If the boating industry was once a sieve, with customers pouring out, it’s becoming more like a cup with a few holes in the bottom, thanks in part to the Grow Boating campaign.
The biggest hole may be the pre-owned boat market. The industry is spending millions on the Grow Boating advertising campaign to essentially buy new customers — but it will likely lose more than half the leads generated this year. While Grow Boating is designed to drive consumers to buy new boats, over 70 percent of boats sold each year are pre-owned — and according to some estimates, more than 90 percent of those sales are taking place outside the industry, often in boat owners’ driveways.
A small percentage of dealers focus on pre-owned product. Those that do operate without support from boat builders or the security of a formal wholesale market.
“It creates quite a chaotic retail environment, service environment and usage environment for the used product,” explains Tim Leedham, president of Bosun’s Marine, a two-location dealership based in Cape Cod, Mass.
As a dealer with a growing and profitable pre-owned boat business, Bosun’s Marine belongs to what NMMA President Thom Dammrich calls “a very small minority.”
While a dealer has to take trade-ins to be a market share contender, a viable consumer resource and a productive outlet to the boat builder, most dealers are reluctant to do so, regarding pre-owned boat sales as a necessary evil, not a profit center.
As a result, the industry is missing out on almost $8 billion in pre-owned boat sales each year. In addition, more than three-fourths of these buyers are first-time buyers, and they’re far less satisfied with their product and their experience than new boat buyers. That’s bad news when you consider that even new boat buyers’ satisfaction tends to suffer in comparison to that of motorcycles and car buyers, for instance.
“You know the adage — the happiest day of your life is the day you buy a boat and the second happiest day is the day you sell your boat — I think that is reflective … of the fact that a lot of people, once they own a boat, feel they’re out there on their own,” Leedham says. “They don’t have an easy out. They’re going to be locked in or they’re going to take a big hit. They don’t have someone out there who is a friend of theirs in the system.”
In taking control of a larger percentage of the pre-owned boat market, the industry has the opportunity to not only boost its sales, but also to retain a higher percentage of first-time buyers, which will lead to more sales down the road for dealers, boat builders, marina operators, service yards — really, the whole industry.
NMMA — and other industry leaders — have recognized this and have high hopes of transforming this market into a source of industry growth.
“We knew at the beginning, when we created the list of things that were hindering our growth, we could not attack all of them at once,” says Dammrich. “As time goes on and our efforts in dealer and product certification mature and become more established, we will have the time and hopefully the resources to turn to [issues like] access and the pre-owned market.”
Dammrich expects to create a pre-owned boat task force in the coming months, something approved by NMMA’s Boat Manufacturers Division during a meeting at the Miami International Boat Show in February.
The most popular industry to compare boating to — fair or not — seems to be automotive. And, in fact, car dealers often make higher margins on their pre-owned vehicles than their new ones. But they also have access to tools that marine dealers lack — most importantly, a formal wholesale marketplace.
“An entire infrastructure exists in the auto industry to support the pre-owned market,” explains Eduardo Bravo, marketing leader of GE’s Commercial Distribution Finance marine division. “For example, the auction industry serves a critical function by redistributing inventory to wherever the market needs it most. That infrastructure hasn’t really developed for marine and it makes it more difficult for dealers to access the inventory they need and to liquidate the inventory they can’t sell.”
The closest thing the boating industry has to this now consists of individual businessmen who work out of their cars, buying and selling pre-owned boats amongst a network of dealers, which “doesn’t do much to balance out supply and demand,” according to Leedham.
He believes the creation of a wholesale marketplace needs to be driven by the manufacturers, whether it’s a company like Brunswick or Genmar, a boat builder buying group or an association. Because the volume in the boating industry is so much smaller than in the auto business, it’s unlikely an auction company would seek out business with the boating industry without subsidization.
“If the NMMA as a whole could solicit participation through some kind of a grassroots funding system, that’s the best solution of all, and it’s equitable for all people to participate in,” he says. “Or MRAA — but then where is the money going to come from?”
Getting a hold on boat builders’ wallets might be tougher than it sounds, however. NMMA has “limited resources” as it struggles to fund the Grow Boating projects already underway. It may indeed be more likely tt an industry giant like Brunswick will be the first to create such a system.
