Dealer Agreement Interviews — Pack and Paxson St. Clair and Bret Chilcott of Cobalt Boats

Cobalt Boats introduced its first-ever written dealer agreement in 2004. The contract was quickly praised by the Marine Retailers Association of America (MRAA) and drew a good deal of attention from other boat builders. For 35 years Cobalt has used a handshake to establish relationships with its dealers, but according to the company’s executives, it was time to make a change. While you can find the article featuring industry reaction to the contract in the November/December 2004 issue of Boating Industry magazine, you can learn more about the contract’s creation and the company’s direction through the following Q&A.

Boating Industry: Can you explain how the idea of the dealer agreement came about and what the process was for putting it together.

Pack: Just to frame that a bit, we’ve been seeing MRAA and other dealer groups really calling for dealer agreements and felt that that was one of the key things that came up with most of the conversations with dealers, and I would say not necessarily Cobalt dealers. We didn’t feel the pressure from our dealers, and that’s probably why we are certainly not the first to have a dealer agreement. We looked at it and took a few shots at it and actually hired people that specialized in that area, and I think Brett (Chilcott) had studied many, many agreements from inside the marine industry and outside the marine industry. And we never could feel like we were comfortable in asking our dealer to sign something that we wouldn’t sign if we were a dealer. Las year, Brett probably spent a great part of his time developing a dealer agreement, and … it felt it was too one-sided. We had told our dealers we were working on it, so I had to eat a little crow and went to our dealer meeting and said, ‘you know, we’ve tried, and I’m not comfortable with it. We’ll continue to try, but so far the handshake’s worked pretty good for 35 years and certainly one more year won’t hurt. This past year, we took a little different approach. We asked a good cross section of our dealers to participate on a dealer agreement committee. They agreed and the committee met with Paxson and Bret in Chicago with the legal representation. They spent two days there, and that started the process. I might just add one other thing: The thing that really made it all work is the fact that everybody sat down at the table with a certain respect and trust for each other. I guess, if we’ve accomplished anything in our 35 years of making boats, we’ve developed a trust level with our dealers. And the agreement that we have is probably not perfect, but it’s certainly is workable and one that our dealers are comfortable with. How we got from that point, Paxson and Brett really carried that ball and worked with our dealers and got it all done, and we felt that we had something that we could take to our dealers, and it’s been a pretty successful agreement. Our dealers have been pleased with it and so here we are.

Boating Industry: I find it interesting that you had created the original contract through a third party. You ended up throwing that version out. Why?

Paxson: I sat in front of Pack’s desk, and he had a copy of it, and he looked at me and said, ‘if I were a dealer there was no way I’d sign this thing.’ So that was pretty well signed, sealed and delivered. That version was going in the trash.

Boating Industry: What was it about it that really made you decide or feel that way, Pack

Pack: It was the language, and it was what I would say is a typical one-sided agreement. I can’t go back and tell you exactly what one or two particular points that I didn’t like were. It was just the tone.

Bret: Without cause was the biggest thing. That’s one of the biggest differences from this agreement to what else I’ve seen in the boating industry and out. Most of the agreements can be terminated from the manufacturer’s standpoint ‘without cause,’ meaning if they wake up one morning and decide they want to terminate the relationship, they can. Ours is ‘with cause,’ and it’s very specific.

Pack: One of the things, as we sat with the dealer network, we changed a few things at their request and stood firm on a few things. In the end with this dealer agreement, it wasn’t a document that the dealer network was 100-percent … they had some issues they would just as soon maybe not see in the agreement, but they understood why it had to be in there as a manufacturer. On the flip side, there were some things that we worked into the agreement for the dealers’ benefit that we weren’t 100-percent comfortable with and didn’t want to see in there, but yet we understood the dealers’ reasoning for it. So, you ended up with an agreement that was balanced and fair. In the end we said, ‘you know what, this is a fair deal, and we both need to work toward our mutual success,’ and this should be able to help us do that.

Boating Industry: Was there one of you who any of you could point to that was really the champion of this or was it a combined effort?

Paxson: Bret was the leader of it.

Pack: Bret’s been our champion. He’s certainly worked with the dealers. He’s spent many hours on conference calls and in meetings with it.

Bret: Some of the things that brought some new insight into this was looking at other agreements from companies like Caterpillar Tractor to Cessna aircraft to Toyota, Lexus

Boating Industry: Did you work at all with MRAA in the development of it or use its model agreement?

Bret: Yes, we did. We used that as a foundation for making sure we had all those bases covered.

Boating Industry: So, after all these years of working on a hand shake, was there one thing that really set you in this direction? Was there one event or one dealer who spoke out or anything like that made you decide to go this route?”

Pack: I think it wasn’t one thing. It was just a combination of legislative, of the NMMA pushing hard for dealer agreements. I sat in a board meeting, and the question was asked, ‘how many of you have dealer agreements?’ and I was only one of two or three companies of the 30 or 40 in there that didn’t have a dealer agreement. So I think it was a combination of the NMMA, MRAA and legislative issues. Our dealer network really wasn’t pushing for it, but now that it has been produced, I think an agreement is a good thing for all parties.

Bret: The angle some of the dealers were pushing for were, we’ve had a lot going through major expansion over the last few years, and some of the financial institutions that support that expansion were more likely to support that with some type of dealer agreement.

