This Fall Boat Buying is a New Ball Game

The word we are getting from dealers for major boat brands around the country is that many of the popular larger models (i.e. 30’+) that were non-current have been pretty much cleared from inventories, and most of the rest will be sold this fall. That development together with the fact that most boat builders now have a greatly diminished production capability, and are only building if there are firm cash orders, means that the buying of large boats is going to be a new ball game.

The 1958 New York Yankees changed baseball forever. Can you pick out Whitey Ford, Yogi Berra, Casey Stengel, Tony Kubek, Elston Howard, and Don Larson? What famous batter did we forget? (Check the end of the article for answers.)

The last eight months or so have been sheer slaughter as far as dealers of large boats have been concerned. Customers, knowing that dealers with excessive inventory were between a rock and a hard place, have been grinding the dealer of one brand off against the dealer of a competitive brand. Either that or they have used some other method to squeeze the last dollar from a sale. Surprising as it may seem, many consumers care more about the amount of discount than the brand which they are buying. Many consumers have viewed their boat purchase as if they are buying a commodity, as if they are buying a ton of gravel, a gallon of gas, or a pound of grapes.

Bottom feeders are going to find fewer non-current boats to scavenge in the future.

Day of the Bottom Feeders

In some cases the potential buyers simply ask the dealer how much he is willing to lose on the boat. Can you imagine walking into a car dealer or the dealer for any other high-ticket product and demanding that the dealer lose money – and lots of it – on a “sale.”? That’s essentially what has been happening for several months.

But those days are about over. Dealers have gone out of business or cleared much of their non-current inventory or the builder has taken the boats back. New, current model year inventory is slim to non-existent in the field in many areas, depending on brand and model. Dealers which are almost out of inventory are being very careful about re-ordering. When it comes to ordering for stock, dealers are no longer willing to bet the ranch. Can you blame them?

Building to Order

And since dealers are not buying boats, builders have stopped making them, unless there are specific contracts with deposits. The companies that over-built for stock, racking up huge debt, betting – and losing – on future sales that never materialized, have either gone through “recapitalization” this spring and summer, or drastically changed their building strategy. A few more builders will be “recapitalized” this fall, and then the whole industry will have been swept clean of the excesses of the past.

The new name of the game this fall will be “cash (at least a deposit) with order.”

Large powerboats will be built one at a time to order.

The New Ball Game

Our advice to bottom feeders is to move quickly, because your window of opportunity is quickly going to slam shut. For the first time in our memory sales in the month of August -- which is usually a dead period because people are out boating or on vacation – were actually better than they had been in June or July for many dealers.

The paralyzing fear of the future that characterized American consumers since September 2008 is clearly beginning to ebb slowly, if recent boat sales reports are any indication. The U.S. stock market has risen nearly 50% from its lows. When plotted over the long term, boat sales nearly always match the ups and downs of the stock market. The market is up, wealth is being restored, peoples’ net worth is going up, profits are being made, and as a result more boats will be purchased...but this time they will be ordered.

Building One Boat at a Time

Believe it or not, some brands in some size ranges are actually back ordered. The reason is that these builders had not built many boats in the last eight months and now have such a small work force their production is very low. And builders are in no rush to add production staff that they may have to lay off again during the slow winter months. As a result, orders are being pushed out in time so that the staff that is employed can be assured of work in the winter and early spring months.

Part of the new ball game is like it was in the days of Abner Doubleday. In many cases boaters will have to order a boat in the fall to make sure they get it delivered in the spring for next season. Waiting until the spring or early summer to buy a new boat of almost any size will not be a good idea in 2010. Most likely it will insure that you will only be able to pick among the boats that no one else wants.

There were times when people paid more than MSRP just to get an outboard engine for the summer because of conservative production.

Scarcity of Desirable Product

If you think this is absurd, then let us tell you about June of 1958 (after the recession scare of 1957) when you couldn’t find a new OMC or Mercury outboard for sale virtually anywhere in the country because these two companies kept production very low because of what they thought would be a soft season.

Boaters across the country were up in arms because for several years running the outboard engine manufacturers purposely under-built, to make sure there was no dealer inventory overhang and both dealers and builders made a profit.

While in years past no builders wanted to leave “money on the table” at the end of the buying season, in 2010 that will not be the focus of most builders. The only way of being assured that boaters will get what they want in the spring is to order their boat in the fall.

John Houseman became famous for his Smith Barney ads proclaiming that the company earned its money the “Old Fashioned Way...WE earned it.” (If only it were true for Smith Barney.)

The Old Fashioned Way

Buying a boat the old fashioned way – in the fall for spring delivery -- has advantages for everyone in the game. First, the dealer has an order with deposit so he isn’t paying floor-planning interest, advancing any of his cash, or risking insolvency. He knows a boat is sold and can plan his cash flow accordingly.

Second, the builder knows that because a contract has been signed and a deposit given he can go to a lender and be advanced the money to pay for the construction of the boat which will be paid for at a certain time. With a firm order, the builder can plan production in advance to make sure that he can keep the necessary employees in place month after month, not just in fits and starts. It also allows the builder to know across how many boats he can spread his fixed overhead so as to keep prices as low as possible.

Finally, the consumer is able to specify exactly what he wants on the boat and have it installed at the factory (where it is usually done better) instead of in the aftermarket. Because the buyer need not take delivery in the fall most of his cash is not tied up for another 6 months, yet he is assured of getting the boat he wants.

As we said, the old way of buying is a winner for all parties concerned.

Long before he wrote Green Eggs and Ham, Dr. Seuss was worried about what might happen to prices in the future. (Cartoon, circa 1942.)

What Happens to 2010 Prices?

What always happens to prices after a deflationary period? Our guess is that while prices may stay the same or rise slightly, the big difference will be in the lack of deep discounting. There will be some wiggle room off the MSRP, but don’t expect anything like the incredible discounts that have been available the last 18 months. So in that sense, prices will definitely rise.

This fall as inventory is sold off you will see dealers and builders simply stop talking to the bottom feeders and arm-breakers. With their decks cleared of inventory, dealers will not be interested in talking to anyone unless they can make their margin. There are boaters willing to pay for the goods and services received, and they are the people the industry will be catering to.

The Rest of the Picture...

Just to name a few of the other greats in this picture: Enos Slaughter, Mickey Mantle, Ralph Houk, Elston Howard, Don Larson, Darrell Johnson, and Hank Bauer. These men -- even Mickey Mantle -- were paid, by today's sports standards, chump change. The players were in the game for the sport. A few years later, thanks to the men in this picture, that paradigm began to change.