No rest for the weary

The outboard business doesn’t sleep.

The dumping controversy, Brunswick’s boat builder acquisitions, emissions regulations and demand for new technologies have kept outboard manufacturers on their toes for the past decade, requiring dramatic changes in strategy that have led to leaps in market share for some and drops for others.

“For a long time, we as outboard engine guys didn’t make too much news under the sun,” explains Larry Vandiver, marketing director of Suzuki Marine. “We built engines, and they did their job.”

That time has passed, probably for good. Ten years ago, the introduction of stringent hydrocarbon emission regulations forced outboard engine companies to rethink their product offerings. And in their build-up toward the Environmental Protection Agency’s 2006 deadline, they’ve collectively invested billions in new technology, adopting unique strategies that have set them on separate but competitive paths.

As the 2006 model year kicks off, the race to comply with that particular wave of regulations has officially ended. The final impact, however, remains to be seen. Consumers have already begun migrating to new technology engines, but as the availability of carbureted two-strokes continues to drop off and consumers of the old technologies look to replace their engines, the payoff of each manufacturer’s strategy will become apparent.

Meanwhile, new challenges have arisen. Higher consumer demands have outboard builders investing more than ever in new product development. In addition, they face increasing pressure to improve customer satisfaction, not just internally but through their respective dealer networks. And the cost of doing business is only increasing, putting pressure on everyone’s margins.

“You can never rest,” says Vandiver.

Yamaha Marine Group President Phil Dyskow agrees, pointing out that the classic view of business as investment, growth and harvest doesn’t apply anymore.

“I think you have to do all three continually,” he says. “The time has long since passed when you can take a long-term approach to profitability.”

In striving to be profitable while meeting consumers’ growing demands, each of the outboard builders has challenges and opportunities ahead. Here’s our estimation of them.

BRP, Inc.


Selling its strategy — Though it continues to offer a limited number of two-stroke carbureted and four-stroke engines under the Johnson brand, BRP has made it clear that it is betting its future on the success of its two-stroke direct injection engines, sold under the Evinrude E-TEC brand. With four-stroke engines dominating the market and continuing to grow in popularity, BRP has a significant challenge on its hands. Two-stroke DI currently represents only about 10 to 15 percent of the outboard market and has been fairly flat in recent years. Not only is BRP competing with other DI manufacturers for this sector of the business, other industry executives predict DI technology will only grow to capture 20 to 25 percent of the entire North American outboard market. Whether the company can carve a profitable business out of this piece of the market over the long term remains to be seen. Roch Lambert, vice president, general manager, Outboard Marine Engines, says that the outboard division is already a positive contributor to BRP’s bottom line. BRP’s goal is to eventually capture 20 to 25 percent of the outboard market.

Fighting the rumor mill — One of BRP’s most significant challenges has been convincing the industry of the strength of its strategy and the stability of its company amidst a rampant industry rumor mill. When it comes to its focus on Evinrude E-TEC engines, only time and results will ultimately convince BRP’s most vocal critics. Among the most popular rumors has been that BRP is going out of business and that its outboard business is up for sale, with Tracker Marine among the potential buyers — neither of which has a grain of truth to it, according to Lambert.

Training its dealer network — Lambert admits that, as of November, the company had yet to focus on training its dealers on E-TEC technology in its effort to complete its product line-up. With companies like Yamaha and Mercury pushing well beyond product-specific training to help dealers manage their businesses, this puts BRP at a disadvantage and means it will likely have to play catch up to match its competitors in customer service and satisfaction at the dealer level.


Increased visibility driving up sales — Last year, BRP invested in a marketing campaign that it says has already increased awareness of the brand and begun to prompt consumers to ask for the Evinrude brand, which, in turn, is driving up its OEM sales. So far, it seems to be working. And the compaign continues to run this year.

“There have been more boat companies we have not done business with to this point calling on us, saying they’re hearing good things about E-TEC, in the last six months than we had in the previous four years,” says Lambert.

