Bump's World

SUMMER 2008

The summer of 2008 will be remembered as the summer that the fuel prices soared out of sight. After many years of enjoying almost the world's least expensive fuels it looks like the party is over. So what does this do to the boat business and the future of boating in America?

The last time the boat business went through a major crisis was 1989. New boat pricing had been pushed dramatically upward due to high inflation during the 1980s. Dealers had amassed large inventories due to declining sales and pressure from their manufacturers to absorb the builder's production. All builders had pushed bigger and bigger models, significantly increasing the inventory dollar values through out the industry. In an effort to keep up with pressure to move this inventory dealers took many boats in trade. To ignite the fire the savings and loan crises erupted. Banks under pressure tightened up their credit, both to retail and wholesale customers. Many small banks failed and were absorbed into bigger banks. These banks called the boat dealers and said they wanted their credit lines paid down, so get rid of that inventory. To add the final insult our federal government enacted a luxury tax that put the nail in the coffin for the boat business.

Dealers defaulted on their credit lines. The builders had guaranteed the dealers line to the bank, so they quickly got over loaded with defaulted inventory. Banks panicked and builders began to fall. People often ask me who failed as a result of all this. It is much easier to count who survived than who is gone. Many of America's largest builders failed, including, Pearson Yachts, O Day Yachts, Cal Yachts, Ranger Yachts, Cape Dory, C&C Yachts, Island Yachts, Mariner Yachts, Alsberg Brothers Boats, Pacific Boats, Santa Cruz Yachts, Moore Boats, Morgan Yachts, Bristol Yachts, and the list goes on.
Again it is easier to mention who survived, J Boats, Sabre Yachts, Hunter, Hinckley, and Catalina.

In the 1980s many European Builders made a move to market in the US. Only Beneteau survived the 1989 through 1993 crisis. Beneteau survived by building a factory in America and with help from the French government, opening good dealers, who had lost their main American lines. Beneteau worked hard to make it product attractive to the US consumer. With the up turn of the US economy in the mid and late 1990s, European builders are once again lined up to get a piece of the US pie.

In 2007 the housing balloon burst. American's had gained huge equity in their homes, without even going to work. Banks fell over each over handing out equity lines and Americans were flush with cash. The boat world certainly was a benefactor of this wealth.
Again the banks got nervous tightened up credit and suddenly there is a lot less easy money in their accounts. Of course the stock market reacted to this and people's stock investments began to look a lot worse, again making people feel not so rich.

So add to this a 50% increase in fuel costs and again something has to give. The first boats to feel the pain are the small powerboat builders. With one and two large gas guzzling outboards these babies can really consume some fuel and be expensive to fill up. Many of these boats hold 100 plus gallons. That is over a $400.00 fill up.

The small powerboat business has a large percentage of non hard-core boaters. They like being on the water, but look at boating as a fun thing when the weather is good. Big powerboats are really expensive. Only the truly wealthy people can afford big powerboats. These people are still wealthy and if they chose to fill her up at five dollars a gallon diesel fuel, why not. The big powerboat business has held up so far much better than the small, however there are signs that owning a big fuel guzzling yacht is not very green in this environmentally sensitive world.

What about the sailboat world? Used sailboats have always had the best resale, with the least amount of depreciation. Sailboat people are also harder core boaters. It takes more experience to use a sailboat and a bigger time commitment. Sailing is more of a life style and a very in life style right now, because nothing is greener than a sailboat. Sailors can walk the dock bragging about the fact that they fill their thirty-gallon tank once a year not once a week. The used sailboat business is as busy as it has ever been.

New sailboats have a lot of pressure to increase pricing. A majority of the boat is made from petroleum based products, which of course are affected by the higher oil prices. Higher prices are not a good way to stimulate business. New sailboats did not boom as much as powerboats in the 1990s, so therefore there is not a large inventory of used boats. The consumer is forced to pick between a short list of used sailboats or belly up to the bar for a new one. The end result is with an overall struggling marine industry new sailboats are hanging in there. The weak dollar has also scared away the majority of foreign builders. This has been good for American builders, however France and Germany have decided to subsidize that market. France and Germany are battling to dominate the sailboat business. Unlike American builders they have government money behind them. This will be a bad situation for American builders.

If you want to see what America will look like in five years, look at Europe. They have had eight to ten dollar per gallon oil for over five years. Their marinas are 85% sail. When you see a 25-foot powerboat it has a 60HP diesel engine, not twin 250hp outboards. In America we will learn to adapt to high oil costs. Alternative energy will grow. Americans will continue to go boating and our industry will adjust.

Please mail comments to me at Bump@newwaveyachts.com

Bump Wilcox