Dealer Outlook

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Would you loan money to you?

My letter to Santa last week raised some interesting issues. But, as usual, the real intriguing ideas came from the comments by readers. That’s exactly what this blog is for.

In particular, Don Thurston and Noel Osborne each raised the idea that as this recession forces us to reinvent this industry, new inventory management and control systems will be the key to attracting future floorplan funds.

Osborne nailed it when he commented: “Dealers are being highly critical of the banks for not providing inventory financing but would you, if you were a banker, loan money to our industry right now? How many millions have the banks already lost due to dealership failures and there is more to come.” He further contends that until the banks become convinced our industry has a business model to effectively manage our inventory, thereby reducing their risk as well as the dealer’s, lending isn’t likely to reappear.

Thurston also identified inventory-turns as critical, not just to dealership survival, but to rebuilding bankers’ confidence. Clearly, the industry can never return to the days so memorably described by Reggie Fountain: “I think we all got away from reality. Everybody was building all they could build and sending them into the field, and finance companies were financing them and then all this stuff happens!”  It was bound to.

Even more specific, Osborne noted manufacturers should not ship product that would result in a turns-ratio of less that 2-to-1 or, even better, 3-to-1. Thurston added that manufacturers must look closely at “days supply” and ways to keep their dealers healthy. The formula is simple — match the production levels to the consumers’ appetite.

Easier said than done? Definitely. It puts a huge burden on manufacturers to develop new business models that will also appeal to the financial community. Manufacturing capacity, now obviously overbuilt during the past decade when boat builders were producing for inventory instead of market demand, will not be needed for years to come, if ever. Still, the overhead inherent in that capacity will continue to burden builders.

But dealers also have a tough burden. Since each dealership is the dealer’s business, not the manufacturer’s, only the dealer should make the final inventory decisions for that dealership. If in the past manufacturers often dictated those levels, we cannot expect to return to that way of doing business. And no dealer should be accepting of it. Let’s face it — if this recession has taught us anything, it’s that every dealer must control his own business. Hopefully, that will be with  good manufacturers that model more closely the “just in time” inventory concept, including an effective inventory-sharing system.

Now, that would be a great way to start the New Year off!

Comments

3 comments on “Would you loan money to you?

  1. gordy mckelvey

    I think the industry needs to get smaller than it is now. For anyone to survive in the future there must be finanacing for sure but there needs to be higher profit margins for the dealers. Nobody wants to talk about it but the one of the reasons for the implosion in the industry is mfgs, and dealers modeled everything after the automotive industry. Finance everybody and work on volume. The customer base just won’t support this type of business plan.

    We’ve got to get over the mind set that everybody needs a boat. Forty years a go a boat of any size was a pure luxuary. Maybe if we get back to that type of thinking everybody will make more money and the industry will be stronger and better able to withstand these downturns in the economy.

  2. Captain Andrew

    Unfortunately for consumers, I think you are both quite correct.

    Fractional ownership models are one of the few ways I think the industry can market to middle-income boaters.

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