Leading The Pack

For more than 35 years, Pack St. Clair has based the success of his company on one guiding principle: Treat people the way you would like to be treated.
It’s a simple, age-old life strategy taught to nearly every child. But in the business world the quest for increasing revenue, enhanced profit margins and market share dominance oftentimes overpower it.
But not at Cobalt Boats.
Sure, as the CEO of the Neodesha, Kansas-based boat maker, Pack stays focused on those key business factors as much as the next executive, but his first-class reputation has been built on that foundation of treating others fairly.
And it has worked. His employees — many of whom he’s on a first-name basis with — respect him immensely, as do Pack’s colleagues and dealers.
To earn the respect of its dealers, no one at Cobalt had to declare — verbally or in writing — that the manufacturer was interested in the success of its dealers. Pack’s handshake was as good as gold. It represented a mutually beneficial relationship in which dealers could trust Cobalt as a company with genuine motives. Cobalt made the boats, the dealers sold them, and everyone was happy.
So it’s simultaneously shocking and yet not-so-surprising that Cobalt recently introduced what many say is the most fair and balanced written dealer agreement in the industry. The simplicity of the contract makes it seem all too straightforward. Yet there were a number of steps that Cobalt took along the way to ensure it was done fairly.
A third party was originally commissioned to create the contract. But when Paxson St. Clair, Pack’s 39-year-old son and heir apparent, presented the draft to his father the reply was all too predictable: “If I were a dealer, there’s no way I would sign this thing.”
So with the first attempt filed appropriately in the trash, Pack, Paxson and Marketing Director Bret Chilcott set out to do it right: by sitting down with their dealers and creating a contract that represented the best interests of both parties.
No issue divides the marine dealer and manufacturer relationship the way written contracts do. Most manufacturers, like Cobalt for more than 34 years, don’t offer them. Those who do, offer written agreements that are on par with “throwing a drowning man a brick” according to one dealer.
While both sides of the argument agree, in principle, that they need to work together, the Cobalt agreement may just be the motivation that the industry needs to overcome one of its largest hurdles. No sooner had the Marine Retailers Association of America endorsed the agreement than Cobalt’s phones began ringing off the hooks. Within a few weeks of the agreement’s introduction, Cobalt dealers were ecstatic and greatly envied, and as many as 15 to 20 manufacturers had requested copies of the contract. Some of them even are rumored to be working on agreements of their own.
Meanwhile, it’s business as usual for Cobalt.
“We don’t see this dealer agreement changing our relationship with our dealers much,” Paxson said. “As Pack has continually 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. With this agreement, for the most part, we’re getting on with how we can, together, be successful. Let’s work on selling more boats and taking better care of customers, and that’s nothing new.”
If only it were that easy.
But if it were that easy, a critical mass of boat builders, ranging from the smallest independents to the 800-pound market share giants, would have developed similar agreements long ago.
Righting The Relationship
The two sides of the argument are easy to understand. Manufacturers want to be represented by professional dealers who meet certain performance levels. Dealers want to be protected in terms of territory, unfair cancellation or termination, and other, they believe, straightforward issues like warranty payments and succession rights.
There’s a sense from the manufacturer side that if dealers delivered on manufacturers’ expectations then the manufacturers would deliver on dealers’ expectations. It’s not hard to imagine that the dealers see the same solution … in reverse.
But the manufacturers hold all the cards.
As things stand, if you want to carry a specific brand, you’ll sign the contract. If you don’t think the contract is fair or it doesn’t offer your business proper protection, then you don’t have to sign it. Chances are, however, the manufacturer will replace you with someone who will.
The reality of the situation is that it’s not about the contract. It’s about the trust and reliability of the relationship. That’s why the Cobalt agreement works so well. Years of relationship developing turned into an invitation for dealers to participate in the creation of the contract. The give-and-take attitude of the manufacturer and its dealers became the key ingredient in bringing the contract into existence.
