President of the Marine Retailers Association of America, Phil Keeter, shares his insight into the issue of dealer contracts and relationships. The following is a collection of excerpts from Boating Industry magazine’s interview with Keeter. To read the article, check out the November/December issue of Boating Industry.
Boating Industry: What can you tell me about the Cobalt dealer agreement that was recently introduced?
Phil Keeter: Well, I’ve probably had a half dozen or so boat companies that have asked me to see that agreement, some that are working on an agreement. A couple of them were major (boat builders) that wanted to see it.
I think there are a couple or three things about Cobalt’s agreement that are interesting, and that’s this: Cobalt has to be held up as a shiny example of the golden rule on how you treat people. They’ve worked for years on a handshake. So their dealers become Cobalt dealers and they become profitable through the Cobalt company by the fact that Cobalt protects their territory and doesn’t set dealers on top of one another and so on and so forth. So, they worked for years on a handshake basis, and that’s great.
Now, not everything’s perfect in this world. They’ve had some that were not good dealers and some that have caused them trouble, but basically, they get along good. They don’t try to force product down a dealer’s throat. They’ve got a pretty good production schedule and their plant stays busy year around. Cobalt could expand their plant 2 to 3 times and make 2 or 3 times as much as they do, but I think they feel like they’d lose their quality and their control. So, you’ve got an example of a company that’s done a lot of things right.
What made them decide they want to dealer agreement? I think they have heard enough from their dealers, and they’ll tell you that they brought their dealers in asked their dealers to help them with getting the agreement ready. They decided they wanted to create a dealer agreement because the dealer needs some protection from the standpoint of financial institutions wanting to know what kind of collateral they have. And obviously, one of the biggest pieces of collateral is their boat agreement.
You go into the bank and say, ‘I want to add another 20,000 square feet onto my building for display space,’ and the dealer looks at it and says, ‘well, what kind of agreement do you have with Cobalt?’
‘Well, we just hand shake with them.’
‘So, you mean you don’t have any protection?’
‘No, they could cancel us in 30 days.’
So, obviously, Cobalt saw the need for the fact that this gives the dealer some strength when they need to go and do their lending or their expansions. That, in turn, gives Cobalt a hell of a lot of strength. I mean, if you’ve got dealers who are expanding their ability to buy product, they are expanding their facilities, all those things, with the intention to sell Cobalt boats, that’s a huge advantage. So, I think that’s one of the reasons they went ahead and did the agreement, and I think they are to be commended for that.
I think the need to establish, in writing, some of the other things they did — full warranty reimbursement, their exclusivity of the product, their territorial limits — I think all those things make the dealer more comfortable and they make them work harder. I think it makes them more concerned about maintaining that.
I see it as a pretty progressive move on Cobalt’s part. They didn’t have to do it. They probably could have stayed with the handshake deal, and they probably wouldn’t have lost a dealer. I also know in conversation with them, they do not like, as any manufacturer does not like, to be governed by some state law. But they’ve got 4 or 5 of those now that will supersede their dealer agreement, and some of them have some clauses in them that they do not like. So, they don’t want that to happen in another 40 states and have 40 or 50 different agreements they have to look at. I mean, that’s got to be cumbersome and burdensome. That’s been one of our big arguments from MRAA: Get out and do something with these dealer agreements, and you don’t have to be worried about being governed by 50 state laws. As dealers in other states win another victory, why, here will be another state and another state, and before long it’s kind of like an avalanche.
One thing the Cobalt agreement doesn’t do, it doesn’t provide for any product buy back. If the contract had any weakness that would be the weakness that it had. Now, good understanding prior to the fact that you end your arrangement with the dealer or you end your arrangement with the manufacturer, whichever way it came from, good planning prior to that would probably eliminate the cause for buyback. Those buyback clauses are the most effective when a manufacturer steps in and says, ‘Matt, you’re not our dealer anymore,’ and Matt says, ‘son of a … I just got 3 loads of boats.’ And they say, ‘well, sorry Matt, we don’t love you anymore. We love Phil down the street a lot more than we love you, and he bought 5 loads today.’ So, that’s where those come into play.