Expanded line-up — Beginning with the 2006 model year, BRP’s Evinrude E-TEC line-up will be complete, according to Lambert, allowing the company to continue to grow its market share as it stops offering Johnson four-strokes above 30-hp. Evinrude E-TEC is now available in in-line 2-cylinder 40-, 50- and 60-hp; in-line 3-cylinder 75- and 90-hp; V4, 115- and 130-hp; V6, 2.5 liter, 150-, 175- and 200-hp; V6, 3.3 liter, 200- HO, 225-, 225- HO and 250-hp models.

Honda Marine


Catching up after ITC ruling — Honda Marine conducted business very cautiously in the U.S. market while the dumping investigation was underway, according to Robin Senger, Honda’s marketing manager. Senger says the company went from a 90-day inventory to a 30-day inventory, which eventually caused the company to run out of engines. In addition, Honda pushed back its plans to introduce new product by 19 months, which caused the company to lose momentum, according to Senger. As a result, rumors have sprung up that Honda is planning to leave the marine industry. Senger says that’s not the case.
Part of Honda’s “rebirth” involves evaluating how best to secure the future of its U.S. marine business. Among the possibilities it is considering are forming boat builder marketing partnerships and moving final engine assembly to the United States. Though Honda hasn’t been a major player in the marine industry so far, access to its parent company’s resources opens up opportunities for growth.

Limited technology — Honda Marine is, and has always been, a four-stroke company. This means the company has historically had little presence in the bass boat market and other markets in which small differences in weight and performance matter.

Achieving profitability — Honda Marine has been profitable in the past, but as it reignites its business following the close of the dumping investigation, it was forecasting a loss in fiscal 2005.

Growing its dealer network and OEM partners — Now that the dumping investigation is over, Honda Marine is working to demonstrate to boat builders that it can be a dependable supplier. While today its business is about 60 percent OEM and 40 percent dealer, Senger expects that to become about 80 percent OEM and 20 percent dealer in the future. But at the same time Honda is seeking new dealers.

Manufacturing larger engines — Retail sales of outboards over 200 hp continue to grow, yet Honda doesn’t offer the 250- and 275-hp models several of its competitors do. Senger says Honda will extend its line-up to include high-horsepower models, though, perhaps even as high as 300 horsepower.


Ties to auto business — Honda Marine stopped offering its 115-hp model during the ITC investigation. Rumors were that it was discontinued because Honda’s auto unit no longer required it. In actuality, the engine was removed because of questionable profit margins in relation to the ITC issue, explains Senger. It has since been reintroduced.

Honda’s involvement in the auto business actually benefits the marine division, he says. The features that make an engine last a long time in a car allow the engine to last even longer in marine applications, he says. Engines developed specifically for the marine market don’t have that history of quality and reliability behind them. In addition, the car business helps Honda Marine control costs. For example, the crankshaft used on Honda’s marine engines is the same as that used in its cars. As this is one of the most expensive engine parts, the cost savings achieved due to volume discounts make a big difference. Lastly, with the resources of its parent company behind it, Honda Marine has the ability to ramp up its investment in the boating business.

CSI — At last year’s Miami International Boat Show, J.D. Power and Associates revealed that Honda tied with Yamaha for the top spot in the four-stroke outboard category of its 2005 Marine Engine Competitive Information Study.

Since winning the award, Senger says the company has continued to ramp up its focus on customer satisfaction, launching a Web site to better communicate with the consumer and offering its dealers tools to help them improve the delivery experience.

If Honda continues to outrank many of its competitors in customer satisfaction, this could help the company reach its market share goals.

Environmental friendliness — As the first outboard builder to offer four-stroke engines, Honda Marine has a reputation for being “green.” But in today’s market, in which all engine companies make engines that meet emissions regulations, this no longer makes Honda unique.

Senger says one thing that does is Honda’s fuel efficiency. In fact, he states, the company’s marine engines have a 15- to 25-percent advantage over its competitors. With fuel prices recently hitting all time highs, this advantage is a noticeable one.

