It Is All About Value Now - 05/20/2009

Last year it was all about the cost of fuel. This year it is all about "value". Not just in boat buying, but also relative to almost anything one buys. For many people, such as Warren Buffett, value has always been the name of the game, but now virtually everyone is singing this mantra. has always championed value boat buying, just like Graham and Dodd (Buffett’s investing mentors) were the classic proponents of value stock investing. Moreover, we think value boat buying is here to stay for quite some time. Like buying under-valued stocks, this is an ideal time to buy under-valued boats, or boats that simply give you more value for your dollar than their competition in class. How do you figure out what is good value or under-valued?

Warren Buffet
Warren Buffett, the oracle of Omaha, is a life-long expert at finding good values in companies and stocks, and then buying them.

Finding Value is Difficult

Boats are not a commodity. That’s what makes finding good value difficult. It is the reason why was started nine years ago – to help you sort out good value from the fluff, the solid, classic performers from the flavor-of-the-month, and the outstanding from the mundane.

Like trying to sort out the true value of a company, finding the true value of a boat is not easy. Boats are mechanical things with hundreds or thousands of parts which all must mesh together correctly and work in harmony. Boats are an exercise in design with running surfaces that must be efficient for the work intended and living spaces that are ergonomically correct for you and not a munchkin. A boat is also a work of art which must appeal to your eye, just as a woman (or man) must jingle one's chimes in some hard-to-explain way before you become attracted.

Rules for Comparing

To find value in boats, as in most things in life, you must compare them. When doing this, be sure that you are comparing boats in the same class. For example, if you compare an outboard boat with a stern drive you are not comparing in class. Decide first, which class you want, outboard or stern drive, 20-feet or 24-feet, and then start comparing. As boats get larger and more complex, the whole exercise becomes more difficult, but stick with us as we give you some rules of thumb.

Non-Current Boats

First, let’s state the obvious. There are many “non-current” boats on dealer parking lots and in dealer slips all over the country. A “non-current” boat is one that has never been owned (except by the dealer, and sometimes not even that), but was a 2006, 2007, or 2008 model, and is “new” in the sense that it has never been used. 2009 is a “current” new boat and  the rest are “non-current.”

In many cases there is little difference between the 2009 models and the 2006 models. The biggest difference is likely to be the horsepower rating. Maybe the new ones have a joystick control. While there may be cosmetic differences, in most cases, chances are the basic boat is the same.

Non-current boats are almost always sold for less than the new ones, sometimes quite a bit less, yet essentially they are the same. This constitutes real value. All things being equal, and given that you like the boat, the older “new” boat should be priced in such a way that it represents real value for the buyer.

Factory Specials

Last year boat companies built for stock and when dealer sales stopped last fall these boats never got into the distribution pipeline. Virtually all companies have boats in this situation. The builder can’t advertise them because it would be circumventing his dealers. So these builders are staying mum about the boats, but they are out there (drive by any boat builder and you will see them).

Once you have decided on a brand and model, simply call the factory and ask for the sales manager. If he has what you want, chances are he will make you an attractive offer. We said “attractive,” not a gift. Don’t be expecting manna from heaven. The builder will have to pay the dealer in your territory a commission just as if he had sold the boat, because the dealer will deliver the boat to you, commission it, hold your hand, etc. Nevertheless, you may well be able to get a good value this way.

Discovering “Value”

Okay, the exercise above was easy because you had already decided on a brand and model, and it was just a matter of getting a good price in order to find “value.” But what if you can’t find what you want among distressed inventory? Then you must compare all of the boats out there in the “class” that you are searching for. But beyond the price, how and what to compare? What constitutes value?

As anyone who has ever owned a boat knows, there is more to a boat’s “value” than price alone. Here are ten criteria that we think are important. Our advice is to make a list of the criteria and put them down the left hand column of your paper and across the top put the models you are considering. Give each of the 10 criteria checked a weighting, then total them up at the bottom of the page and compare. You may well be surprised with what you discover.

1. Size of the Boat. Start by comparing LOA (length overall), but quickly look at beam and displacement (weight). It used to be that most builders used the measurement from the boat's stem to its transom as its LOA, but these days builders are all over the place with no one standard used by all.