But the day when a handshake seals the deal are long gone for most dealers, who time and again have their trust in boat builders destroyed. These days, many dealers operate under a cloak of paranoia, continuously looking over their shoulders wondering if and when their manufacturer might cancel the agreement.
“I guess the thing that will help grow the sport,” says Pack St. Clair, “is dealers and manufacturers truly working together with a single purpose and with a trust that doesn’t always put the customer in the middle.”
The Cobalt agreement puts that trust in writing. In the first sentence of the 15-page document, Cobalt establishes territory protection for its dealers. From there, it outlines dealer and manufacturer responsibilities and defines “with good cause” termination.
It seems so simple. And Cobalt’s three-man team acts as though they couldn’t imagine it any other way — as though it was the obvious solution.
And why shouldn’t it be? From the beginning, Cobalt’s entire process was a negotiation. Cobalt changed things at the dealers’ request. The dealers gave ground on some of their desires. The two sides understood each other’s need to run a successful business. They understood the partnership.
And it’s that sort of mentality that National Marine Manufacturers Association President Thom Dammrich suggests will be the key to finding the balance on this issue.
“It’s a relationship between businesses and a relationship between people,” he says. “I think there is growing realization or understanding in the industry that we need better manufacturer-dealer agreements and better manufacturer-dealer relationships. I think manufacturers are moving in the right direction.
“But it’s going to take time, and frankly, it’s probably going to take some culling out of some of the dealers who are not providing high levels of customer satisfaction. And it may take the culling out of some manufacturers who aren’t doing a good job, too.”
It’s not just the manufacturers who need to meet in the middle. Many dealers need to raise the level of their performance. Industry pundits have long claimed that 10 to 20 percent of boat dealers are solid, professional dealers. The other 80-plus percent, they claim, bring down the quality of the boating experience for the consumer.
Given these stats, it’s no wonder the manufacturers don’t want to be contractually obligated to them. And it’s no wonder they create a single contract tailored to the lowest common denominator — the bad dealer.
That makes business tough on the reputable dealers, though. It creates an unpredictable work environment in which those who should be partners don’t trust each other. And the unstructured climate is a haphazard way to conduct business.
In fact, Marine Retailers Association of America President Phil Keeter suggests that creating written contracts would benefit manufacturers as much as it would the dealers.
“There are all sorts of things that I think the dealer ought to have his feet held to the fire on,” says Keeter. “But when you put performance levels in there that the dealer has to maintain, does that not give the manufacturer a pretty good planning tool? Does that not help his purchasing power with the company that he’s buying from? Does it not help him to lay out his personnel requirements and lay out his plant facilities? It’s not always perfect, but at least it gives you some sort of roadmap.”
Good Cause Cancellation or Legislation
Let’s be honest. Neither side of the battlefield wants government intervention in the form of regulating the manufacturer-dealer relationship. MRAA’s Keeter says he’d be the first to tell you he doesn’t want legislation, and the manufacturers don’t want to be forced to adhere to what could be multiple state laws.
The path to legislation is pretty easy to follow, though, and it can happen all too quickly if the issue isn’t resolved soon. Here’s what happens: Dealer A gets canceled, he feels wrongfully, by Manufacturer A, and before you know it there’s a bill being introduced.
Whether backed by a state association’s model dealer agreement or the MRAA’s model legislation, the dealer body begins pushing the bill through, and the NMMA, in turn, begins lobbying against it. The cost of boating quietly increases as the two associations spend vast sums of money to fight for and against something that, ironically, neither of them wants in the first place.
Consider Michigan: The state passed marine dealer-manufacturer legislation in 1989, but the dealer body now claims that the legislation lacked any kind of enforcement capabilities. House Bill 4808 ensued in June 2003 advocating that the 1989 law “be strengthened by being more explicit in setting forth the contents and operation of watercraft dealer agreements.”
The bill was sent to the regulatory reform committee, and in December 2003, it was returned with a recommendation that a modified version be adopted and that the bill should pass.