Mercury Marine


Improving customer satisfaction — Mercury Marine’s outboard division doesn’t have a customer satisfaction problem, according to Mercury President Pat Mackey. In fact, Mackey says Mercury’s CSI scores are up there with the country’s top automotive manufacturers. However, if you look at the results of the J.D. Power and Associates Marine Engine Competitive Information Study, you’ll find that in the four years the study has been conducted, Mercury has yet to capture a top rating in an outboard category.

Mackey points out that the study tracks “history,” not current levels of satisfaction. And he’s right. The study unveiled at last year’s Miami International Boat Show was based on the survey responses of owners who registered their boats between March 1, 2003, and May 31, 2004. The sample period for the next J.D. Power engine study will be June 1, 2004, through May 31, 2005. To see whether Mercury was indeed outranking its competitors during that time frame, the industry will have to wait until this year’s Miami show, taking place later this month.

Reaching profitability — Mercury Marine admits that its U.S. outboard business is not profitable. The company blames this in part on “the market share plays by the Japanese competitors.” However, the International Trade Commission has ruled that Japanese outboard builders are not guilty of causing damage to the U.S. market by dumping, which makes this a moot point. Mackey also cites consumers’ move from dirty two-stroke technology to low emissions technology as a factor. New technology engines have lower profit margins, he says. In addition, the engine builder faces the rising cost of manufacturing in North America, something shared by BRP, but from which Yamaha, Suzuki and Honda have been spared.

To return to profitability, Mercury says it will increase the efficiency of its manufacturing plants, continue to pursue global sourcing and streamline its supply chain. The company has begun manufacturing outboards at a new 174,000-square-foot production facility in China, which produces four-stroke outboard engines between 40 and 60 hp, and a new 275,000-square-foot facility in Japan with joint venture partner Tohatsu, where 2.5- to 30-hp four-stroke outboards are made. Over the course of the year, the plants have increased their volume and, in turn, improved Mercury’s cost competitiveness in those market segments. And the Chinese plant is expected to continue to expand the range of models it produces.

Retaining independents’ business — As Brunswick buys its way into new boat segments, it is becoming the No. 1 competitor of a growing number of independent boat builders. And the launch of a dumping investigation against the Japanese engine builders only encouraged those who portray Mercury’s parent company as the industry’s biggest bully.

Mackey says Brunswick’s strategy is often misunderstood.

“We’re trying to put our money and resources into making this industry better,” he explains. But those who feel threatened by Brunswick have a hard time seeing its actions as altruistic.

Mercury must overcome this image if it is to retain its current share of the independents’ business. The independents actually make up a much larger percentage of Mercury’s outboard business than most people think — “the vast majority,” says Mackey.


Growing market share — It is to Mercury’s advantage that it belongs to Brunswick, a parent company that has been acquiring and intends to continue to acquire boat companies. As the company “captures” additional transoms, it will likely boost Mercury’s market share. How well those acquisitions fare will likely play into how much market share is gained, as demonstrated by the aluminum companies, which have suffered some setbacks since their April 2004 purchase.

Planning for the future — Unlike its competitors, Mercury can count on business from the growing number of boat brands owned by its parent company, which should help the company better manage its supply chain. As Brunswick acquires more boat companies, this advantage will only increase. Tempering this advantage is Mercury’s growing dependence on the success of Brunswick’s boat companies, which could become an asset or a liability.

Selling new technology — In recent years, Mercury Marine has spent millions on its Verado line-up of four-stroke engines, which Mackey says are “second to none,” “bullet-proof in terms of reliability” and “technically advanced.” Though the company was unwilling to share sales figures, if consumers find the new technology engines compare favorably to competitors’ product and demonstrate quality and reliability over time, Mercury’s Verado technology may allow it to gain market share in the 135- to 275-hp sector of the four-stroke market. As higher horsepower engines tend to generate higher margins, this may help boost Mercury’s U.S outboard business back toward profitability. Conversely, if these engines are not widely accepted, the investment could be a drain on the division’s resources.

Suzuki Marine


Loss of business from BRP — Bombardier Recreational Products Inc. recently scaled back its relationship with Suzuki, which has been supplying the company with four-stroke motors that BRP sells under the Johnson brand. Now, it will only offer 2.5- through 30-hp four-strokes. While this change will impact Suzuki’s marine business, it will not impact American Suzuki, the U.S. distribution arm of the company that manufactures Suzuki engines. BRP’s contract is with the Japanese manufacturer, not its American distribution subsidiary.