Some still measure stem to transom, others measure from bow pulpit to tip of the swim platform. Virtually no powerboat builder these days publishes the LWL (length waterline), which along with beam, draft and displacement are the four most important dimensions. Give this one criteria sub points—

a. LOA
b. Beam
c. Draft
d. Displacement

2. Price per Pound. Always compare displacement of the boats you are considering. Make sure that the engines on all of the boats you are comparing are the same. Then divide the weight into the price to give a cost of the boat per pound. Obviously each boat has different equipment and different components, nevertheless if you are comparing in class you are getting a rough idea of the relationship of the boats one to another. If you can’t compare displacements with the same engines, then take the engine weight out before you compare. BoatTEST’s engines spec tables should help you with engine weights.

You might ask since we have already said that boats are not commodities, why we are looking at a price per pound figure. The answer is that all of the boats in class should come roughly in the same ballpark. If one is way out of the norm, either high or low, we must find out why. Sometimes it is because the builder has added in the weight of the engines and trailer, for example. In some cases, we discover that the quality of the materials, hardware, fixtures, equipment quantity and quality, quality of joinerwork, and man hours of labor that have gone into the fit and finish is the answer for the anomaly. And sometimes, we simply cannot come up with an explanation for a price per pound anomaly, either higher or lower. When that happens, you must dig deeper.

If a boat is more than 20% cheaper per pound – in class! -- you must get a satisfactory answer from the dealer or builder as to why. If it is less than 20% and has all of the rest of the attributes that the competitors have (see below), perhaps you have found the “value” that you’re looking for.

3. Overall Quality of the Boat. We’re here to tell you that you want a quality boat. You want value, but the value boat has to have quality, too. There are new boats on the market which meet the USCG specs and most of the ABYC standards, but which are not quality boats. They look nice in the showroom, but a year later they will look ratty and you won’t be happy with what you own. Our advice is to always buy quality, and if that means you can’t afford a good quality new boat, then buy one that is used. We can’t all be Bill Gates, but we can all buy like Warren Buffett.

Buying a good quality boat does not mean it has to be a high price-point boat. On the contrary, we are looking for “value” which by our definition means good quality at a lower price than usual or at least a fair price.

4. Warranty is Important. Do not take warranties for granted. Further, do not assume that the warranty that you saw on a boat six months ago is the same one it has now. We have noticed that since the sales slowdown many builders are changing their warranties – some are better than before, some not.

While we all dream that our boats will be like a trouble-free Lexus, all too often that is not the reality. When you compare boats, line up their warranties: engine and drive train, hull and deck, upholstery and deck fixtures, and all the equipment inside.

Do all engine makers and boat builders approach warranty issues with an open mind? The answer, sadly, is no. Some engine companies are notorious for sticking to the letter of the warranty, while others are more into the spirit of the contract or the spirit of making a customer for life by bending their rules in YOUR favor.

Builders are all over the place. Buy the cheapest boat in class and we can almost guarantee you that you will have rough sledding on a warranty claim that is not very clearly spelled out in your contract. Sorry to say it, but we have been flabbergasted upon occasion about the short-sightedness of some price-point builders on small warranty items.

5. Customer Service. The level of customer service in the boat industry has risen mightily in the last 10 years. Some companies give it promptly with a smile, but others lack the alacrity and good humor one might wish for. Again, the companies that sell on price alone are often the ones we get the most complaints about when it comes to customer service.

Read “Owner Reports” about the brands you are considering. Ask along the dock. Most important -- when you do buy a boat, get your dealer to make a commitment to you for customer service both from him and the builder.

6. Equipment, Utility and Amenities. Every builder is trying to make his boat attractive to the buyer. Some will play the price card, others will pack a boat with equipment as standard that is usually found on the option list, still others will offer greater utility, some will load it up with gimcracks, and others will appeal to your sense of style and aesthetics. Some builders – too many really – are in a fog and not much if anything stands out about their boats. These builders rely on their dealers to sell for them.

Quantify the expensive items of equipment and put a dollar amount to it. If you don’t know the value, simply Google it.

Utility is harder to compare, but it is very important. Obviously, if you can do more things with one boat than with another, it has more utility and provides more value. Beam often comes into play here. Some builders have a boat that is as long as its competition and is priced about the same, but has a foot less on the beam. This boat won’t have the room inside that the beamier boat will have. In this case it is best not to trust drawings; you should go and sit in the boats you are considering before making your short list.

