Who’s No. 1 in boat building?
The market share question was rarely in doubt in recent years, thanks to the domination of Brunswick and the demise of the Outboard Marine Corporation (OMC).
But has Brunswick’s run at the top ended? That question was raised after a flurry of press releases were exchanged between Minnesota-based Genmar and Illinois-based Brunswick.
Both companies claimed to hold the top spot, and both ridiculed the other company’s method of counting boats.
After the initial skirmish, officials from the two $1-billion “Super Powers” stepped away from the controversy. Brunswick officials stressed that they were No. 1 “in segments in which we have chosen to participate.”
Even Genmar CEO Irwin Jacobs, never short on bold statements, tried to downplay the battle in an interview with Boating Industry.
“Being No. 1 is a great statement, but that doesn’t win you anything in the market,” Jacobs said.
Genmar’s actions, however, speak louder than the executive’s words. A press release was blasted out to the world, brochures were changed and television commercials were updated, all with claims of being “The World’s Largest Builder Of Recreational Boats.”
While both Brunswick and Genmar are claiming a share of the top spot, it is clear that the two companies’ evolved Super Power status puts them in a unique position in the industry. And while they toss barbs and legal briefs at one another, it’s also clear after spending time with leaders from the two companies that their vision is similar, though they are choosing different paths.
Both Genmar’s Jacobs and Dustan McCoy, president of the Brunswick Boat Group, decry the need for better customer service to boat buyers, but they each have launched very different (and expensive) programs to make improvements.
They both talk passionately about the advantages of emerging closed-molded fiberglass technologies, but one talks about mandating the process for environmental reasons while the other says such outside intervention is not necessary.
Perhaps most notable, both say the boat building industry is at a dramatic crossroads. The actions taken in the next two or three years, they say, will forever change the industry.
Boating Industry spent time with the leaders of Genmar and Brunswick’s Boat Division to talk about the present and their plans for the future.
The Race Is On
Genmar’s Jacobs rarely turns away from a fight.
During an interview at his plush offices in Minneapolis’ tallest high-rise, one moment Jacobs downplayed any perceived war between Genmar and Brunswick. The next, he was carefully twisting a knife in the back of his main rival.
“What’s preposterous about it is, Statistical Surveys put out the survey. It’s out there. It shows the truth,” Jacobs said of the market share controversy. “[Brunswick officials] said, ‘You forgot about 12-foot boats,’ but Statistical Survey didn’t count any 12-foot boats. They want to tie a 12-foot boat with a 60-foot Sea-Ray and call that two boats? One’s a dingy and one’s a boat, you know?
“I don’t believe it deserves a lot of conversation. Not only have we passed them up, but we’ve accelerated our growth,” Jacobs enthused. “When the next survey comes out, you watch that one. It’s even more compelling.”
Brunswick’s McCoy has a different view.
“Here’s what I think matters: Who has leading market share in segments in which they have chosen to participate,” Brunwick’s McCoy countered in a phone interview. “And if you look at runabouts, cruisers, sport yachts — those segments in the industry where we have made significant commitments — we’re clearly No. 1. That’s what’s important to us and this is what ought to be important to our dealer network.”
The race between the two companies was largely created by the demise of OMC. Jacobs called his company’s purchase of OMC’s boating interests in 2001 “without a doubt one of the most important acquisitions we’ve ever made.” It immediately added $500 million in sales to Genmar, Jacobs said.
Meanwhile, boat business at Brunswick has come back to the pack a bit. Sales from Brunswick’s boat division topped $1.5 billion in sales two years ago but that dropped to $1.2 billion in 2001, due to economic factors affecting the boating industry. Through the first three fiscal quarters of 2002, Brunswick boat sales were up 5 percent, according to a quarterly report.
Because it is a private company, Genmar’s figures are harder to document. Official Genmar promotional pieces put the company’s sales at $1 billion in 2002, but Jacobs placed the company’s sales closer to $1.3 billion in the interview with Boating Industry.
(Brunswick’s Marine Engine Segment accounts for an additional $1.5 billion in sales.)
Leaders Say It’s Shakeout Time
While it’s easy to focus on the market share war, it is clear that the two companies have separated themselves from the pack in terms of volume.
Both companies have more than $1 billion in annual boat sales. Brunswick controls 10 brands, Genmar has 18. Both have grown through acquisition and internal growth, and both will continue down those two paths.
In fact, Jacobs and McCoy said the immediate future of boating will see more consolidation and possibly failures of small boat builders, as new technologies add costs that could squeeze out those with lesser resources.
“As we see consumers’ expectations and demands grow, I think that will become the limiting and cleansing factor in the industry,” McCoy said. “Consumers will begin to force the industry to make changes [by turning to] those [companies] that can really deliver on quality and a type of experience that consumers expect.”
Those who can’t adapt, McCoy said, likely won’t survive. “That is the beauty of capital markets. Those who can determine how to be efficient and live with change survive, and those who can’t don’t.”
