Where Are We Now … and Where Are We Headed?
On any given day, peruse headlines from any of the online media stories about the boating industry and you’re sure to discover a confusing roster of topics. On the one hand, we read about corporate, manufacturing plants and dealership closures, mixed with bombs about bankruptcies, boat show cancellations and tanking sales. Other headlines vie for our attention, including positive buzz from recent boat shows, a sprinkling of feel-good sales results, coupled with encouraging indicators on the economic horizon. So … what’s a well educated industry insider really supposed to think?
To address the debate about the state of the boating industry today and what’s looming in the not-too-distant future, Waypoints put a series of direct questions to NMMA President Thom Dammrich. His responses are refreshingly open, brutally candid and in some instances, downright compelling.
WAYPOINTS: How would you describe or characterize the current economic status during the fourth quarter of the year?
DAMMRICH: The general economy is improving in the fourth quarter. We saw GDP growth of 3.5% in the third quarter. And, even without the effects of the Cash for Clunkers program, third quarter GDP grew 1.9%. I expect we will continue to see slow growth in the fourth quarter and into 2010. As the housing market bottoms and begins to grow, car sales begin to grow and consumer confidence starts to recover, new boat sales will recover slowly too.
WAYPOINTS: We’ve heard good reports coming out of recent shows. Do you believe this is pent-up demand and a short microburst, or the beginning of recovery, or something else?
DAMMRICH: I believe there is a significant amount of pent-up demand. I have heard some manufacturers say that three out of four boat sales can’t get consumer financing. The bad news is that it’s depressing sales today. The good news is that it shows there is significant pent-up demand for new boats. From 1997 to 2005 we saw boating participation decrease dramatically. Since 2006, boating participation has been growing, and in 2008 we had more than 30% of adult Americans participating in boating. Participation precedes purchase. More people in boats eventually will lead to more new boat sales as they create their own dreams of ownership.
WAYPOINTS: How are the various segments of the marine industry holding up – any doing better than another? How is the sailing industry faring against other segments of the boating industry?
DAMMRICH: Actually, if your business is serving the existing boater, business is pretty good; in fact, many serving existing boaters are seeing growing sales! It is the boat manufacturer and new boat sales that have been the hardest hit segments of the boating industry. When you look at new boat sales, there is really no segment doing significantly better than any other. All are seeing sales down 25%, 30% or 35%. Some of the smaller segments, such as inflatables, are down in the single digits.
WAYPOINTS: What do you expect in terms of boat product sales for 2010?
DAMMRICH: At the National Marine Bankers Association (NMBA) Conference I suggested new boat sales in 2010 will be flat with 2009. I am not expecting retail sales of new boats to be much higher in 2010 than in 2009.
WAYPOINTS: Your comments from this convention also included a forecast that some dealers and manufacturers will not survive the winter. Can we estimate about how many dealers, manufacturers and other marine businesses we have lost already? And, what projection do you have about how many more we may lose?
DAMMRICH: I have heard it suggested that 20% of marine dealers have gone out of business already. I know we have seen 30 or so manufacturers who have gone out of business—but most were very small builders. It is hard to say what the additional attrition will be, but some suggest we could see another 20% of dealers decide not to continue in this business. It is clear new boat sales and manufacturing will be smaller for the next few years.
WAYPOINTS: How do you believe dealers and manufacturers will have to change their business models in order to survive … and thrive … in the future?
DAMMRICH: This is the question dealers and manufacturers are working to answer. I suspect we will see dealers carrying significantly less inventory as floor plan availability and costs continue to create challenges. Manufacturers are looking at ways to ‘build to order’ rather than trying to level load their factories. Some manufacturers are considering direct sales, with dealers becoming delivery and service points.
One of the interesting things about this industry is there are many models that can be successful. Companies don’t need to find the magic ‘one size fits all’ solution.
WAYPOINTS: What is the current status of wholesale financing and dealer floor planning? What do you predict for the next year in this regard? And … what, if anything, can be done to improve this scenario?
