Covid19 - Boating - Boat Manufacturers

[O C Diver]

It appears there may be an extended recession, depth and length to be determined. As it seems most of the world will be participating, I'm curious how this will impact boating, boating related businesses (marinas, boatyards, subcontractors and accessory dealers), and boat manufacturers.

For the USA market, it looks like it could be an abbreviated season with some / many boats not going back in the water. With reduced boating, many related businesses will suffer, maybe go out of businesses.

With the whole world involved, it seems that many international boat manufacturers will be effected as all markets will be suffering. For those that build to order with a multiple year backlog, this may not be a big problem. I'm curious how those that build inventory boats will survive.

It seems the only bright spots will be cheap fuel and maybe more transient slip availability later in the summer.

Thoughts on recreational boating market?

Ted

 

[sunchaser]

Ted
Good question. My early AM foggy brain thoughts:

The outfall to humanity as we know it from this event is yet to be determined. Toys and indulgences such as boats, cars, airplanes or leisure travel are already being impacted. With fewer boat dollars available for spending by current owners, the support industries whether marinas supply stores or yards will likewise suffer with many shutting down.

Boat loans are quickly drying up with future income and current assets for borrowers becoming questionable. Used boat prices may well suffer worse than the 2008 recession with builders going out of business, again.

Life for many if not most will get back to basic support systems thus maintaining expensive and optional hobbies will become challenged. Quite honestly, why have a boat if the cruising ground amenities remain impacted, struggling at best and shuttered at worst?

For us, air travel to various boat locations is essential thus a huge question mark appears. We are not alone in this respect.

For those with free cash the next few years may well represent an outstanding buying opportunity. That said, will our hobby remain the same fun activity? We'll know in a year or two.

So good question Ted. There is no ready answer on our part. For many, an exit strategy is taking shape. Some we know have large recent new builds that are raising owner eyebrows for future usability.

 

[O C Diver]

Boat loans are quickly drying up with future income and current assets for borrowers becoming questionable. Used boat prices may well suffer worse than the 2008 recession with builders going out of business, again.

For those with free cash the next few years may well represent an outstanding buying opportunity. That said, will our hobby remain the same fun activity? We'll know in a year or two.

So good question Ted. There is no ready answer on our part. For many, an exit strategy is taking shape. Some we know have large recent new builds that are raising owner eyebrows for future usability.

Is my fertile imagination off course? If there is a major loss of manufacturers serving a segment of a regional market (the average TF member in the USA) and the inevitable attrition of the pre 911 boats continues, don't we reach a point (after the economy has rebounded to a new normal [1 to 2 years]) where well maintained boats become the hot market? It seems we are on our 3rd collapse of the boating manufacturer market in 20 years. When the boating market opens/ rebounds, it just seems to me that new boats will be scarce and very expensive, pre 911 boats of maintained quality will be much less common, and there doesn't seem to be as many built between 911 and now because of down economic periods.

Ted

 

[BandB]

I think for boat builders and manufacturers worldwide this will be as bad or worse than the 2008-09 recession. For the local industries, whether US or Europe, the 2020 sales season is going to be largely missed. March to May is peak, June tails off, and boats are not sold well after July 4.

For builders of large boats, they buyers once again have been hit hard and many boats already ordered will be cancelled including some in progress.

I believe 20% of all builders and manufacturers worldwide will fail to make it through this. I believe for those who do survive, we'll see brand consolidation. First to surface in that regard was Polaris discontinuing Rinker, Striker, and Larson FX, brands they'd just acquired over the last two years. Others will reduce the models.

It will be interesting and sad. Will Brunswick choose to pull the plug on Sea Ray? What about Beneteau and Glastron and Four Winns which they own? Pontoon builders all have multiple brands, how many of those will be gone?

Will Wanda pull the plug on Sunseeker? They're largely a Chinese developer but own Sunseeker and Wanda Cinemas plus majority owners of AMC theaters. They're also heavily invested in Sports.

Many boat companies will be impacted by other investments of their owners. Genting which are large owners in Grand Banks are primarily in hotels, casinos and cruise lines. Versa, which owns Hatteras, also has large investments in airlines, media, shale, retail, hospitality, and parking. Sure don't see any of those propping Hatteras up.

 

[bshillam]

Too early to tell but I would venture to say based off past history that very much inventory being stressed going into this and the possibility of inventory being stressed by manufacturing being negatively affected will indeed maintain our values. Lending prior to this cycle has been conservative and responsible, more than likely we won't see a massive amount of fire sales through the resale market. If a manufacturer goes out of business that's where we are liable to see the larger savings. However, should they completely fold - there won't be any after market support.
We all know boats aren't perfect, would you buy a new car w/o any post sale service/warranty? That would have to be a huge savings to justify the risks associated with a more complex item such as a boat.
Sure there are some manufacturers that have come to market during this last cycle but those that have survived the previous down turns more than likely have learned how to be slim and will return back to production as the economy does. Now should we remain in a stay at home for months at a time and have second and third waves of Covid-19/Wuhan Virus then everyones crystal ball will be broken and shattered into very small pieces.

 

[BandB]

Sure there are some manufacturers that have come to market during this last cycle but those that have survived the previous down turns more than likely have learned how to be slim and will return back to production as the economy does.

Yes, and no. Many manufacturers are under different ownership than they were in the recession. Sunseeker and Ferretti are now both owned by Chinese companies. Hatteras is owned by a venture capitalist, not Brunswick. Cobalt was held together last time by the St. Clair family but have been acquired by Malibu. Companies like Burger have come through previous but when do they just get tired of it all. LVMH owns Princess and their primary businesses are fashion and cosmetics and jewelry and retailing. They acquired Princess during the recession.

 

[O C Diver]

What about the Nordhavn, Kadey Krogen, and maybe Flemmings of boating, with mostly build to order sales? Were they part or what you expressed as lots of cancelled orders, or just a reduction in volume going forward? What is the typical cancellation policy for manufacturers that have started a customer's build?

Ted

 

[BandB]

What about the Nordhavn, Kadey Krogen, and maybe Flemmings of boating, with mostly build to order sales? Were they part or what you expressed as lots of cancelled orders, or just a reduction in volume going forward? What is the typical cancellation policy for manufacturers that have started a customer's build?

Ted

Policies are no cancellations, at least loss of any monies paid. However, let's remember the Nordhavn 120, their most expensive boat ever, and the original buyer backed out. It threatened them seriously and they then entered into a horrible contract to sell it.

It goes like this..."I'm cancelling my order."

"You can't do that."

"I just did."

In a healthy environment, someone else is waiting. In a recession, you've got a just started boat on which you've been paid enough to cover the work done so far, but no order now for it.

Our wholesale division has tons of orders from all the major department stores. We don't consider any of them firm now. What are you going to do? Ship it anyway? Sure not going to get paid. And no one else wants it now.

Some cancellations will be of boats not yet started, some just recently started. Then some that are well alone the buyers will go to the builder and tell them they can't afford to complete it, to please find someone else.

From a legal standpoint, every contract is different. Most are written by the builder so to their benefit. However, the term force majeure will be heard tossed around. Some of the contracts I've seen give the builder the right to be late and, if lengthy enough shut down, to cancel, but don't talk about the rights of the buyer. Then what if a buyer cancels without rights to do so, then the builder has an obligation to mitigate damages. Until they finish the boat and sell it, they probably can't prove their loss.