV and marine wholesale finance, Bretz says. “Regulators that had capital ratios that they thought were acceptable two years ago are now saying those ratios need to be twice as high, and the only way you can get there logically is to reduce outstanding loans. Until banks are positioned to where regulators stop getting them to beef up capital liquidity, you’re not going to see significant change.”
However, RV dealers have been resourceful with local lenders, and credit unions and have been helping them understand floorplan finance, says Ingrassia. RV dealers say they have had some relief across the board, since local banks are loaning wholesale credit lines.
One reason credit unions have been more open to providing credit is because they have undergone such a change in the auto market, Bryan says.
Marine and RV associations have joined forces to secure Small Business Administration loans that were to be spread between marine, RV and auto dealers. That program has performed below expectations, Ingrassia says, and though everyone expected the new program to take time, it’s taking longer than anyone thought.
Bryan speculates that the credit crunch on the retail side has caused a slowdown in the turnover of vehicles, perhaps similar to that of the marine industry. “Typically, people trade in RVs every four years, and my guess is that time frame has been lengthened,” says Bryan.
Factories ramping up
RV manufacturers are gearing back up to build more product, but Keeter says that won’t necessarily be reflected in the retail market.
After both industries focused on clearing out aging inventory, combined with a credit shortage, there is little product in the pipeline, Bretz says. “I believe RV manufacturers will have a relatively good 2010 just bringing inventories back to normal,” says Bretz. “That’s one of the problems with both industries – we don’t have good information about retail. There’s much better information about shipments, but in times like these [shipment numbers] tend to either understate or overstate the problem and are not a very accurate indicator of what’s really going on.”
The RV industry is also moving to a system that allows consumers to dictate production.
That is especially true for dealers who sell higher-end motorhomes, since those already were declining in popularity before the recession’s onset, Bryan says. In 2006, that segment accounted for about 15% of the 390,000 units sold. Now it’s less than 10%, says Bryan.
“Because dealer inventory is being watched very closely and because the cost of that inventory has … gone up in several different ways, dealers are reluctant to take on inventory they don’t think they can move very quickly,” says Bryan.
If the RV industry does, in fact, lead marine, that could be a cue for dealers who sell larger vessels to pay close attention to their inventories, because Bryan says no one anticipated such an extreme decline in that RV segment.
Retail credit could also be a factor. Bretz says he has problems securing financing for buyers of the expensive RVs he sells.
Ingrassia says dealer inventories have thinned, as has the competition with the liquidation market. Maybe it’s fortunate that few expect a swift upswing in either market, because many worry that decimated supplier ranks would be hard-pressed to keep up.
Dealers will have smaller inventories moving forward, Bretz predicts, and will understand the importance of turning them more than in the past. And it will take time before the manufacturers have the clout they had a few years ago.
“We’re in the process of opening a new store in Portland [Ore.], and we’re amazed at how many good product lines are available in what would be a pretty major market,” says Bretz.
The RV industry is unveiling new products for the upcoming model year at a pace likely to exceed marine, where some manufacturers are offering scaled-down versions of models, or resurrecting smaller, previously discontinued boats.
“I would say that is a pretty significant opposite,” says Hoover. “(RV manufacturers) are bringing out bigger TVs and fancier things and trying to give people a reason to buy.”
Some marine manufacturers say that after such a long trend of adding technology and gadgets to boats, there might be a consumer trend toward simplicity. But in the RV market, Broom predicts, that predilection will not just disappear.
There will be a trend to provide better value in the future, Bryan says. The marine industry seems to be catching up in terms of offering fewer options or more specific packages. Bryan says the RV industry has already made that shift. And even when people buy less-equipped vehicles, they buy add-ons after the fact, he says.
“That’s been a strongpoint in the industry – the aftermarket sales,” Bryan says. That being said, RVs are increasingly coming fully loaded with home conveniences like televisions and microwave ovens.
And though nobody expects a rapid rebound in either industry, Hoover says the family dynamic of both is giving him leverage in this uncertain economy. People are making choices about their limited disposable income, and in the end, family activities win. That gives him hope for both the marine and RV industries.
Editor’s Note: Thom Dammrich, president of the National Marine Manufacturers Association (NMMA) and current board chairman of the American Recreation Coalition (ARC), spoke this week at a National Marine Bankers Conference. The following account of his speech appeared in Soundings Trade Only e-newsletter. NMMA’s more than 1,400 member companies produce every conceivable product used by recreational boaters. An estimated 80% of marine products used in North America are produced by NMMA members. The association was formed in 1979 but traces its roots back to 1908.
Gross domestic product grew at an annualized rate of 3.5% in the third quarter,” said Thom Dammrich, president of the National Marine Manufacturers Association, Tuesday (Nov. 10) at the National Marine Bankers Association’s 30th annual conference in Hilton Head, S.C.
“That’s very positive,” Dammrich said.
In past recessions, the time lapsed between the peak in consumer confidence to the trough has been 26 to 35 months. “At the end of October, we’re in the 27th month (of depressed consumer confidence),” he said. “Sometime in the next three to eight months we’ll see consumer confidence turn up.”
