There continues to be a supply/demand imbalance in a number of types of boats, and dramatically with several brands. The reason is that – for a host of reasons – some companies did not cut production fast enough when boat sales slowed in 2006. Slow sales in the first two quarters of 2007 exacerbated the 2006 over-supply problem compounding it this year causing double-digit or high single-digit sales drops two years in a row for many companies.
The result is good news for the consumer.
In many cases, not only is the dealer taking a big hit on his margin, but so is the builder. For the last several months we have seen both the dealer and the builder--in some brands-- working together to lower retail prices to get rid of inventory at retail. That’s why the discounts are so deep. These companies are "buying" market share in a down market, a classic business strategy.
In Detroit as the economy cycles GM, Ford and Chrysler often operate at a loss for a year or two before they get supply and demand back in balance. Both last year and this year, the bottom lines of many, if not most, boat builders have taken a beating.
Boat Building is NOT Like the Car Business
Typically, boat companies will lower prices in an effort to hold market share as long as they can, happy to break even until the sun again begins to shine. But if things don’t turn around in a year or so, and prices continue to sink, builders are faced with the option of taking some cash rather than none at all, as buyers at the margin will forsake their dream brand for a look-alike down the street at a far lower price.
While the banks and other financial institutions will loan money to Detroit for years betting on a turn around in profits, they will not go too as far out on a limb for many boat companies.
We are now in the phase of this cycle where companies are going for cash flow
and hoping to hold their relative market positions, or hoping just to stay in business until the economy cycles up. That’s why we’re in a buyer’s market.
Some Prices are Holding
Not all boat builders are in the crunch described above. Some builders are in hot niches, such as wakeboarding, and are not feeling a serious drop in sales. Others, kept close track of infield inventory and cut back production accordingly. With these brands, if you want them you are going to have to pay more nearly the normal price. These companies are not so concerned with market share and refuse to “buy it.”
Typically, these are the marquis names in the sport, or companies that want to run a profit no matter what happens to sales. Many boaters do not view boats as a commodity like grapes at the grocery story or fuel at the gas pump and will pay more to get the brand they respect. But even these brands are generally less expensive these days.
Why Prices Will Rise in 2008-09
No one knows how long these low prices will go on, but at some point they will come to an end. They have to. Excess inventory will be sold off, companies will have merged or gone out of business, and production will be in-line with consumption. Then prices will rise. If history repeats itself, not only will prices end up being higher than they are now, but they will also be higher than they used to be.
All of this means now is a good time to buy. Bargains abound. Sales at the boat shows this fall are up, as we have reported. Timing is everything.