Boating Industry: What else did NMMA do to help push things along?

Pack: I think the NMMA is there to represent manufacturers, but they have an honest interest in developing a win-win scenario. When there’s a discussion of dealer agreements, it’s better to have a balanced agreement that everyone can work with.

Boating Industry: Do you believe it would help to grow the sport to have more of these types of contracts?

Pack: I guess the thing that will help grow the sport is dealers and manufacturers truly working together with a single purpose and with trust that doesn’t always put the customer in the middle. I think that’s hopefully will come out of this, and it’s the reason we don’t mind sharing this with anybody else and have shared it with other manufacturers — any that have asked. If it helps the industry grow, we ought to support it 100 percent.

Boating Industry: What do you see as a long-term benefit of this contract?

Pack: Hopefully, it will help our dealers grow. We’ve got a lot of second generation Cobalt dealers now. The banks and financial institutions are starting to look more at the overall business, for long-term stability, they’re looking at their boat lines and lines that have been in business for a while and are they likely the lines that will carry them into the future?

Paxson: We don’t see this dealer agreement changing our relationship with our dealers much. As Pack has continuously beat into our heads, we need to live with the philosophy that we want to treat our dealers the way we would expect to be treated. I’ve screwed up and maybe not lived up to that a few times, and Pack let’s me know in a hurry when that happens. This agreement, for the most part, we’re getting on with, how can we, together, be successful?; and let’s work on selling more boats and taking better care of customers, and that’s nothing new. This document provides maybe some long-term security, but it’s business as usual for us — selling boats and taking care of customers.

Bret: This dealer agreement is basically a reflection of how we like to do business with our dealers.

Boating Industry: The one topic, a dealer pointed out, that the agreement does not address is product buyback. Another dealer pointed out that Cobalt has never had a problem with that and didn’t foresee it in the future. Is there any reason you can point to that would explain why this agreement doesn’t address it?

Pack: What we have done in the past, and we want to do what’s in the best interest and certainly sit down with the dealer and talk about what we can do over the course of the next 6 months to make this separation as best we can, always. It always involves the product.

Paxson. The few times it’s happened, we’ve had no problem buying it back. In some cases, the dealers wanted to keep it when we parted ways. Generally when we part ways it’s not a surprise. In recent years, dealers have been on probation for a year before we get to that point. And they understand it. We bring them to Neodesha and talk very seriously about, we’ve got a year to solve these problems, and we’ve had some great successes of dealers who have turned it around and were so happy that we held their feet to the fire on customer service. It’s very seldom that we part ways with a dealer because he doesn’t sell boats. If he doesn’t sell boats, it’s probably as much our fault as it is his fault. If it gets to the point of separation, it’s not been a problem, for one, and two, he’s had enough time to pretty much prepare for it.

Boating Industry: What have you heard from other boat manufacturers regarding the contract?

Pack: We’ve just had a lot of inquiries to this point. We’ve had a lot of calls saying they’d like to take a look at it. We gladly share it with them.

Boating Industry: Has anybody had any specific mention that they are pursuing something like this or is it just the interest that they want to look it over?

Paxson: I think that there are some other agreements out there that are darn good agreements. I don’t think that this agreement, by itself, is revolutionary in the industry. I think there are some good companies with darn good agreements out there, and we’ve got some good publicity where those other good agreements have not been publicized as much.

Bret: Grady White has had a good agreement for a number of years. We looked hard at their agreement. They’ve definitely had a good one.

Boating Industry: Do you foresee this being something where other boat builders may follow suit with what you’ve done?

Pack: The dealer agreement is really just a small part of it. It’s how you treat the dealers every day. And it’s how they treat you, how they treat their customers. And how you treat their customers every day. I think that’s a bigger part of it than the dealer agreement. We could write the best dealer agreement in the world, but it’s how you do business every day, and I guess that’s what we’ve built our reputation on. And as Paxson said, we’re certainly not alone because we’ve got some great companies in our industry that are doing every bit as good a job as we are.

Paxson: We have a lot of opportunities for improvement. We went to our dealer meeting, and we sat down with all our dealers to talk about the past year and successes, and then also, the disappointments and what we have not done right. And you know, we came home with a long list of things that we need to improve on. Things that we need to do better, and we take those things very seriously and our dealer network’s great about constructive criticism. So, we’re tweaking a few things, just trying to do better and get better every day.

Boating Industry: Is there any advice you can offer others who might be considering something like this?

Pack: I guess the biggest advice we would have is to work with your dealers to get it done. Have a partnership going in. If the effort is to do something that is good for the dealer and good for you, it’s going to be a winner.

Boating Industry: Working with the dealers to create this seems more than fair, can you explain the thinking there?

Pack: If you develop a dealer agreement that the dealer isn’t pleased with … if it’s not a win-win, it’s never going to be successful long-term. Short term, you might view it as a success, but in the long haul, it’s not going to be a success unless it’s good for both parties.

Bret: Regardless of how hard we would try, internally, to look out for the dealers best interest, there were things that we would overlook until we would get dealers feedback on it. That brought a lot of things to light that we overlooked.

Boating Industry’s Dealer Agreement Interviews: Pack and Paxson St. Clair and Bret Chilcott of Cobalt Boats.