According to Van Snider, the president of the Michigan Boating Industries Association, when the House met again to review it, Speaker of the House Rick Johnson asked the bill sponsor to re-refer it to the committee on regulatory reform. The motion was introduced and passed, and currently there’s no set time to address it again.
The story that most people don’t know, however, is that Johnson represents Michigan’s District 102, which is made up of Mecosta, Osceola and Wexford counties. Within Wexford county is Cadillac, Mich., home to Genmar’s Four Winns.
While Four Winns wasn’t noted as opposed to the bill in the legislative analysis, the NMMA, Tiara Yachts, S2 Yachts, Inc. the Michigan Manufacturers Association and Maurell Products were. One dealer said NMMA “pulled out the stops” to fight against the bill. But whether it’s behind-the-scenes influence or all-out lobbying, legislative matters cost money. And that’s just in Michigan, the fourth-largest boating state.
Currently, there are many other states — Georgia, Missouri, Oklahoma, Louisiana, Texas, Virginia and Maine — that have marine dealer-manufacturer legislation on the books. New York, the fifth-largest state in terms of boat dollar sales, has a bill ready to sign on Governor George Pataki’s desk. MRAA believes it will be passed soon.
Another potential case looms in Florida, the top-ranking state in dollars spent on boating. In 2003, the state added agriculture to its list of industries in which dealer-manufacturer relationships are regulated. The list already includes automotive, RV, ATV and motorcycle dealer-manufacturer contracts.
Based on this new bill being passed, the Marine Industry Association of Florida directed its Manufacturer-Dealer Relationship Committee to draft language for a 2006 marine version of the bill and to make legislators aware of the issue prior to its introduction.
Many industry insiders hope that the Cobalt agreement will spark other manufacturers and associations to follow suit. MRAA’s Keeter believes that two or three more major manufacturers could sway popular opinion and establish a trend by introducing fair and balanced contracts. Or, he says, three or four more states with legislation on the books, will push it over the top.
Keeter says the solution is simple. “Get out and do something with these dealer agreements, and you don’t have to be worried about being governed by 50 state laws.”
For its part, the NMMA is doing its best to stand on middle ground. While Dammrich makes it quite clear that the association is opposed to legislation, he also says NMMA supports manufacturers having written agreements that address all of the major topics.
“Legislation is not the answer,” he says. “I don’t think there’s any one-size-fits-all answer. Are there solutions? Yes, there are. What they are, I don’t think that’s clear today. You have major manufacturers that recognize that they need to create value for their dealers, and they are doing things in terms of looking for ways to offer long-term dealer agreements and looking at ways to improve dealer agreements, but those kind of changes can’t happen overnight.”
Unfortunately, the clock is ticking. If the boat building and dealer communities, as well as their respective associations, fail to sort this out, legislation certainly will.

The Cobalt Way
Glenn Mazzella is a Cobalt dealer. A marine dealer for 14 years, he’s still a rookie in his own mind. Yet he has been around long enough to know the significance of the contract that Cobalt has offered him.
The New York-based dealer also sells two other brands. One of them offers him a contract, but it’s very one-sided, he says, and the manufacturer has “no interest” in negotiating with him. The other manufacturer doesn’t offer a contract, and Mazzella has “given up” on trying to get one.
“Cobalt did this more unselfishly than anything else,” Mazzella said, “because there’s not a dealer at their meeting who would have left if they would have said, ‘no agreement.’ So what happens now is a lot of other players who got to hide behind all the B.S. — saying ‘Cobalt doesn’t do it’ or ‘someone else doesn’t do it’ — Well, guess what? They can’t say that anymore. At least not about Cobalt.”
There’s no doubt in anyone’s mind that Cobalt could have continued conducting business with a handshake. For that reason, Mazzella’s sentiments are echoed by Phil Keeter, president of the Marine Retailers Association of America, who says Cobalt is the marine industry’s “shining example of the golden rule on how you treat people.”
