A Serious Industry Problem

In my 43 years of involvement in this industry I have seen a lot of problems and countless changes – some good – some not so good. We have survived numerous economic downturns, a scary energy crisis, the crazy luxury excise tax, a period of double-digit interest rates and a significant loss of business to other recreational industries.
A problem I touched on in my last column is getting increasingly more serious, and I feel I need to expand on it. The problem is that several boat builders are selling loose outboards direct to dealers – in some cases to non-authorized dealers – and not as part of boat packages. Often these outboards are sold at prices lower than what dealers pay the engine manufacturers for the same engines. This is crazy … an unethical and illegal violation of their contracts with engine manufacturers.
When boat builders sell loose outboards, they become unauthorized distributors for engines. This is not good. We need to get this industry back in balance. Outboard manufacturers, who have been major supporters of this industry since its beginning, are losing control of their distribution. For year,s they have made large investments in new technology that helps the industry. But I don’t see how they can continue to do this without getting a decent return on their investments. Unfortunately, most of the profits from their endeavors are now ending up in the boat builders’ pockets.
Why did this become a problem? There are two reasons. One is that there are too many outboard manufacturers in this market and the second is the whole packaging concept.
Years ago, the market for outboards was between 500,000 and 600,000 units per year split between Evinrude, Johnson and Mercury. Today, the market is about half that size, yet there are eight outboard brands available. That is way too many for the size of the market. Competition between all of these brands results in very low prices being thrown at some boat builders by some engine manufacturers to get their outboards on the transoms.
If 80 percent of the outboards sold today go on packages, that leaves 20 percent that engine manufacturers sell to dealers direct. Unfortunately, today most of an engine manufacturer’s profits have to come from the loose outboards that they sell direct to dealers because they can’t be making much on their sales to builders. Worse, when builders sell loose outboards at prices below what dealers pay the outboard manufacturers, the engine companies’ profits are further eroded. Obviously, much of the profit that outboard dealers and manufacturers used to make on engines has now shifted to boat builders. To enhance their profits, boat builders should focus on making better boats more economical instead of relying on sales of outboards.
This brings me to the second reason, which is the whole packaging concept. I have a basic problem with the package concept. If boat builders add value, then perhaps they should share in some of the outboard profit. However, I don’t feel that many builders add much value when they sell boat packages that include outboard motors when they don’t install the engines on their boats or, in some cases, don’t even touch the outboards but have them drop shipped to dealers. How is value added in these cases?
It makes more sense to me to go back to “pre-rigging” where builders set up boats based on dealer orders for specific outboard brands. Then, dealers could make their volume outboard purchases from the engine manufacturers. This would put engine manufacturers back in complete control of their outboard distribution which is where it belongs. I can’t blame dealers who buy these outboards “in the box” from boat builders if they can get lower prices. The blame lies with the boat builders who are basically violating their agreements with engine manufacturers to only sell outboards with boats as part of packages. It almost appears that boat builders are trying to make outboard motors into commodities.
If this continues, dealers will continue to see their brands of outboards “footballed” to other nearby dealers. This really messes up the market. And sales to unauthorized dealers hurts the industry because these dealers likely don’t have access to service training, parts and warranty, and the consumers can end up disillusioned and disappointed.
I strongly urge boat builders to only sell outboards as part of boat packages and not play games like shipping two engines as part of a package when the boat is only rigged for one. And dealers must remember that they can’t have it both ways. Dealers can’t buy outboards direct from boat builders and not expect to see those brands cropping up in other nearby dealer showrooms. When this happens, yell at the boat builders … not at the outboard companies.