Buying boats in a tough economy
The economy was a big part of why Soua Xiong held off buying a new fishing boat for the past couple of years. Hoping the worst was over, he was ready to do more than look when he walked into the Rapid Sport Marine showroom.
"It's a good time to buy. It's time for a change, and I think things are changing," Xiong said after signing the papers on a shiny new $22,000 Lund fishing boat to chase walleyes in the Land of 10,000 Lakes.
Boat dealers and manufacturers are counting on people such as Xiong, 35, an oil refinery worker from Cottage Grove, Minn.
As Americans get ready to go fishing this summer, the U.S. recreational boat industry is struggling to stay afloat. Sales of new boats were down 30 percent last year and could fall another 20 percent this year, according to the National Marine Manufacturers Association. Boat makers have shut down or mothballed many factories and laid off thousands of workers. But as summer approaches, some dealers and others in the industry are upbeat, citing low gas prices, plentiful bargains, low interest rates and an uptick in showroom traffic.
The optimism isn't universal.
"Anybody that is in the business of making and selling boats right now is struggling," said Edward Aaron, an analyst with RBC Capital Markets who follows Brunswick Corp., the country's No. 1 boat builder. "The downturn that we've seen in this industry is not even comparable to anything we've seen in the past."
Still, Thom Dammrich, president of the NMMA, said he expects a boom in boating and fishing this summer, citing improving economic signs and consumer confidence. And he noted that national average gasoline prices, which soared to the high $3 range for most of last summer, are back down to the low $2 range.
Dammrich estimated new boat sales in 2008 were about $9.5 billion, a little more than 200,000 boats. Dollar sales of used boats were about the same, but at roughly 600,000 units. And the association estimates that employment at boat and engine manufacturers is down 50 percent industrywide.
Irwin Jacobs, chairman and chief executive of Minneapolis-based Genmar Holdings Inc., the country's No. 2 boat manufacturer with 14 brands, is one of the cautious optimists. While Jacobs had no hard data to back it up, he said he felt things were looking up.
"For the first time in several months, I have a sense, call it what you will, that we've seen the bottom of these horrible times, at least in our industry. ... we're actually seeing some lift out there, better than it has been in some time."
Privately held Genmar has laid off more than 2,000 employees and has about 1,800 left. Jacobs wouldn't give current sales figures, but said sales before the slump had been about $1.1 billion to $1.2 billion a year. While sales of Ranger and other Genmar freshwater fishing boat lines are down only 27 percent to 28 percent, he said, other Genmar brands are off 50 percent to 55 percent.
Jacobs said he expects Genmar to be the industry's major beneficiary of competitors going bust because of its extensive dealer network and deep lineup of new models.
Brunswick -- whose 17 boat brands include Bayliner, Crestliner, Lund and Hatteras, and also makes Mercury motors -- is not expressing a lot of optimism.
The Lake Forest, Ill.-based company has closed or mothballed half the 28 factories it was running in 2007. Total employment in its marine operations is down nearly 50 percent since the beginning of 2008. Sales in its boat segment were down 64 percent in the first quarter of 2009 from the same period a year earlier, while marine engine segment sales were down 45 percent.
That's after the company's boat sales fell 25 percent in 2008, and engine sales fell 17 percent.
Dunstan McCoy, Brunswick's chairman and chief executive, said in the company's earnings announcement Thursday that the company isn't planning for any meaningful recovery this year.
In fact, McCoy told analysts, he's not planning for the boat market to return to its relatively high 2005 levels "within my working career."
Phil Keeter, president of the Marine Retailers Association of America, said there's still a glut of inventory in the supply chain and in dealer showrooms. He said he's seeing a little improvement in the Midwest and some other regions, primarily in sales of cheaper boats, but he suspects it's partly the usual springtime rush.
"We've seen more traffic in the dealerships in the last month than we have seen for a long time. That doesn't mean they're buying, but we are seeing more traffic," Keeter said.
Luke Kujawa, president of Crystal-Pierz Marine, is coming off a year of painful decisions. His Twin Cities-based chain opened some stores but closed others for a net reduction from nine to seven, and cut staff. But he's betting these moves will pay off.
"We've done everything we can do to survive and maybe thrive in this market," Kujawa said.
Back at Rapid Sport Marine, Jake Jacobson, general manager of Rapid Marine Group, which has stores in Ham Lake, Shakopee and St. Cloud, Minn., said he's optimistic because of all the people such as Xiong who've dropped in on his showrooms this spring.
Manufacturers are offering factory rebates, prices have been cut to clear out inventories and loans with 6.9 percent interest rates and low monthly payments over 10- to 12-year terms are available for people with good credit, Jacobson said.
"We're positive. We're upbeat. We're selling boats every day," Jacobson said.