But, of course, the humble trio of executives — Pack and Paxson St. Clair and Bret Chilcott — in Neodesha, Kansas, is quick to deflect the praise. In their eyes, they say, there’s a lot of work to be done before the relationship with the company’s dealers is perfect. We could have expected that response. Cobalt is not just looking out for No. 1; it’s looking out for the best interest of their partners, too.
“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 in the long run,” Pack explains. “Short term we can think of it as a success, but in the long haul, it’s not going to be a success unless it’s good for both parties.”
If creating an agreement that balances the relationship between dealers and manufacturers isn’t enough, then perhaps the best roadmap Cobalt’s efforts can provide the marine industry is an alternate route around further legislation. In the end, though, it’s Cobalt’s thinking and its resulting contract that may help redefine the way dealer and manufacturer relationships are conducted.
“The dealer agreement is really just a small part of it,” Pack says. “It’s how you treat the dealers every day. And it’s how they treat you, and how they treat their customers, and how you treat their customers every day. And 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 about how you do business every day, and I guess that’s what we’ve built our reputation on.” — Matt Gruhn

Joined at the hip?
Bad relationships create bad business environments. And for dealers, a lack of fair and balanced contracts defines a bad relationship.
Take a look at Joe Lewis. He’s the owner of Mt. Dora Boating Center & Marina, a marina dealership just north of Orlando.
Lewis is at a point where he wants to invest in his business. The way he sees it, he has two options: Invest in the sales and service side of his dealership or invest in his marina.
He knows the marina is his and will be around, hurricanes willing, forever. He’s proven his worth as a boat dealer — he’s the president of the Marine Industry Association of Florida — and he’d like to believe his manufacturer relationships are strong enough to guarantee a long-term partnership. But of that, he’s not as sure.
“I’m torn because do I want to make those investments right now on that side of the business, which I may not be in next year because the manufacturer decides to not renew my contract?” he asks. “It’s really tough to make those investments in boat sales, knowing that next year, you may not be renewed.”
Lewis says that he took a lead from a National Marine Manufacturers Association’s recommendation to negotiate contracts with his manufacturers. One of the manufacturers he represents doesn’t offer a contract; the other two brands, he says, don’t negotiate their contracts.
They “kindly told me that if I didn’t want to sign the agreement as it was,” he explained, “that, well, they may have to find another dealer in the area that will.”
Another marine industry person isn’t interested in negotiating with the manufacturer. He runs a successful boat brokerage in California, and after having turned down numerous offers to represent various boat lines, he’s finally found one that he likes. The trouble is, the builder doesn’t offer a contract. And he’s a smart enough businessman to not enter into an agreement without something in writing.
So he’s been spending his time talking to Lewis, talking to Phil Keeter at the MRAA, and reviewing model dealer agreements that are available. It only took him two days to find out that there are very few agreements out there to model his after.
“It seems to me that this industry operates on a very causal basis,” he said, “and I want to grow our business understanding and knowing what our responsibilities are. It’s just prudent to have a clear understanding. It’s just good business.”
Most dealers probably aren’t as business savvy as these two examples. When they go to the bank to launch or expand their dealership, like anybody else, they need collateral in order to borrow the money. According to Keeter, one of the most important forms of collateral is a written contract.
“A handshake doesn’t give them any protection,”
he says.
At the same time, Keeter says that the manufacturers’ most valuable asset is its dealer base.
“There’s no manufacturers that go out there and sell to the consumer,” he says. “The dealer does that. They sell the product to the dealer and the dealer is the one who makes the [product] 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. Why in God’s name wouldn’t they want to do everything they could to protect that dealer base and make that dealer base an even more productive and a happier relationship.”
Lewis agrees.
“We’re continuing to try to work with the manufacturers to try to make them more fair and balanced,” he says. “To make them at least realize that there are two businesses that need to be joined at the hip to properly service customers. As long as we keep dealing with these one-sided agreements, it’s never going to happen.” — Matt Gruhn