7. Performance, Including Fuel Economy and Range. A boat that is under-powered is not a good value, not even if the dealer tells you it is. Even in large convertibles and motoryachts, until $5 a gallon fuel came along, boats without the big engines were considered as destined for a hit on the used boat market. (We hope that is changing now.) If you plan to use your boat for waterskiing and it takes forever to get on plane, it is not good value no matter how little you paid.

Ask yourself what your boat’s mission in life is, then determine what are the most important performance characteristics for that mission: best cruise speed, mpg, range, time to plane, etc.

8. The Engine and the Engine Brand’s Reputation. After the brand and model of your boat, the most important component is the engine.  40’ cruisers with gas engines sell for less than the same boat with diesels – but it is not necessarily a better value. You must be careful to match the type and horsepower of an engine to the application. Check the performance tables for the type of boat you want to get a good idea of what you will need.

Resale is a constant theme that underlies a lot of issues on your boat. Will such-and-such raise or lower the value of the boat when you go to sell? Certain brand names have different reputations in different parts of the country. Make sure you are in tune with any local proclivities.

As we have pointed out in other articles, marking up horsepower is a way that both engine makers and boat companies build margin into their products. When you compare prices, make sure it is apples-to-apples when it comes to the engines and drive units in the boat.

Thankfully there are still five outboard engine makers left in the market. They are all trying hard to win your approbation and discounts are available. You can add value to your purchase by getting a good deal on the outboard engine, all things being equal. You’ll need to work on that as it won’t plop into your lap.

“Package” boats by definition are supposed to be value propositions. However, they typically come equipped with 2-stroke carbureted engines in outboard configurations, and with carbureted stern drives. These engines are lower priced because they are old technology, but don’t assume they are “better values.” Some builders tell us that they offer carbureted engines because their competition does, but they would rather not because of the aftermarket customer complaints. If you are out in the middle of a sound or lake and you get a vapor lock in your carbureted engine, you won’t think it was such a good value.

Carbureted engines are susceptible to problems not associated with fuel-injected engines. Four-stroke engines are generally more fuel efficient than 2-stroke units. In inflatables and very small boats 2-stroke engines may be superior to 4-stroke because of weight and torque considerations, so in this case value and lower price can go hand-in-hand. If you are not sure of which way to go, consult with experts around you.

9. Quality of the Builder’s Management. Corporate culture is terribly important when it comes to boats – in fact, we think it is the single most important thing driving a successful experience for the owner. A dedicated boat builder (either as owner or a hired president) will be working hard to make sure the boats his/her company builds are everything they can be and that customers are happy. On the other hand, company presidents who are focused on their annual bonus, selling the company, climbing the corporate ladder, projecting their own ego, playing a lot of golf, or haven’t a clue as to what is going on, exude an attitude that is quickly picked up by the rest of the staff down the hall and it ends up in the boat. It ends up in the lack of good customer service, hedging on warranties, not taking responsibility for product problems, arguing over nickels and dimes, and ultimately gives a brand a sinking reputation. It happens all of the time.

How do you know if a company is well managed or not? Go to boat shows and seek out the president with your questions. Call him on the phone in his office. Is he engaged with you or brushing you off? Since making customers happy should be his end game, anything less tells you all you need to know. Ask your dealer. Carefully follow what is said in BoatTEST newsletters, in our captain's articles, and in articles written in print magazines. Search the BoatTEST library for video interviews of company presidents. We have over three dozen of them in video interviews. Over time you will piece together what is going on.

You want to buy a boat that is a “winner,” because that brand will have more value at resale than a brand on the wrong side of the reputation bell curve.

10. Boat Brand Reputation.

The recent economic situation is putting a severe strain on some brands’ reputations. In the last 40 years we have never seen a period where brand perceptions are evolving so quickly. You want to own a boat with a good reputation and a brand you can be proud of, and that includes affordable boats as well as high price-point boats.

Someone once said that when the going gets tough the tough get going. These days many companies are rising to the challenge of the times with new products, new approaches to business, and new ways of courting customers. These companies have reputations that are on the rise. Other great old names of the past are getting stale quickly and are not displaying the resourcefulness and energy needed in times like today. Stay alert to these wind shifts, as you want to make sure the brand you buy will still be a solid brand when you go to sell in three to five years or more.

Value is More Than Price Alone

As you can see from the above, getting the lowest price does not necessarily mean “value.” But it can! Do your homework, compare carefully and your purchase will be one you can be happy with, knowing that you systematically executed your due diligence. Remember, the objective is to maximize your enjoyment from your boat and minimize your pain.