Technology limitations — Engine technology has come a long way in recent years, narrowing the gap between four-stroke and two-stroke engines. Despite this, there are still markets in which one or the other technology is clearly dominant. By offering only four-stroke models, American Suzuki accepts that its presence in markets like bass boats will be somewhat limited. Four-strokes now make up more than 50 percent of outboard sales, however, and appear likely to see continued growth.

Growing its dealer network — If Suzuki wants to achieve the growth it is aiming for, it needs to grow its dealer network, especially in the Midwest.

Ramping up dealer services — Suzuki does a lot to help its dealers promote and sell its product, but the company would like to do more to help them run their businesses on a day-to-day level, such as offering them computerized management systems. Some of its competitors, such as Mercury and Yamaha, are already providing their dealers with management tools, so this could be a factor in Suzuki’s ability to attract and retain its target dealers in the future.


Building OEM business — Unlike many of its competitors, American Suzuki’s marine business has been retail driven in recent years, according to Suzuki Marine Marketing Director Larry Vandiver. This has its advantages, he suggests, such as retaining higher margins. But it is likely to change as Suzuki works to build its volume.

After doubling its OEM business in 2004, the outboard builder has hired additional staff to create a corporate business group dedicated solely to boat builders. Suzuki also has been adding to its dealer network, targeting more freshwater business. While the company had 780 dealers as of the end of November, Vandiver expects to reach 1,000 dealers this year. Suzuki’s OEM/repower ratio will likely change in the next few years as its OEM sales grow, he predicts. As of December, it was about 60 percent OEM and 40 percent retail.

Expanding its product line — American Suzuki is increasing the number of four-strokes it is importing into the U.S., which Vandiver says has driven much of the company’s recent growth. For example, it began shipping its new 150-hp model in November and its new 175-hp model in December. As a result, its November sales were up 26 percent.

Targeting new markets — Suzuki has concentrated on the saltwater market in the past, but is now seeing some growth among sectors of the freshwater market, like walleye and pontoon boats, with other freshwater sectors yet to explore, such as the bass boat market.

Yamaha Marine Group


Meeting demand — One challenge that Yamaha has faced for several years is keeping up with demand for its most popular four-stroke engines. Though some might say this is a good challenge to have, it represents lost opportunities for the manufacturer, especially because most dealers now carry multiple outboard brands. The good news, according to Yamaha, is that this problem will be greatly reduced when its role as a supplier of four-stroke powerheads to Mercury comes to an end later this year. In addition, the company added die casting capability last year, which allowed it to manufacture a better mix of engines without having to add capacity.

Retaining independents’ business — Like Brunswick Corp., Yamaha Motor Corp. owns both an engine brand and boat brands. For that reason, some independents may see the company as a competitor and thus be less likely to offer their boats with Yamaha outboards. Certainly, Yamaha owns far fewer boat brands than Brunswick, has not shared any plans to expand its boat brand line-up, and in fact recently sold its Cobia line. However, as some of its smaller competitors, such as Honda, Suzuki and BRP, get more aggressive about growing their OEM business, such factors may play an increasing role in independents’ decision making.


Attracting more business — Despite its joint roles as an engine and boat manufacturer, Yamaha often cites its relationships with independent boat builders as a strength. In the wake of the dumping controversy and as Brunswick continues to “fill in the white space” in its boat line-up, Yamaha, BRP and their Japanese competitors may be able to gain some business from independent boat builders that no longer wish to do business with Mercury Marine.

Selling carbureted two-strokes — Yamaha is one of the few companies using their EPA credits to sell carbureted two-strokes. Mercury stopped making them for the U.S. market beginning with the 2006 model year. This may temporarily give the company a boost in market share, and if it is able to convert those customers to its other product lines, it could have a long-term impact.