Jacobs’ assessment is similar.
“Now the industry is fully fragmented,” Jacobs said. “We’re the No. 1 boat company, and we’re still only 20 percent of the market. Even if you take Brunswick with us, there’s still 50-plus percent available out there.
“Unfortunately, a lot of those people are going to be gone,” Jacobs stated. “This is the day of reckoning right now, because you’ve got everything either going for you or going against you based upon what you have.”
It’s not surprising to hear the big companies talk about the impending demise of the little companies while touting their own strength, and certainly many smaller boat builders would disagree. Jacobs and McCoy said up-front costs of emerging closed-molding of fiberglass hulls will squeeze out smaller companies. However, officials from the National Marine Manufacturers Association (NMMA) say any laws mandating closed-molding systems are at least 10 years off.
Still Jacobs says his phone is ringing off the hook from small boat builders looking to sell. But no purchases are pending, he said. Instead, Genmar’s growth would be internal.
“It will be more organic, definitely. That will be the bulk of our growth,” Jacobs said. “I’m not even suggesting we’ll buy another company, I don’t know if we ever will. But I have great confidence in the growth of our business over the next couple of years. Our growth rate will be substantially greater than any time in our history in the next couple of years.”
This came just days after Genmar’s announced purchase of the Fish Hawk line from Bombardier.
Meanwhile, McCoy left the question of pending purchases wide open.
“We continually evaluate segments in which we are not participating to look for growth opportunities or for good value in someone who might be available to be purchased,” McCoy said. “We are in an industry that unfortunately is not experiencing significant growth in the United States. Therefore we are all battling over market share.”
McCoy’s charge to his staff is to fill new or evolving niches within the boating market.
“We look for white space every single day,” McCoy said. “Is there a model, product or piece of a segment that we believe we could serve effectively? We’re always looking at that — always.”
Closed Molding: The Next Frontier?
Emerging closed-molded fiberglass processes will cause a shakeout of smaller companies, according to the two company leaders.
Jacobs has been trumpeting Genmar’s Virtual Engineered Composite (VEC) fiberglass molding system for a couple of years, which he says involved an investment of more than $60 million.
“Did we bet our company on VEC? There’s no question about that. And did we win? Yeah, there’s no question about that,” Jacobs said. “Now what do we do with that? I think we’re answering that with the way we’re operating our business.”
The fiberglass molding system is already finding its way into many Genmar products. Within two years, Jacobs said, all Genmar fiberglass boats 26 feet and smaller will be made with VEC technology.
Brunswick has been a bit more deliberate in its step toward closed-molded systems, but the company is now producing closed-molded Sea-Ray boats and has plans to expand.
“We will continue to evolve, especially in the Sea Ray brand, so that all of our runabouts will be made through closed- molded technology,” McCoy said. “We fundamentally believe that closed-molded technology can migrate to boats even larger than runabouts and we clearly have that goal as we go forward.”
Both business leaders say that using closed-molded systems results in better boats. Plus, after a steep initial investment, fiberglass boats can also be formed less expensively with closed molded systems rather than being hand laid-up.
Beyond that, however, the two leaders disagree on the need to mandate
Jacobs likes to paint grim pictures of toxic boat-building factories, where workers dressed like astronauts toil in styrene-emitting environments. Jacobs has hosted visits to his VEC factory by Environmental Protection Agency officials and is asking for the government to outlaw open-molding systems.
“We can’t sit there and pretend to build boats not only economically but also environmentally the way we’re building them,” Jacobs said. “Our whole society has changed, environmentally. I’m going to work hard to change the laws.”
While stressing his own belief in closed-molded systems, McCoy said he doesn’t back proposed laws that ban other fiberglass boat building means.
“The reason is not the environmental banner that many wave,” McCoy said. Instead, it’s a manufacturing and quality issue, he said.
“With closed molded technology, every hull, every part made with that technology is exactly the same as the one before it and the one after it,” McCoy said. “What will really happen is the ability to engineer boats and assemble boats and put new technologies into boats will rise exponentially, and that’s why we’re really focused on closed-molded technology.
“My dream is that we will get engines molded into a box so that we’ll attach four bolts in our boat and the engine fits perfect, it will operate perfectly, it aligns perfectly and the boat moves right on down the line and gets to consumers,” McCoy said. “That’s what this is all about.”
For Jacobs, his VEC system is proof that his company is breaking away from the pack in the boat business.
“Technology is definitely the times,” Jacobs said. “You can’t do things the way you did 75 years ago. It’s one thing to collect antiques, it’s another thing to manufacture antiques. You can’t do that.
“We’re manufacturing for the future, not the past. We can’t divorce ourselves from the industry, but we’re not going to have them create our destiny.”
Customer Service: The Next Level?
Boating has a customer service and customer expectation problem.
That’s a view shared strongly by Jacobs and McCoy, along with many other industry leaders. Both McCoy and Jacobs said addressing those problems is the only way to truly grow boating.
