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Now is the Time to Buy – Here’s Why… 05/09/2007
The concept is simple and we have seen it operate in
three out of the last four boating slowdowns:
In the slowdown, many --not all-- dealers and builders cut their
margins to the bone, both just hoping to meet payroll and debt
service and survive until the up cycle. That means that new boats
are at their cheapest then. Depending on what size, category, and
brand, you are getting the boat for as low as it can be sold and
keep the dealer and factory in business.
Petroleum-based products prices will go higher as will metals and
raw materials because of the general world situation and China. This
will push boat prices higher in the future.
Boats ALWAYS become much more expensive after a slowdown because the
company is usually building fewer units (to be safe), thus
amortizing its fixed costs over fewer units. In addition, in the
intervening years other things happen to raise prices, such as new
EPA rules, new USCG requirements, higher industry standards,
increasing consumer demands for higher reliability, longer
warranties, and better customer service. All are built into the
price, which goes up typically 5% to 7% a year, or more, when
inflation is 2% to 3%.
Not all brands will be sold at a big discount. Every brand has its
own market perception, its own production policy, and is more or
less in demand. For example, Aston Martin produces about 2500 cars a
year. Even in slow times these cars are not discounted, as, say, a
Ford would be. This is because Ford is trying to sell millions of
cars and must appeal to many pocket books.
If you keep your boat in pristine condition, and add gadgets to it
like most people do, when the boat business cycles up as it usually
does, your boat will be worth a perceived discount from new,
depending on its age, market size, and the warranties in place. The
average new boat is sold three to four years later. That is probably
your best time to trade up, or sell to max your use vs. cash return.
Many times you can actually sell a boat for nearly what you paid.
If you are skeptical of this possibility, then please read the
article below that explains the dynamics of what has happened
recently in the boat business and we think will happen in the
current slow down as well.
Growing Over Production
In the late 1990’s and early 2000s boat builders geared up for more
production because dealers and customers were hungry for the new,
vastly-improved products – in a few years engine technology and
styling had taken a big jump forward. New, higher benchmarks of
dealer sales numbers were established.
All of this was in the face of an unmistakable trend in the decline
of new boat sales from about 500,000 in the mid- 1970s to about
300,000 in 2006.
A Buyer’s Market
All of this came home to roost in the early spring of 2007. Boat
sales were off 20% for many companies, even more for others. The
lucky ones were only down 10%, and then there are the “golden
brands” who have kept their production in harmony with demand, or
who are in hot niches, or who have brands that are so exulted and
respected that they march on year after year no matter what the
economy.
If the boating sales slumps of the past proved anything it is that
there will still be many buyers, most companies and dealers will
survive until a better day. And the people who bought during the
slump got boats which depreciated less than normal, because they
paid less than normal, as both the dealer and the factory worked
hard for every sale.
Discounts and Incentives Abound
Today, many companies are offering factory incentives of anything
from subsidized interest rates to huge cash rebates. Used boats with
older technology are being sold for lower and lower prices as they
search for equilibrium, and find it elusive. Now is the time to take
advantage of these opportunities. If you don’t mind old technology,
are not concerned much about style and just want to get out on the
water, in many types of boats you can get a lot of boat for the buck
now. If you want the latest and greatest, then prices will never be
lower than they are now.
Non-Current “New” Boats
A “non-current” new boat is a boat that has never been sold by a
dealer so it is “new”, as in “unused,” but it is not of the current
model year. For example, all 2006, 2005, and any 2004 non-current
units you can find might well be bargains for several reasons.
First, the boat may well be nearly identical to the current model.
Second, it cost the dealer less than the 2007 model, so he is likely
to take a lot less money for it. Third, in some cases the dealer is
so sick of the boat that he will sell it at cost, just to get it off
his floor plan and stop paying interest on it. Fourth, the factory
may be planning on discontinuing the model or making it obsolete
with a completely new model in the same size.
The Internet Changed Everything
Finally, the Internet has changed the way the world does business –
and it has seriously impacted the boat business, too. Although many
boat builders were slow to figure it out, now most realize it is the
not only the wave of the future – it is the “Wave of Now.” The fact
is, one can get on the Internet, go to the classifieds of
BoatTEST.com, Yachtworld.com, or Boattrader.com and see what dealers
all over the country are willing to sell “non-current” and used
boats for – and in some cases even current model year boats. (Most
companies restrict dealers from publishing current model prices to
inhibit price wars among their own dealer network which would
ultimately hurt not only some dealers, but consumers as well.)