Investment in dealer training — Yamaha continues to ramp up its investment in dealer training, from managers to technicians and salespeople. Helping its dealers improve their customer satisfaction throughout each department will not only make the dealers more profitable, it will likely help Yamaha increase sales and improve CSI scores.

Notable Quotables


Pat Mackey, Mercury
“Personally, I prefer to be No. 1. But it carries with it challenges and rewards. You’ve always got people biting at your heels, trying to diminish all the great things you do. What it gives us is an incentive to continually innovate, come up with new products and try things other people wouldn’t try or couldn’t afford to try.”

Larry Vandiver, Suzuki
“We feel we’re very solid in that position at third, but have more room to grow and ability to grow our business in the coming years. We’re still in the very aggressive growth pattern. I think we have demonstrated throughout the last couple of years that we are dead-set to drastically increase our business in the U.S. and that’s the way we’re going to continue to grow.”

Phil Dyskow, Yamaha
“As a primary goal at Yamaha, being No. 1 is not paramount. If you look at the market as a pyramid with high quality, high value at the top and low price at the bottom, we really want to operate within the top half of the pyramid.
So, we will never win this game.”

Roch Lambert, BRP
“The thing is people measure success with market share. We don’t at this point. We’ve decided to have a focus that allows us to have market share that makes us profitable. And if it means we’re going to have 20 or 25 percent market share down the road, great. That’s what
we want.”


Pat Mackey, Mercury
“I think some of our competitors would say one thing they can find wrong [with our Verado 275-horsepower model] is that at wide open throttle, it consumes more fuel than a 225-horsepower. Well, it’s a 275-hp engine. I think that’s a competitor’s response because they can’t find anything else wrong with it. When people are putting two or three Verados on the back of a boat, don’t tell me that fuel is too expensive for them.”

Phil Dyskow, Yamaha
“Am I worried about Mercury buying up too much of the market? No, simply because someone else will stop them, like the government, before they get to the point that it is disruptive. Yes, we compete fiercely, but we’re competing in the market with two very different strategies, which is a healthier situation than two companies competing with exactly the same strategy. Because then what is the differing point? It is price.”

Roch Lambert, BRP
“[Our competitors] try to confuse everybody every day and say we’re going to be out of this business in a short period of time. My response to that is, ‘Sell your product against mine. Don’t worry about selling your company against mine.’”


Pat Mackey, Mercury
“Four-stroke comes with a halo about it. People know it. They understand it. I don’t think the general public understands the huge benefits they can get from DI technology. Our job is to make sure people do understand the technology. In fact, I’m still spending money on research and development to determine what is the next generation of DI technology.”

Phil Dyskow, Yamaha
“The opinions that matter in the debate of two-stroke vs. four-stroke aren’t mine or Roch’s or Pat’s. They’re the customers’. Ultimately, all of our tirades mean nothing if the customer thinks something different.”

Larry Vandiver, Suzuki
“We honestly believe that the majority of the business in the next 3 to 5 years will be four-stroke. We honestly believe the day of the two-stroke motor will be very limited, and that two-stroke product will not interfere in our ability to acquire more market share.”

Roch Lambert, BRP
“Unless [dealers] tell us they believe in E-TEC being superior to a four-stroke, we’re not going [to sign them up for our dealer network.] We don’t want people that will say, ‘All right, tell us what you want, Mr. Consumer. We’ll put it on the back.’ We want people that will say, “You know what? What’s your need?’ And we believe E-TEC is a better fit for that need.”


Phil Dyskow, Yamaha
“The biggest opportunity for growth for us is the migration of outboard powered boats into larger categories. The unit share increase of transitioning into bigger boats is modest. The dollar share impact is enormous, and the earnings potential is enormous. So from a business perspective, that’s a huge opportunity, even though from a unit perspective, we would sell fewer than we could 6 horses, for example.”

Larry Vandiver, Suzuki
“We look to develop both the relationship in OEM as well as continue with dealer sales with repower. If you look at some of the other guys, they have moved their relationship more to the OEM sector. Of course, that is not going to be as profitable. It can’t be. The boat builder has to make at least a return on investment. It’s no different than any other business that sells to an OEM. The OEM is looking at it as part of the profit of his product.”

