A View from Here

Bill's Sisson's weekly Trade Only blog

A few good signs among the headwinds

The economy continues its bumpy summer ride as a host of global and domestic issues keep the waters roiled. The choppy seas are the result of a familiar litany of concerns — persistent unemployment, the weak housing market, sovereign debt woes and debates over the U.S. debt ceiling.

Will the second half come in stronger? What does it mean for new- and used-boat sales? When will we see a rise in consumer confidence?

The best bet for our industry in 2011 is that new-boat sales will wind up flat, or perhaps slightly up. That’s what the numbers are telling Jack Ellis, managing director of Info-Link Technologies, the market research and analytics firm in Miami.

Given the macro headwinds, rising fuel prices and the extreme weather that shellacked so much of the country in the first half of the year, it’s surprising that some dealers and brokers did as well as they did. Some of that might have been the result of taking market share from failed competitors, and some from the fact that inventories are so low. It makes you wonder just how strong the spring might have been, had it not been for the political noise, economic uncertainty and Mother Nature.

“Consumers do not like to make large discretionary purchases when the world feels shaky,” Ellis says. “And boats are right at the top of this list, along with vacation homes, RVs and maybe private airplanes. However, we are seeing some glimmer of hope despite the recent decline in consumer confidence and the increase in unemployment. My educated guess is that for 2011 we will see a slight increase in year-over-year sales.”

Historically, consumer confidence has been a good indicator of boat sales. Folks tend to spend when their confidence is high or rising and pull back when it falls. Pretty straightforward.

Interestingly, Ellis says new-boat sales in May and June did not reflect what one would typically expect, given the decline in consumer confidence. “Almost everything looks up, even Florida,” he says.

Overall, things are improving: Inventories are substantially reduced, margins are better, and there is less distressed product in showrooms. In an interview for the August issue of Soundings Trade Only, GE Capital’s Bruce Van Wagoner told us that dealers, with strong support from builders, have done a good job of reducing excessive inventory levels.

He said that during the past year “product on the floor more than 18 months has dropped from nearly 40 percent back to normalized levels of 13 percent.” And ordering, he noted, is just keeping pace with retail sales, which could mean some shortages going into the model year.

Ellis says the average boat has gone from more than 400 days in inventory in late 2009 to about 250 days a couple of months back. And although it’s not quantifiable, Ellis says, “I’m hearing a lot less about the incredible deals people are getting on boats. That was doing a ‘number’ on the value.”

Ellis says some market segments, such as “value” boats, were doing quite well, compared with last year. “Pontoon boat sales are up almost everywhere, other than the hardest-hit areas, like Florida and the West Coast,” he says. “And the fiberglass jetboat market, albeit small, is doing better. The rest of the fiberglass [market], however, is still having a tough go of it.”

Take the aluminum segment out, Ellis says, and new-boat numbers would be down again for the year.

The fiberglass outboard market is probably close to making a bottom, Ellis notes. For the sterndrive segment, it’s still tough sledding.

And U.S. yacht brokerage numbers continue their gradual improvement. Although they’re not close to the prerecession salad days, the numbers for June reached their highest monthly level since 2007, says John Burnham, editorial director for Dominion Marine Media, which includes YachtWorld.com, Boats.com and BoatTrader.com. Burnham says he believes people are feeling a little more comfortable living with uncertainty — and spending some money.

As Ellis puts it: “There are millions of people out there with the water gene, and they are not going to be deterred.”

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