DAMMRICH: Dealer floor planning continues to be challenging for dealers and manufacturers. There are some who have suggested the recovery of new boat sales will be paced by the availability of credit. GE has issued dealer floor plan ABS using the TALF program two times since we started fighting for more credit earlier this year. NMMA was instrumental in getting marine dealer floor plan financing included as an eligible asset class in the TALF program. GE and other lenders are lending, but it is expensive right now.
The first marine dealer SBA guaranteed floor plan loan has closed and three more have been approved by SBA. The approved dealers are in Tenn., Mich. and N.J. The significance of this is that it proves you can get an SBA guaranteed floor plan loan. It will take work, but NMMA’s senior counsel, Cindy Squires, has been working with dealers and manufacturers to help them through the process and get the loans. NMMA is also strongly encouraging the SBA to make this program a three-year pilot program and suggesting other improvements to the program to give banks more incentive to get involved.
We recently had Scott Deal from Maverick Boats and Joe Lewis from Mt. Dora Boating Center & Marina meet with Herb Allison, Assistant Secretary of the Treasury for Financial Stability of the U.S. to stress the need for the administration to use some of the remaining TARP dollars to get credit flowing to small businesses again, particularly small marine businesses.
WAYPOINTS: How about on the consumer lending front? How difficult will it be (or is it) for consumers to get credit for discretionary products like boats? What, if anything, can be done to improve this scenario?
DAMMRICH: As I mentioned earlier, some manufacturers are finding as many as three out of four boat sales cannot get consumer financing. Banks have a real issue with non-performing loans and the impact on their capital that keep them from extending further credit. But, at the NMBA Conference it was clear there are healthy banks willing and able to make boat loans, but we won’t see the “free wheeling” lending of the past for the foreseeable future.
WAYPOINTS: Can you give us a brief update on the Discover Boating campaign? What is the status and current situation on funding for the campaign, and what activities and initiatives are still underway and/or planned for 2010?
DAMMRICH: Discover Boating is most certainly alive and well! With significantly less resources, Discover Boating has shelved the national print and television advertising campaign, but continues strong marketing efforts through www.DiscoverBoating.com (which is continually updated), an aggressive public relations campaign, as well as creative use of social media and interactive marketing. It is an integrated marketing plan that continues to generate great results.
In 2009, Discover Boating did an online “i-Discovered Boating” ad contest to generate buzz about boating. While we expected to receive around 40 entries that would be viewed by thousands of boaters and prospects, we received nearly 400 entries with views in the hundreds of thousands! And, we also gained a wealth of outstanding consumer-generated content that will be used in our 2010 efforts. To see the consumer-generated content, click here.
In 2010, we expect the budget for Grow Boating will be about $1 million. These funds continue to come from engine assessments paid to NMMA by engine and boat manufacturers. The 2010 Grow Boating plans call for continuing support of Marine Industry Dealer Certification (MIDC) and an integrated marketing plan that promotes the affordability and fun of boating. This will include a strong public relations element, as well as interactive marketing, social media, DiscoverBoating.com and a new “What Kind of Boater Are You?” online marketing campaign. The focus is on affordability and communicating that boaters are just like you – removing any disconnects that may exist for the aspirational boat owner.
WAYPOINTS: We also understand you’ve suggested that boat shows be reduced from some 300 a year to 30. We’ve already seen several shows disappear due to a lack of exhibitor support. Can you be more specific about this concept … how to determine which shows remain … are these ‘supershows’ or other … and please share your rationale behind this recommendation?
DAMMRICH: Yes, I have suggested the industry can no longer support 300 boat shows in the U.S. Is the right number 30 … or 20 or 50? We will find out. Dealers complain about the return on investment for boat shows. Well, a lot of dealers will participate in six or seven boat shows a year. Of course there is no ROI when you do that many shows. It’s my opinion that most dealers should do one to two boat shows a year. The industry is spending too much money and effort supporting 300 boat shows. Everyone would get a better ROI if there were only 30 shows in the 30 largest boating population centers in the country.