Roch Lambert, BRP
“The focus has been, ‘Let’s launch the company line-up.’ In a few more weeks, we’re going to be there, and then we’re going to start saying, ‘What’s the next step?’ No. 1 — let’s train all of those dealers on E-TEC. I’d like to tell you they’re all trained. It’s not true.”

Robin Senger, Honda
“People are moving away from inboard gas or sterndrive gas and opting for outboards on the back. That’s why the saltwater is such an opportunity. Diesel is also a lot more expensive than an outboard. That’s the opportunity.”


Pat Mackey, Mercury
“We took the position that we would prefer an evolutionary transition to Mercury as opposed to an edict simply because we understood dealers who were selling Lowe, Lund and Crestliner had long associations with our competitors. We didn’t take the arrogant position that we would force their hand.

“What happened then was that our competitors took a position that they would cut off supply of their products to Brunswick companies. They chose to walk away from their dealers. We would have been quite happy to allow our products to speak for themselves and allow dealers to make their own decision.

“Because we bought the aluminum boat companies, our competitors portrayed it as if we were disloyal to the industry. This was going to be an organized transition. It was forced upon us to have a disorganized transition, and that’s traumatic to the dealer. I have great sympathy for the dealers.”

Phil Dyskow, Yamaha
“If you look at the landscape over the past year, there is no doubt that Brunswick has made some acquisitions that perhaps potentially could have altered the market share landscape. Let’s say they purchased between 25,000 to 35,000 outboard transoms — it’s in that range. You would have expected — since maybe half of that business was potentially Yamaha — us to have lost anywhere from 12,000 to 15,000 engines, but in essence our business was up this year. But what that tells you is every action has a reaction — perhaps an opposite reaction. Some of that volume went to other aluminum companies that offered Yamaha product.”


Phil Dyskow, Yamaha
“The industry through August [was] off by about 8 percent, and we’re up by 2-4 percent. There are a number of reasons for that. I think strong demand for four-strokes is No. 1. We had a strong line-up of four strokes including models some of our competitors didn’t have, like the 150-hp model.”

“There is no secret that we’re working on a new big engine. There’s no secret that we’re intrigued by the four-stroke bass category. But the gestation time, the development cycle of a big engine is not 12 months or 18 months. There’s a fierce amount of activity right now … There has been a lag, simply because of the development cycle of those products, but we’ve never invested more capital or engineering manpower in new technology than we are now.”

Roch Lambert, BRP
“Our debt to equity ratio went from 2.4-to-1 to 1.1-to-1. I’m not going to say for sure, but I think we’re advantageously compared to Mercury. This is not a company in trouble at all. This is a company that has been delivering profitability year after year. You’ve got to read the financial statements, not just the numbers that are published. You have to look at what the numbers mean.”

Larry Vandiver, Suzuki
“First of all, we believe it all starts with product. You have to build the right product for the market. You study your consumer and you understand what the consumer wants and you build your product to that need. Quite honestly, I can build whatever you want. But I doubt they’re going to be able to afford it. That’s me as a manager of my company, I have to figure out how we can build the best product but stay in the marketplace. It’s getting tougher to do. Even the almighty GM has problems at this time. You have to find ways to be cost effective in the business that you do.”

“I don’t participate strongly in the bass boat market. There are some freshwater markets that we need to take a look at and see if we’re going to turn up some of those markets, the bass boat market being one.”

Pat Mackey, Mercury
“We do not discriminate between customers internal and external. We offer the same prices based on volume. The reason I know I’m right is that nobody likes me. The independents think we’re discriminating against them in favor of BBG, and BBG believes we’re discriminating against them in favor of the independents.”

Robin Senger, Honda
“It looked like we died and went away. But we’re even more aggressive now. It’s a new Honda. We’re being reborn again.

“Our engines are based on the automobile heritage. What they build for the automotive industry – we marinize those same engineered components. The competition uses that against us. But now we’re back to the opening line as the customer comes in the booth of ‘This is the same engine you see in the Civic or Honda Odessey.’”

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