Whoever it is, they’d better be patient, suggests Luke Kujawa, vice president of Crystal-Pierz Marine, a 12-location dealership chain based in Minnesota.
“The problem with the auction is kind of a Catch-22 — it’s going to be hard to get that going until the demand is there, but you’re going to have a hard time getting the demand there until the market takes a different view of the used product,” he says. “One of the things that will help that is the auction.”
Yet another certification program?
Brunswick has expressed an interest in the pre-owned boat market.
In a recent presentation, Brunswick Corp. Chairman and CEO Dusty McCoy spoke of what the company hopes to achieve by helping its dealers sell more pre-owned boats.
“Our dealers have great difficulty in determining which boats to accept as trade-ins in order to make new boat sales, and the system fundamentally is clogged up,” he said. “Our goal then is to begin to provide dealers a way to which they will be comfortable in taking a used boat and have assurance that they can move that boat on after they’ve done the new boat sale.”
One of the answers is the creation of a certified pre-owned boat program, according to McCoy, something Brunswick has begun experimenting with.
“We rolled it out with five dealers in 2005 and we’re seeing it to be remarkably successful,” he said. “We’ve got some more work to do in establishing all the standards we want, but we’re comfortable — it’s something we’ll continue to push through throughout the United States.”
Through such a program, a boat builder would likely require its dealers to ensure certified pre-owned boats met certain criteria. In return, the boat builder would either cover the costs of providing a short-term warranty or co-op that cost with the dealer.
Leedham, for one, would love to be involved in such a program. Brunswick doesn’t manufacture any of the boat lines he carries, though.
From a marketing standpoint, the boating industry — with its proliferation of brands — has a disadvantage. An independent manufacturer might have difficulty creating enough awareness around a certified pre-owned boat program to drive customers to look for it. Brunswick, with 20 boat brands, doesn’t have that problem.
Then, there is the issue of resources. Most independent boat builders are relatively small. Therefore, they’re unlikely to be able to afford to offer a similar program.
Instead of waiting around, Bosun’s Marine has taken action, creating its own certified pre-owned boat program that uses the dealership’s brand name as the draw, rather than that of its manufacturers.
“I really can’t take the credit for the concept,” he explains. “I started seeing TV advertising for Lexus certified used cars. It occurred to me that here they are helping maintain the status and image of their product in consumers’ minds, number one. Number two, they’re helping their dealers be able to make more trades by providing them with an avenue to have the product go back through distribution. Number three, they’re making more people aware that they can treat themselves to a high end luxury vehicle used [for the same price as] a lesser quality new vehicle.”
Money with a capital M
Even with a wholesale marketplace and a boat builder-created certification program in place, gaining control of the used boat market will require capital — capital most dealers don’t have access to today.
GE has recognized that and is working to fill that gap.
“First and foremost, GE can provide the capital that the industry needs to bring these units into the showroom,” explains Bruce Van Wagoner, president of GE’s Commercial Distribution Finance marine division. “Secondly, we are working with our colleagues in GE Consumer Finance to develop retail finance programs that are tailored to meet the needs of the pre-owned boat buyer.”
To drive more dealers to take on used boat sales, GE has been offering a special 60-days-free-interest promotion for its pre-owned floorplan financing program. It also goes beyond financing trade-ins to allow dealers to finance used product bought outright.
Another challenge for the boating industry is a common consumer misperception that their boat will retain its original value. When those who finance their boats find themselves owing more than they can sell their boat for, many are caught by surprise, which can put dealers trying to sell them another boat in a difficult situation.
Leedham says it’s important to get them to put themselves in a pre-owned boat buyer’s shoes — how much would you pay for a used boat? — and remind them of the benefits they’ve received from their boat.
“This is not a financial investment,” he says. “This is not a house that appreciates. This is a boat, and if you equate your total exposure in the item to what it does for you in your lifestyle — your sense of peace and family involvement, replacing other alternatives, very expensive forms of vacationing or things you might spend your money on — if you wrap your arms around the whole thing, we are not out of line. We are not expensive to be involved in.”
In addition, dealers often have a hard time putting an accurate value on a trade-in, another factor in the perception of pre-owned boat sales as a hassle rather than a contributor to the bottom line.