Now, in some of those cases, the Georgia law, for example gives the dealer the right to cancel the manufacturer. And so, there could be some case where a dealer would buy product and keep the product and not try to sell it, in other words to try to sell something else to keep that line off the market and then at the end of the year say ‘I want out of this, and I want you to buy this merchandise back.’ That’s not right. But the manufacturers probably would be, with some sort of agreement like this, much more careful about who they set up as a dealer. They won’t just set up any Tom, Dick or Harry to get product moved. They’ll make sure they have a good strong dealer before they do it.
Boating Industry: So what states have dealer contract legislation?
Phil Keeter: Georgia, Missouri, Oklahoma, Louisiana, Michigan, Texas, and I think Virginia has one, and then there’s two or three more in the hopper. Michigan’s looking to re-do theirs. They were looking to make their’s stronger, to enhance it, but they do have one. I think Maine has one, too, but Maine’s is a pretty weak one I think. New York has one that’s close. You should stay close to the guys up in New York because I don’t think it will be very long before [Governor] Pataki will sign it. It’s already gone through both houses.
Boating Industry: So, Michigan has a dealer agreement, but is trying to change it?
Phil Keeter: Right. Michigan had one that laid out some pretty good guidelines as to what should be in the dealer agreement but then at the end of the bill, it just lays them out and doesn’t do anything. So a manufacturer could sell product in Michigan and not offer a dealer agreement, and the dealer could say, ‘hey, it’s a state law that we have a dealer agreement,’ and they’d say, ‘OK, great.’ And then they’d have to take them through a civil suit to get it. So the law lacked any kind of enforcement capabilities. So, they’re trying to do a different law. I think what their intent was to repeal that one and put this new one on the books.
Boating Industry: Is this the one that NMMA is fighting so hard against?
Phil Keeter: Oh yeah. Four Winns is fighting it pretty bad. Tiara was fighting it pretty bad. Here again, from the same standpoints that they don’t want the state to tell them what to do.
Boating Industry: One of the comments that has been made is that a lot of the manufacturers have agreements, but they’re so one-sided that they shouldn’t even bother having one?
Phil Keeter: Yes, and a lot of dealers just blindly sign them and then they come to find out that in there it says that you can be cancelled in 30 days and it says you have a non-exclusive contract, and it says you have no territorial rights. You can’t sell out of your market area, but you don’t have any territorial rights. That doesn’t make sense. But, yes, that’s typical. Now, I know some dealers who will cross out certain clauses in a contract and say, ‘I won’t sign it with this clause in there,’ and the manufacturers will not alter the contract. And their excuse has always been that they can’t let you have it if they won’t let everybody have it, and they don’t intend to let everybody have it.
Now, let’s get on that for a minute. If I went to my attorney and said, ‘I want to sell Matt my house, draw me up a contract,’ my attorney, damn sure, better draw that contract up in my favor. It better protect Phil pretty good. If he doesn’t protect Phil then he ain’t gonna be my attorney very long. So, that’s a pretty simple analogy, but that’s exactly the way it is. I mean, you know, we just protect the guy we’re working for and an attorney would always do that, so I don’t find that out of the ordinary.
Now, what I do find out of the ordinary is this: the most valuable asset that a manufacturer has, irregardless of everything he has, irregardless of his own internal help, his management, his reputation, of his name, of his product, the most valuable asset he has, is his dealer base. Because, there are no manufacturers, oh, there might be a few, but there’s no manufacturers that go out there and sell to the consumer. The dealer does that. They sell the product to the dealer and the dealer is the one who makes the name so great. He’s the one who promotes it every day. He’s the one who sells it every day. He’s the one who services it. He’s the man. And when the consumer buys it, the consumer buys it because he goes in and talks to the dealer and that’s a great dealer, and he’s had friends who’ve bought there.
So, the most valuable asset that most manufacturers have got is their dealer base. Now, why in God’s name wouldn’t they want to do everything they could to protect that dealer base and make that dealer base even more productive and a happier relationship? I can’t think of anything, if I was a manufacturer that I would want to see more than have my dealers be profitable and having them knocking down great margins on the product I’m selling them.