“People never hesitate to spend $18,000 on a car and the next day drive it across the United States with no apprehension whatsoever,” McCoy said. “But people will spend $300,000 on a great boat and bite their fingernails cross Lake Michigan.
“We’ve got to change that perception. We’ve got to change the quality of our product, we’ve got to change the usability of our product and we’ve got to make it simpler and more enjoyable for people to use our product than it is today,” McCoy said.
Jacobs was equally as blunt.
“For so long, customers have put up with what I call a short stick of service and taking care of them in the way of product and support,” Jacobs said. “That’s why there’s no growth in this sport. You’ve got the die-hards, but it’s not growing.”
Brunswick and Genmar both have launched plans to address the problem, but once again the companies are forging different paths.
The most recent announcement comes from Brunswick. McCoy said the company is launching its own parts and accessories division to ensure that customers can get products they need when they need them, and spend less time off the water.
McCoy said the plan involves having all parts for all Brunswick boats stocked and available at Brunswick facilities. Consumers could then always count on getting the part they need through their dealer rather than having to get that part through Brunswick’s vendors.
“Our goal is to have same day or next day parts to any dealer or consumer for any of our boats,” he said. “That is such a fundamental change in the industry in the way dealers and consumers can be serviced that we think it will have the effect of lifting the marine industry up to levels that will maybe even exceed the car industry.
“This is a fundamental change in the way we do business right down to its core,” McCoy said. “We’ll have to design our boats through good platform designs and great engineered systems. We’ll have to change our sourcing opportunities and our relationship with our suppliers. We’ll have to establish distribution. We’ll have to establish significant electronic capabilities for people to access bills of material for their boats, get part numbers and order the parts number online, go through the distribution system we’ll have to establish and have the part delivered.”
It’s part of a larger plan that affects all aspects of Brunswick’s boat business.
“If you watch us over the coming months you will see us becoming involved in a whole range of services, activities and businesses that touch the building and selling of boats, which will tie us better to our dealers, which will give our dealers better profit opportunities and will actually allow us to serve consumers better,” McCoy said.
Genmar similarly has a multi-phase solution to the customer service issues with its FirstMate and FirstMate+ programs.
The programs, launched in 2002, feature 24-hour call centers that allow owners of Genmar boats to take advantage of a wide range of assistance program — from help when a customer’s tow vehicle breaks down to an active concierge service.
“I’ve always felt that our dealers should be able to do more in servicing our customer,” Jacobs explained. “Actually, I was wrong in some degree, the dealer can do more. The fact is, they do, but where I was trying to drive them frankly, they’re not capable of delivering because of the resources — people, money, everything. So we had to take the lead.
“We just kind of woke up to this over the last year or 18 months, looking at the different things that needed to be done out there. It was impossible to ask a dealer to do them. So we’ve developed our FirstMate and FirstMate+ program so that we will create the destiny of the service of that customer.”
Jacobs said up front costs of the FirstMate programs topped $10 million.
Where Do They Go From Here?
Both leaders see a bright future for their companies, and for the boating industry. But that future is a distant lighthouse on the horizon. Before the industry reaches that future, it is going to have to go through a couple of years of turmoil, they said.
“This next year will be the most pivotal year this industry has ever seen or heard of,” Jacobs said.
The Distribution Network
“The distribution system is a very important part of our business. I could have the best product in the world, but if I don’t have any place to sell them, what good is it? I’m very customer oriented, I’m very dealer oriented.”
Jacobs also hinted that Genmar might someday pull out of the major boat show circuit and host their own shows with only their brands of boats.
“I genuinely believe we have the best dealer base in the industry. Here’s where I think we’re going with our dealer base: We’re going to fundamentally change our relationship with our dealers.
“Right now the normal dealer has a one-year agreement that gets renewed on a year-to-year basis. We believe we need to go to multi-year dealer agreements where we each are committed to better training, better investment, better market share, better CSI scores, reacting and acting in the community in a strong way that promotes both the dealership and the brand.”
“I’m just a fierce competitor, I believe in what I do, and I’ve never done anything in my life in the gray area. I’m dark black or I’m very snow white — I’m at the extremes. I don’t see colors blurred, I see them in a defined sense. And I can’t play the game if I can’t play it hard.
“I am a very strong believer in doing what you believe in doing. That doesn’t mean that everybody is going to agree with you. You know, you don’t get ahead in life by saying, ‘Pardon me, may I step up.’ Our attitude, based on my philosophy, is that if they don’t move over you go through them.
I’m controversial because I say it the way it is, everybody else sits there with their finger in their mouth — they’re afraid to say something.”
“I would describe myself as very competitive, and committed as deeply as one can be committed to anything to having the opportunity to lead an organization that is the very best that it can be.
“That’s what I’m all about in the business world and that’s what I’m all about outside of the business world. That’s what drives me, and that’s what actually drives the boat group. If we’re just as good as we can possibly be, then we believe we will be the best in the world.”