Pre-owned boat sales, when done right, certainly require a different approach than new boat sales. And dealers, the majority of which do not currently treat this category as a profit center, could benefit from training specific to this type of business, the opportunities for which are somewhat limited. Boat and engine manufacturers might consider whether they can add this type of education to the other training opportunities they offer their dealer networks.
The potential lies not just in the money that can be made today, but in the future the industry could secure for itself.
As Leedham puts it, “I think we could keep more people in boating. I think we could get more people to feel that they can go in and out of boating with confidence so that they’re less hesitant to make the financial commitment … [People say] ‘I just don’t want to make a commitment to owning a boat.’ What are they saying? They’re saying they love it, they would love to have a boat, but they’re scared of the downside. Scared of commitment means ‘I’m scared of who is going to help me repair it, who is going to stand behind it if it breaks, who is going to help me sell it or … how do I compete with all those other hundreds and hundreds of boats sitting in other people’s driveways?’ ”
Sidebar: A different customer
Add pre-owned boats to your showroom, and you may notice a change in the ratio of pick-up trucks to SUVs in your parking lot.
That’s right. Pre-owned boat buyers are more likely to own a pick-up than new boat buyers. And they’re also younger, with a lower average net income and net worth.
Another thing to consider: the Grow Boating campaign’s target market looks a lot more like the typical pre-owned boat owner than the typical new boat owner. That may mean dealers offering a wide selection of each will be best able to reap the benefits of Grow Boating.
Sidebar: Capital Solutions
The pre-owned boat market represents an opportunity most dealers today are missing out on, according to GE.
“The pre-owned market offers great growth and profit potential for the industry,” says Bruce Van Wagoner, president of GE’s Commercial Distribution Finance marine division. “We can attract many new consumers as dealers become more involved in the pre-owned sales and service processes and enhance the overall boating experience.”
Exactly what kind and how big of an opportunity is what GE is trying to uncover through a two-stage research project it is conducting with Left Brain Marketing Inc.
Phase One, the results of which came out late this spring, involved 34 in-depth phone interviews with people who had sold a motorboat within the last 12 months. Of the 34, 21 sold their boat themselves, while 13 used a dealer in some fashion — through consignment, brokerage or trade-in. Though the results are qualitative and therefore not intended to provide statistically accurate estimates, they do offer insights into the needs and motivations of private boat sellers.
The study suggests most people who sell their boats themselves are satisfied with the experience. They get the price they want, and they sell the boats pretty quickly — most within three months. They aren’t interested in working with a dealer because they believe they’ll make more money selling it themselves. In total, 20 of the 21 people who sold their boat themselves said they would probably do it again under the same circumstances.
Twelve of the 13 people who sold their boat through a dealership also said they would be likely to do it the same way a second time. The respondents gave two main reasons for working with a dealer: because they assumed they would get a better price on a new boat purchase and because it was more convenient.
In general, those selling their own boats tend to own smaller vessels (20 to 27 feet in length), while those who work with a dealer tend to own larger boats (28 to 40 feet). Boat owners can’t provide financing and may find it difficult to transport a big boat to those who want to see it or test drive it. In addition, the pool of consumers interested in purchasing a big boat tends to be smaller, perhaps requiring a wider advertising reach.
When asked to speculate on reasons to buy a used boat from a dealer vs. a boat owner, respondents suggested the possibility of a warranty and the ability for recourse if a problem occurs. A wider selection and the availability of financing were also mentioned.
Respondents said the downsides of buying from a dealer are that you may pay more than if buying from the owner and you won’t be able to learn the history of the boat – how much the boat was used and under what circumstances, what repairs it required, etc.
These results suggest dealerships that want to build their pre-owned boat business may be most successful by: developing an expertise in serving customers who want to trade in their boats for new units; creating a marketing campaign targeting potential pre-owned boat buyers; and offering more value than can be provided by the “for sale by owner” market by adopting certified used boat programs, for example.
These changes may create additional demand at dealerships for pre-owned boats, making it harder for boat owners to sell their own vessels and thus driving them to dealerships for assistance.
This is just a hypothesis, however. GE and Left Brain Marketing are waiting for further insight they expect to gain from Phase Two, the quantitative stage of their study, before they draw any definitive conclusions. Those findings are expected to be released later this year.