Grady White does that. Cobalt does that. Sea Ray does that. They give these guys tools to work with because they’re their distribution network. Sea Ray corporate in Knoxville doesn’t sell boats everyday to the consumer, but the MarineMax stores sell boats to the consumers, so why wouldn’t they do that.
Now, there’s something that’s a little bit of a problem in all of this, and that’s this: Most manufacturers would never admit this, but most manufacturers deal a little different with the stronger dealers than they do with the weaker dealers. You know for sure that when a large dealer steps up to make a contract, that he can drive a pretty decent bargain. Now, I don’t necessarily mean the price.
Boating Industry: There’s a person we spoke with who runs a successful marine business in California who wants to become a dealer. The manufacturer who he’d like to sell for doesn’t offer a contract. He’s working on creating his own that would offer him some protection, all the while knowing that the manufacturer probably won’t sign it. What kind of implication do you think this has with good business people who come into the industry and want to sell boats?
Phil Keeter: We’ve got a lack of new money coming into the industry at the dealer level. We don’t have a bunch of people who are retiring from IBM, or retiring from American Airlines with big chunks of money trying to go into some sort of entrepreneurial private situation in the marine business. That just doesn’t happen anymore. It used to happen, but it’s just not happening anymore.
So why in God’s name would we not want to create some sort of a business atmosphere that would make them want to come in? A lot of people gravitate to our industry because of the fact that it looks like, and they may find this to be wrong once they get in, it looks like it’s a fun industry to work in. I mean, what could be better than selling pleasure? We don’t have people coming in. So, the implication of what you just said to me is that that guy may just say, ‘the hell with it. I’ll just keep doing what I’m doing.’ Or ‘I’m not going to put my $2 million into it.’ Or, ‘I’m go on the line for that if I’m not going to be protected.’
We used to all deal on the handshake and then people started getting greedy.
Here’s something interesting that just happened … the state of Florida just instituted a bill for farm equipment dealers. OK, so now you’ve got automobile dealers, RV dealers, ATV dealers, motorcycle dealers and farm equipment dealers that are protected by state law, but it ain’t good enough for a boat dealer. Give me a break. What’s the No. 2 industry in the state Florida? Recreational boating. Only citrus beats it. Does that make sense? There’s a boat dealer or marina on every corner in Florida. And yet NMMA has fought hard to keep [contract legislation] out of there.
I don’t fault Thom (Dammrich) for that. Thom’s taken the direction of his board. So I don’t fault him for that. It’s a mentality that’s been at that board since before Thom got there, and it’s a mentality of some of those guys who’ve been in the boat business on the manufacturing side for so long. I would be the first to step up and walk lockstep with them to say that we don’t want dealer bills if they will just negotiate with the dealer and make him a fair agreement. But, when they don’t, what do you do?
Boating Industry: Do you see MRAA doing anything with the agriculture bill to try to push something through?
Phil Keeter: Yeah, they asked us to hold off until that agricultural bill went through so we could promote it, so yeah, we see ourselves doing something with the fact that … you know, farm equipment dealers are more important with boat dealers. I don’t know exactly how we’ll do it, but we’ll do something with it. I will tell you that it will come out at our convention. It will be a discussion for our panels and that type of thing.
I think you better stay pretty close to Joe [Lewis, President of the Marine Industries Association of Florida]. I think you’re going to see something happen down there if it hasn’t already happen, something about them promoting a state bill.
Now, here’s another terrible thing: All the money and all the effort that NMMA will now waste and all the money and effort that the Marine Industries Association of South Florida and the MRAA, when they ask us to help them, will waste on lobbyists, on travel and all that stuff to fight both sides of that bill. That doesn’t make sense. That money could be well spent on promoting our industry, and it could be well spent on getting together as opposed to trying to fight with one another. It just doesn’t make sense. And that will be a lot of money. NMMA on the first attempt with Joe and his people down there, after a couple years they came up with that business of going to dispute resolution. It was non-binding, you couldn’t use the findings in a legal case. So you’d go to dispute resolution over a contract that you didn’t want to sign in the first place that had bad clauses in it. That just doesn’t make much sense.
