More Americans took to the water in new boats this summer, often buying smaller, less expensive models, as the industry is showing signs of a recovery.
Purchases of powerboats — which include yachts, pontoons and fishing vessels — rose 18.9 percent in July from a year earlier, according to figures from Statistical Surveys Inc., a research company based in Grand Rapids, Michigan. Even with mild summer weather and a cold winter, year-to-date sales are up 3.1 percent, the data show.
The industry “is performing pretty well again” after bottoming in 2010, with smaller boats — those under 30 feet in length — showing particular strength, said Tom Walworth, the company’s president. This category has rebounded about 13 percent since 2010, outpacing the 9.3 percent growth rate for larger craft, a sign there’s been a lasting shift in consumer preferences since the 18-month recession ended in June 2009, he said.
“What really stands out in the economic recovery thus far is that demand for smaller boats is coming back pretty nicely,” said Michael Swartz, an analyst with SunTrust Banks Inc. in Atlanta. That’s partly because “very lax” lending standards before the recession have become more restrictive, so people are buying what they can afford, he said.
High Correlation
Boat purchases are highly correlated with consumer confidence and gross domestic product, according to Thom Dammrich, president of the National Marine Manufacturers Association in Chicago. Sales aren’t near the previous peak yet because the economy is growing only modestly and the industry performs best when annual GDP exceeds 3 percent, he said.
Federal Reserve officials project the U.S. will expand 2 percent to 2.3 percent this year, according to their central- tendency estimate released Sept. 18, which excludes the three highest and three lowest estimates. In June, the range was 2.3 percent to 2.6 percent.
“If you believe GDP will further accelerate in this expansion, then boat sales should also grow faster, as they’ve done in past economic cycles” Dammrich said.
Many buyers are “trading down” to less expensive alternatives — including pontoons and aluminum fishing craft — both of which have experienced strong customer interest recently, Swartz said. Brunswick Corp., the leading U.S. boat manufacturer, has responded by increasing its production of these vessels, he said.
‘Very Tough’
There’s also a psychological aspect at play, according to Robert Dye, chief economist at Comerica Inc. in Dallas. As the economy hit a “very tough” patch, some people didn’t want to flaunt their money, he said, adding that this helped to curb spending on expensive, non-essential goods and services. “There was some pushback against those types of public displays of wealth.”
Even though many affluent Americans were insulated from the impact of the slowdown, they “just didn’t feel it was prudent” to buy an expensive boat, said Debbie Reynolds, owner of Passage Yachts, which operates two dealerships in the San Francisco area. This made for a “very odd environment for selling” compared with the two previous recessions she has weathered during her 30 years in the business.
Some consumers justified their purchase by choosing a used yacht or powerboat, helping to propel the company’s brokerage business up 25 percent during the past five years, Reynolds said. Now the market for new boats is slowly recovering, she added.
Rebounding Confidence
The boost in demand has been helped by the rebound in stocks, housing and consumer confidence after discretionary spending was hit hard by the recession, Dye said.
The Standard & Poor’s 500 Index has risen 155 percent since it bottomed in March 2009, while sentiment measured by the Bloomberg Consumer Comfort Index has improved almost 25 points since its mid-recession trough. Meanwhile, the median price of an existing house jumped 14.7 percent to $212,100 in August from a year earlier, the biggest increase since 2005, according to data from the National Association of Realtors.
Americans spent about $13.9 billion on new and used pleasure boats in July on a seasonally-adjusted annualized basis, up 28 percent from a year earlier, based on the most- recent data available from the Commerce Department. Since the recession ended, this category of personal consumption rose 29 percent, compared with 19 percent and 14 percent following the eight-month slumps in 2001 and 1990-1991.
Below Peak
Even so, total expenditures on all new and used watercraft — which includes sailboats, canoes, powerboats and yachts — are more than $4 billion, or 23 percent, below the 2007 peak, based on Commerce data. The market for new powerboats also is sluggish, as 2012 total marine sales — at about 196,000 units — were almost half of the nearly 384,000 sold in 2006, Walworth said. This segment has been marked by “one of its slower recoveries,” Swartz added.
Nationwide sales have been “a bit choppy” this year primarily because of bad weather early in the selling season, Swartz said. While purchases started to pick up later in the summer, dealers and manufacturers may have to wait until 2014 for consumers to unleash more pent-up demand, he said.
That will help fuel revenue for Brunswick and MarineMax Inc., the leading U.S. boat dealership, said Swartz, who maintains buy recommendations on both.
Expanded Products
Brunswick, based in Lake Forest, Illinois, has successfully expanded its offerings of smaller, less expensive watercraft — a category that’s started to recover — while MarineMax is largely dedicated to stocking the largest boats, sales of which haven’t suffered as much as their mid-sized counterparts, he said. “These companies have been rejiggering their portfolios to meet the shift in demand from consumers.”
This hasn’t gone unnoticed by investors. Brunswick shares have outpaced the Russell 2000 Index by about 10 percentage points since Dec. 31, while Clearwater, Florida-based MarineMax has led the benchmark group by almost 15 percentage points.
Boating is one of the “ultimate gauges of discretionary spending” because it requires a financial and lifestyle commitment, said Jack Ablin, who helps oversee about $66 billion as chief investment officer of BMO Private Bank in Chicago. Even if consumers are opting for less-expensive models, this still is an encouraging sign that middle-class Americans are feeling more confident again, he said.
Middle-Class Activity
Three-quarters of U.S. boaters have household income of less than $100,000, making this a “predominantly middle-class recreational activity,” Dammrich said, adding that 95 percent of watercraft in use are less than 26 feet long.
In addition, vehicle sales bode well for this industry, even if “the boat has to take a back seat” in terms of purchasing priorities, Ablin said. Cars and light-duty trucks exceeded a 16 million seasonally adjusted annualized pace in August for the first time since 2007.
A powerboat with an outboard motor and trailer could retail for an average price of $30,000 to $32,000, according to Dammrich. “It’s not a small purchase for most Americans,” which helps explains why the share of pre-owned sales has risen to 82 percent, up from a pre-recession average of 72 percent, he said.
The average age of a boat in the water is more than 20 years, so the prospect of consumers upgrading to newer models is encouraging for manufacturers and dealers, Swartz said. “At some point, owners can’t justify putting additional money into a boat that old.”
‘Really Popular’
Business is improving at Passage Yachts, with sales already doubling compared with last year, Reynolds said. Boats between 41 feet and 45 feet — which retail for an average price of $250,000 to $350,000 — have been “really popular,” driven by consumers who put off purchases for several years. Reynolds estimates about 65 percent of her company’s customers pay cash.
Accelerating sales nationwide late this summer suggest the slowdown that rocked the industry could be over. Purchases of pontoons — which can carry up to 16 people and offer features such as grills or built-in coolers — are approaching pre- recession levels again, Swartz said. In addition, if attendance at boat shows is any indication, there are better days ahead, Dammrich added.
A recent show in Tampa was “very successful,” marked by strong sales leads, he said. “People are really interested in buying boats again, and they’re asking questions a buyer would ask.”
Editors: Melinda Grenier, James L Tyson