Home prices rose 1.4% on a seasonally adjusted basis in the second quarter of 2009, the first increase since 2006. Auto sales are increasing over last year, as are recreational vehicle sales.
“We tend to follow the recreational vehicle industry by six months, and they started picking up in July,” Dammrich said. “We should begin to see boat product sales pick up in 2010.”
That said, Dammrich predicted dealers and manufacturers face a cold, dark winter ahead because so few boats are sold in winter.
“Some dealers and manufacturers are not going to make it,” he said.
He projects the industry will sell 135,000 boats in 2009 and about the same volume in 2010, but he says production should increase 160% to 135,000 in 2010, up from 52,000 this year.
He says manufacturers are going to have to figure out how to build for the peak selling season so dealers don’t have to carry a lot of inventory (floorplanning costs have soared.)
This will challenge both manufacturers and their suppliers. Lenders, who have tightened credit requirements to the point that many can’t qualify for loans, will have to help fuel the recovery.
“In fact, many believe the recovery of new boat sales and manufacturing will be paced by the availability of credit,” Dammrich said. “Without credit, the recovery won’t happen.”
Dammrich says manufacturers are looking for new business models: keeping dealer inventory low, selling larger models direct to the consumer, building to order, developing dealers who own more equity in their business, and cutting back boat shows from 300 to perhaps 30.
He says they are expensive and often don’t return to exhibitors a good return on investment. “We don’t need any more than 30,” he said.
“Ninety percent of boat shows need to go away.”
As part of a five-year licensing agreement, Boating Industry magazine, a publication of Affinity Group Inc., will be responsible for “the overall creation and development” of the annual Marine Dealer Conference & Expo (MDCE), the annual convention of the Marine Retailers Association of America (MRAA).
Slated for Nov. 16-18, the newly named Marine Dealer Conference & Expo will be held at the Coronado Springs Resort in Orlando, Fla., a move that numerous dealers suggested in a survey last year, reports Tammy Galvin, a vice president of Affinity Media, publisher of Boating Industry. The more convenient location is expected to generate greater participation from the dealer body.
Boating Industry, a leading trade journal in the marine sector, will work closely with the MRAA convention committee and will assume responsibility for all sponsorship sales and marketing efforts, according to Galvin, who’s based at Affinity Media’s suburban Minneapolis office.
“This partnership will culminate in a must-attend event that – at long last – will bring the seemingly disparate segments of our industry together at just the right time,” said Galvin. “Let’s face it: All segments of our industry have seen an incredible amount of attrition that is likely to continue. It’s abundantly clear to us and the MRAA that the survivors will be those arming themselves with every conceivable best practice available, and that’s precisely what we will deliver.”
A number of boat builders have expressed an interest in incentivizing their dealers to attend the event, which is still in the early planning state, and others are looking to hold downsized dealer meetings there. Likewise, industry 20 Groups are planning to hold their regular meetings on the front and back ends of its educational content.
“Exhibitors maxed out the available space at the 2008 MDCE in Las Vegas, and this year, with the move to the Coronado, companies seeking to display their products and services in front of an even bigger crowd of dealers will find a much larger and more convenient exhibit hall,” a release states. “The Coronado features more than 86,000 square feet of exhibit space, of which the MDCE has more than 58,000 square feet already reserved, a welcome necessity with growing exhibitor interest. In fact, numerous boat builders and other companies are already signing up to showcase their products.”
New boat sales for the average dealer tracked by Spader Business Management were down 47% in the first quarter vs. 2008, the company reports. Sales dropped from $1,083,738 to $574,357, with pre-owned boat sales down only 2.3%, Boating Industry reported today (May 1) on its boating-industry.com website.
Spader, a training and consulting firm based in Sioux Falls, S.D., tracks North American marine and RV dealers.
New boat inventory levels were down a little more than 14% for the first three months of the year ending March 31 – from $3,8 to $3,2 million. Spader reported used boat inventories were up 23.8% to $453,918 in the first quarter, resulting in a total inventory decline of 11%.
Total dealership sales fell 36.1% compared to Q1 2008. F&I revenue fell 53.8% and service revenues dropped 19.4% for the month, while parts and accessories sales were down 15.1%, marina revenues dipped 0.9% and other department sales slipped 58.5%.
Total dealership gross margins rose 3.5% because, with boat sales down, a greater percentage of revenue is coming from higher margin areas, Spader explained. The average dealer reported a significant increase – 5% — in gross margin on parts andaccessories. New boat gross margins edged down 1.2% vs. last year.
Spending, in turn, was down by more than 20% in terms of dollars spent. However, as a percentage of gross margin, the average dealer spent more in the first three months of 2009. Personnel expenses, floor plan interest expense and fixed expenses were all up in terms of the percentage of gross margin spent on those items.
The average dealer reported a net loss of $127,013 for the first quarter of ’09 – 10% more than the average net loss of $114,808 for the first quarter of 2008.