Boating Industry: With the marketing initiative, I know the dealer certification is being addressed, but there’s nothing, to my knowledge, that says anything about dealer-manufacturer contracts? Do you feel that this is one of the issues that needs to be addressed?
Phil Keeter: I can’t believe that it happens. I can’t believe that we’re going to spend all this money ... we’re already making manufacturers do certain things on their products —they’ve got to be NMMA certified, they have to have a CSI program, we’re trying to gather up these retail statistics so we can help the manufacturer and the dealer plan better, now we’re going to have a meeting in a week to pick an agency to help us map out a marketing plan, we’ve got a committee trying to figure out the funding on the thing, and we’ve got a committee to set up these standards that dealers are going to have to abide by to get marketed in that marketing plan —we’re going to spend that money to do that and yet we’re not going to give these guys any kind of protection on these contracts. Wait a minute … somehow or another I’m missing something here.
Boating Industry: What do you feel is the big-picture implication with the Cobalt agreement? Do you think it will start a trend? Is it the beginning of a new era with manufacturer-dealer relationships?
Phil Keeter: Yes, I’d like to be able to say that we can look back in a couple years and say that Cobalt stepped up to the plate and said, bammo, we want to do this. It’s not going to hurt Cobalt. They tied their dealers even closer to them. When they offered them this contract at their 2005 dealer meeting, you think that 25 or 30 of their 85 to 100 dealers said, ‘oh, no, I don’t want to be a dealer anymore?’ Hell no, they didn’t. They all probably stood up and applauded.
Sometimes this stuff gets taken out of context: I feel like every dealer agreement ought to have some way to have some performance levels in it. They ought to be written, formal type of things that say that we’ve agreed to try to do this and this and this. I’ll tell you that not all of those address product. There are all sorts of things in there that, I think the dealer ought to have his feet held to the fire.
Boating Industry: I’ve read through the Cobalt contract a couple times. It appears as though they’ve got the performance standards outlined along with the other big issues that were addressed.,
Phil Keeter: Right. You might even think about it from this particular standpoint: When you put performance levels in there and you put performance levels in there that the dealer has to maintain unless something just falls apart in the world, does that not give the manufacturer a pretty good planning tool? If he knows he has to deliver 100 boats to Matt and he has to deliver them at 25 per quarter, then he’s planning ahead. Does that not help his purchasing power with the company that he’s buying from? I know it does. Doesn’t it help to lay out his personnel requirements and layout his plant facilities?
Now, they’re not all perfect. A guy drops off and says ‘instead of 12 boats, I need 11,’ or ‘I don’t need four of that kind … I need two of that kind and two of that kind.’ It’s not always perfect, but at least it gives you some sort of roadmap. I can tell you that, for how many years, I was in the marine business that I didn’t have to give anybody any requirements. I went to IMTEC in the fall and bought some boats and when those got low, I bought some more.
And the manufacturer was sending his rep around, knocking on the door: ‘Keeter, you need nine more boats, huh?’
‘No, I don’t need any more boats today.’
Hell, I might have a great weekend and call the first of next week and say, ‘oh, I need some more boats … hurry up.’ That’s kind of a haphazard system, and we’ve still got some people dealing in that kind of a system.
Boating Industry: What do you think it’s going to take to get others on board? b>
Phil Keeter: Either two or three more strong manufacturers, big manufacturers with good dealer bases, will do the same thing that Cobalt has done, or three or four more states will crop up with laws, and that will push it over the top.
Boating Industry: There’s a lot to all this.
Phil Keeter: Yeah. It’s not quite as simple as people would make you believe. And NMMA’s contention that dealer bills and dealer agreements will restrict competition and will be bad for the consumer, that is a total falsehood. That’s a bogus claim. Why in the world would it do that? It would make it better for the consumer because now you’ve got a stronger dealer doing business. They say, ‘well, it restricts the competition.’ What competition? You mean the fact that you can set up five more dealers? But they’ve claimed that a number of times.
Dealer Agreement Interviews: Phil Keeter