Thanks to the Internet, local markets have become national and even
international markets as the size and the cost of the boats rise
above transportation parity. A dealer in distress in Podunk can get
the word out to the whole world that he is liquidating his inventory
for about $150 for the classified ads. And dealers can change their
prices and listings everyday on the Internet – and many do,
automatically feeding new data to BoatTEST.com, Yachtworld.com,
Boattrader.com and others virtually every night. Use the Internet.
It is absolutely your best tool to finding the boat you want.
You Need Dealer Service… …and the Dealer Needs Your Sale
There is an unwritten quid pro quo in boating: buy where you boat.
Remember that if you get a great deal from a dealer 200 miles away,
the local dealer may not give you the time of day. It may not seem
smart, ethical or fair, but that’s the way the boat industry still
works in many cases. That’s why the builders want you to buy a boat
from the dealer where you boat. The factory knows that it will have
a much happier customer if the local dealer has an economic stake in
you and your boat. Since the whole reason for boating in the first
place, is to “enjoy” being on the water, the chances are that you
will have a much more enjoyable time if you buy from a local dealer
who will gladly help you when you need it (which you will).
New Boat Prices are Going to Rise
If you live in a house that you bought 6 years ago or more, ask
yourself if you could afford to buy it at its current market value.
Chances are you couldn’t. The same has happened in boats, and will
continue to happen -- but for different reasons. The boat you can
afford today will be much more expensive NEXT YEAR because of the
inevitable march of many of the factors listed above and many others
not discussed such as rising costs of petroleum products (resin) and
China sucking up raw materials. In fact, the rate of boat price
increases will accelerate, in our view, as on-water dealers sell
their property for condos and cash out, leaving fewer dealers with
fewer competitive lines.
At an annual rate of 5% - 7 % increase in boat prices, the boat you
buy today at list will list for 21% to 31% more in 4 years. Is your
income going to increase 21% to 31 % in the same time period?
2007 – Year of the Big Deal
If your income isn’t on a steep incline, then this is the time you
should be buying your new boat. Prices probably won’t get much lower
than they will be this summer.
Dealer Mark-Up
MSRP dealer mark-ups are typically very little in small boats,
typically 10% to 12%. It is hard to negotiate those markups down
because, they are – in fact -- already too low, and the dealer needs
them just to keep his doors open and to pay the interest on the
money he borrowed from the bank to get the boats in his showroom.
Typically, mark-ups in the 25’ to 45’ range are 25% to 35%, although
the dynamics of every boat category are different, and every company
has its own policy. Some builders give very deep discounts to high
volume dealers, and smaller discount to dealers with small unit
sales. A few companies sell their boats at the same price to all of
their dealers no matter how many they sell.
Boats over 45’ to 50’ usually have a dealer margin of 10% to 15%,
but some mass brands are higher.
Desirable Used Boats Are Dwindling
Fiberglass has a life longer than we know. But the boat’s equipment
has a useful life of about 15 years– just like household appliances
– and usually less in salt water due to the harsh marine
environment. Time, technology, and styling has simply passed many
used boats by.
Extended Service Contracts Will Limit the Market
Companies offering extended service contracts are proliferating now
in the marine industry, but virtually none of them want to touch a
boat older than 1998. While some companies, such as BoatTEST.com’s
partner SeaSafe™, will offer a service contract on major new
components put in old boats, it won’t consider a boat older than
1998 for general coverage. In the next several years, extended
service contracts are going to grow in popularity and people buying
a used boat will want to buy one with an extended service contract.
The contracts, and the ability to get service contacts, will to a
large degree, we think, become the new demarcation line for a big
price drop in used boats, just as boats with old 2-stroke outboard
or diesel engines or carbureted gas engines sell now at a deep
discount on the used market. This means that if you can secure a two
or three year service contract on a boat that is three to five years
old, you should have a boat worth almost what you paid for if you
keep it in top condition.
What if a Dealer WON’T Discount?
What does that mean? It means he is selling a brand that is in
demand. Brands in demand will usually still be in demand when you go
sell. It also means that the dealer is solvent, has been through
slowdowns before, and is likely to be around when you need him. Make
sure that in your effort to get a good deal, you don’t get a good
deal less.
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