Look at Canada and Europe – they have a few large and very successful shows. Everyone participates in them. People travel long distances to attend because they are the only shows that will be held and these shows are still very successful. We need to replicate that model here in the U.S. and I am confident the market will make that happen. We can’t talk about how much the industry is going to change without expecting some significant changes in boat shows too. There is nothing inherently wrong with boat shows or their ability to provide great ROI, unless you are doing too many of them.
There will be buyers at boat shows this winter. If you want to sell boats this winter you need to be at a boat show. Don’t do three boat shows this winter – do one. Pick the strongest show and put your resources into making that a great show!
WAYPOINTS: How do you see the role of trade associations (i.e. NMMA, Sail America, MTA’s, etc.) changing? With boat shows being the primary source of revenue for most marine trade associations, how will they survive going forward … and how/what will they offer to increase/enhance value to their members?
DAMMRICH: Trade associations are going to be different, there is likely to be some consolidation on this front too. NMMA will continue to provide great advocacy at the federal and state levels, not only for our members, but for the entire industry. We will continue to promote the boating lifestyle through boat shows and Discover Boating. We will continue to collect statistics, conduct research, protect the industry’s interests in the media, and certify boats, yachts, PWCs, etc. And, we will always communicate all this to our members and the industry. NMMA has a laser focus on what is important to this industry and what the industry needs. We are not going to chase revenues by doing things that are not core to our members’ needs.
We are going to see a lot more cooperation and collaboration among marine trade associations to eliminate duplication of efforts. Companies are driving costs out of all levels and aspects of the industry. Marine trade associations will have to adapt to this new world too – and the sooner the better.
WAYPOINTS: Do you believe we will ever see a resurgence of sales to the degree as we have previously experienced in the future, or has this latest cycle made a long-term impact on the psyche of the affluent buyer that may have future spending implications?
DAMMRICH: “Ever” is a very long time. In the 1970s and 1980s, the industry averaged about 400,000 new boat sales a year. In the early 1990s there was a dramatic shift … a dramatic change. Annual volume of new boat sales dropped by 25%. In the 1990’s and early 2000’s, the industry averaged 300,000 new boat sales a year. In 2009, the industry will likely retail around 135,000 new boats. Clearly, this recession has changed the American consumer. They will still spend, but they will want to be perceived as smart spenders. We need to make boating a smart choice for consumers. Will the new normal be 200,000 units a year or will we get back to 300,000 units a year? Only time will tell. But, for certain, it will take several years before we know.
I am optimistic. The U.S. population is expected to grow from 300 million to 350 million people in the next 40 years. Boating is still the best way to spend quality time with family and friends, enjoy the great outdoors, go fishing or just relax. Man has been boating since he first reached the end of land. That urge, desire and passion to get on the water will not abate. We need to work to maintain our penetration of boating among this growing population. If we can do that, we can see 300,000 units a year again. But, we won’t get there promoting exclusively to white males. Most of the growing population won’t be white males. We need to do a better job of helping African Americans, Hispanics and Asians see themselves in boating. They need to see themselves on our websites, in our catalogs, ads and magazines. If we fail on this, we will fail to get back to 300,000 units a year.
WAYPOINTS: What recommendations do you offer sailing companies about what they need to be doing today to secure and grow their businesses?
DAMMRICH: Deliver a great product. Deliver great customer service. Deliver a great experience. Be the best and work with the best.
WAYPOINTS: What are the top lessons you believe marine companies must learn as a result of this recent downturn that can help us rebuild and establish a more secure future?
DAMMRICH: 1) Manufacturers and dealers must work more closely together to ensure their joint success. 2) Dealers, in particular, need to diversify their revenue streams. 3) Prepare to change. It is a new world and you will need new tools. It is said if the only tool you have is a hammer, every problem or opportunity looks like a nail. It’s time to get some new tools.
Wanda Kenton Smith is editor of Waypoints, president of Marine Marketers of America, national marketing columnist for Soundings Trade Only since 1997, and owner/president of Kenton Smith Marketing, www.kentonsmithmarketing.com For more information or to comment on this story, e-mail email@example.com