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New business models will emerge from recession

Regardless of who or what you read these days, virtually everyone agrees business is being permanently changed by this brutal recession.

Exactly what the boating industry will look like in the next year or two isn’t clear, yet. But big changes are imminent. For example, there will be less dealers (and manufacturers) in the business. For some time we’ve needed to rid the industry of builders of junk boats and dealers who think customer service is an anathema, anyway.

But what might be included in the new business model of those who survive? For one thing, dealers will be in a stronger position when it comes to “signing up” to represent manufacturers. With fewer dealers, manufacturers will have to “deal” to get needed representation in many markets. And, it will start with the influence of the just-passed legislation in Alaska that has suddenly become the yardstick for dealer agreement provisions. Couple that with the manufacturers’ need to replace lost representation and dealers can be more resolute than ever about getting balanced dealer agreements.

Even more interesting will be the likely changes in the way dealers will inventory boats. Survivors will have learned a painful lesson — that this industry’s business model was previously based on wholesale shipments and the dealers’ credit worthiness. As a result, dealers have been assuming the higher risk inherent in meeting builders’ demands to inventory. That won’t work anymore.

After this blood-letting recession, the needed shift from wholesale as the measure of success to retail will finally happen. For example, we now see it’s unsound for dealers to stock five colors of the 20-foot ski model! Instead, the new business model will see dealers stock only one, perhaps two colors and order any other color for a buyer. Indeed, how many colors of a 20-foot ski model does the market need, anyway? It now seems reasonable that producing just one or two colors will get the job done in the future.

Taking the idea of reducing dealer risk by reducing inventory levels even further, the time has come for dealers who have traditionally stocked large cruisers (say, 30 and up) to push back from the table and start dieting. It’s now painfully obvious that the cost of stocking cruisers makes for a bad business model. Survivors aren’t likely to jump into that game again anytime soon. So, builders will doubtless have to consider stationing cruiser models in selected locations around the country so dealers can fly prospects to them. Besides, going forward, both the costs and availability of floor plan funds seems certain to rule out large inventories at the retail level.

In turn, manufacturers are facing a reinvention of their production and profit models with post-recession eyes. The market, wholesale and retail, will not be returning to the “same old.”  It brings back memories of the recession and luxury tax debacle of the early ‘90s. That slashed our industry’s sales in half. And, even after that recession ended and the tax repealed, we never came all the way back to the sales highs of the late ‘80s.

Today, here we are again, mired in a similar sales drop in a worse recession. When this dust finally clears, and it will, we are not likely to recover all the losses we’ve again experienced, at least not for many years. So business models changes on all levels of our industry will be the mark of the survivors.

Comments

10 comments on “New business models will emerge from recession

  1. Captain Andrew

    Yes I agree. You nailed it right on the head.

    I think, as a result, manufactures are going to have to speed up their production processes and maintain the same quality–quite a challenge.

  2. Chip Gahr

    I as well agree,Well said! The Dealers who are left will be in the drivers seat. We have taken a beating and will lose hundreds of thousands trying to move one and two year old goods. We need all the manufactuers to help the GOOD dealers that have supported them for many years. Its painfull but we will make it, Things will be a changin!!

  3. Phil Friedman

    Back in the mid-eighties, I was hired by the new owner of a multi-location luxury yacht dealership and chain of service boatyards which he had just acquired. My main brief was to analyze the dealership’s “profit centers,” or more precisely “loss” centers to determine how best to turn the tide of declining profits. It quickly became clear that the practice of taking yachts larger than 40′ into inventory, which was a requirement of maintaining the dealership agreements on two lines, was a sure money loser. What with the cost of floorplanning, vessel maintenance, docking, advertsing, and other associated overheads, and the fact that these were 15% dealer discount lines, on which at least 5% was being negotiated away by competing dealers.

    My conclusion was that if you take a large yacht into inventory, you will almost certainly lose 4% to 6% on that vessel. You might make some of that up by selling to order from upcoming deliveries from the manufacturer, by swapping production slots with other dealers, and so on. But the large yachts that enter your inventory and go onto your floorplan will eventually suck the life out of your dealership.

    In the intervening years, I have not seen anything change in the nature of the businees that would lead me to conclude that things had changed. What blows me away is that, until this latest meltdown, virtually nobody in the industry has spoken up. Change in this area is well past long overdue.

  4. Tom J

    I know this is a dealer forum & I apreciate that I’m allowed into the coffee party.

    Offering a standard stocked color is good but offering custom or premium colors that a retail customer is willing to pay for & wait while his boat is built is even better. Both dealer & manufacturer both reap rewards.
    Capt Andrew : cycle time through a mold is a time process you don’t want to pull the cookies out before they are baked.
    I believe that we all will return to a time when a dealer orders his winter show boats & then places orders on factories After the winter shows.
    Chip Gahr: no one should want to dominate the driverseat. The dealers & manufactures that know how to partner and work togeather will prosper. look to the Marine Max Searay(brunswick) relationship as an example.
    What independant dealers may need be aware of are the manufactures who will decide to enter or expand their retail prescence – They can afford to have 5 different color ski boats & cruisers in stock.
    They will reap the benefit from the buyer who is ready to buy today who can’t wait until the weekend to go boating. I’m sure you are seeing this this week.
    Change is a constant & should be embraced not feared

  5. Jim

    Points all well taken Norm; however, you and I have both been around long enough that we know this has all gone down before, more than once. We said then what we are saying now. Lessons were learned, promises made; dealers went away and so did manufacturers—then once the economy picked up, it was business as usual and the lessons were forgotten.
    I for one hope that this time will have been seen as an exception to past performance and industry behavior–but reality tells me the past will probably repeat itself.

  6. Ron Knapik

    True, it will be a dealers market for a while, but being in business since 52, history will repeate, time will heal all wounds, and the manufaturers will go back to their old ways. Hope I’m wrong this time.

  7. Pete Peterson

    This has certainly been a challenging time for any company in the marine business. But I must tell you the business plan we put in place 7 years ago has helped us and our dealers weather this storm. We have only lost a couple of dealers who were not focused. We have reduced our inventory in the field to the lowest level we have ever had. Refused to build new boats until August, bought one competitor and working on a second, reduced stocking requirements for 2010, enforced protected territories even in this environment, and are working with floor plan companies to help liquidate boats within the dealer network. Our dealer network has become stronger and closer in working together to make sure everyone survives. This could result in something very good for all our dealers. It is a day to day process, but it is encouraging to see the team at work.

    Looking forward to a great 2010 model year.

    Pete Peterson
    Vice Presient Marketing
    World Cat

  8. The Truth

    And the answer is: WRONG! The lack of credit even for the credit worthy, let alone the sub-500 scores boat dealers attract, prevent the floor plans from moving forward and ushers in the collapse of many manufacturers and MOST dealers!

    And, Lo! Days after you dreamers posted your May 2009 comments, Gen-Mar filed!

    Adieu, sweet Fonzarelli!!!

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