The promise of pre-owned

The industry is preparing to take action.

As part of the Grow Boating campaign, the National Marine Manufacturers Association is exploring ways for the industry to take control of a larger chunk of the pre-owned boat market.

And it isn’t alone. GE is conducting research in hopes of helping its boat dealer clients capture a larger percentage of this market. Other companies are jumping on the bandwagon too. For example, the Web site, www.boathistoryreport.com, recently popped up as a resource to assist boat buyers – and dealers – in making smart pre-owned boat purchases.

But a small percentage of industry firms have already found success in this market. We’ve included profiles of their efforts below. There is much the industry can learn from their unique approaches, often developed through trial and error.

Scout Boats
Maybe the heat in South Carolina makes the days feel longer. Or maybe it’s just Southern hospitality.

Either way, it’s clear that Scout Boats is making time for its pre-owned boat customers, while most boat builders — and dealers — look the other way.

Scout’s used boat refurbishing program doesn’t generate much money, but it’s the ultimate in taking care of the customer after the sale — often Scout’s most loyal customers — and that means more new boat sales in the future.

“That long-time boat owner that had that Scout for years, they love their boat and just want to upgrade it and detail it out,” says Dave Wallace, Scout’s vice president of operations. “That relationship that we develop is priceless. They tell their friends and relatives how good Scout is to work with. And without question, some have upgraded to new boats.”

The majority of the Scout boat owners taking advantage of the program contact the boat builder directly, not through the company’s dealer network. If they’ve owned the boat for a long time, they may not have an ongoing relationship with the dealer they bought it from — plus, dealers often would rather focus on activities that are more profitable for them, Wallace says.

While the boat builder would like the program to be a profit center, when you figure in the time spent with each customer, it really isn’t, according to Wallace. Customers who bring their boats to the Scout plant to be refurbished often are excited to get a tour and talk to company executives — all of which takes time.

Currently, Scout’s refurbishing program averages a couple of boats per month, but it could easily generate more business, according to Wallace. He says he’s considering hiring more people to expand it.

But Scout has the same challenge as many dealer service departments — finding technicians suited to the job. Boat refurbishing requires someone with expertise across a variety of boat systems. That’s one reason most dealers tend to avoid the pre-owned boat market, says Wallace. He hopes that will change.

“As baby boomers continue to upgrade, those small boats have to go somewhere,” he says. “There’s going to be a glut of boats out there that need to be refurbished. A lot of people buying those boats are first-time buyers. If they are faced with … something not operating properly, it will sour their taste of boating.”

Wallace suggests that it would be a lot easier and more profitable for dealers to adopt a program like Scout’s. Manufacturers could create a network of authorized refurbishment dealers so that customers could get the work done in their own hometowns. However, he hasn’t pushed this idea with Scout’s dealers.

“I think some of these things need to be driven by their management,” he says. “A profit center is being left by the wayside.”

Bosun’s Marine
It’s not easy to make a profit on pre-owned boat sales.

Most dealers who are successful at it struggled at first. Tim Leedham, owner of Bosun’s Marine, is no exception.

“We were always putting too much into our boats; our weakest margin item was our used category, unlike you’ll find at a lot of new car dealerships,” he explains. “Their greatest margin opportunity is with their used car trade-ins because they can balance out their inventories with what they are best at through the auctioneering system. We don’t have that in the marine industry.”

Despite less than ideal conditions, Leedham felt it was necessary to forge ahead. He believes that to be viable as a new boat business, dealers have to offer customers a total package, which includes taking a trade.

Now, pre-owned boats make up about 20 percent of the dealer’s retail sales, and Leedham expects that number to increase to 30-to-33 percent. Pre-owned boat sales have become a profit center for the dealership, though Leedham says he’s still trying to grow its margins.

Some of this success can be attributed to the pre-owned boat certification program Leedham created to mirror that of Lexus. The main difference is that it promotes the dealer’s brand, not that of the manufacturer.

“We have that boat set up from a service standpoint so that when we put it to market, we feel the consumer can go on the water and use it with the same degree of security that he would have in buying a fine quality used car,” he says. “We limit ourselves to a 30-day parts and labor mechanical warranty only because we can’t keep an eye on how something is really being used or abused by the next owner. But the fact of the matter is we service it so that we [won’t] see it again except for the person coming back to tell us how happy they are with it.”

This program’s profitability is tied to knowing when to service a boat for certification and sale — and when to get rid of it. If Bosun’s Marine doesn’t believe it can generate a return on investment from a trade-in — or doesn’t believe the boat fits into its niche market — it sells the boat into the informal wholesale market that exists on Cape Cod. This consists of people who operate out of their cars, buying and selling pre-owned boats to a network of local dealers.

Leedham explains that while there is a place for boats of any price in the market, dealers should be wary of trying to be everything to everyone. A luxury yacht dealer should not be selling 10-year-old runabouts for $2,995 on its lot.

“You should be able to be proud of what you offer used, and proud to represent it as what it is, and have someone be able to buy it with a good sense of confidence,” he says. “That has enabled us to be able to be in the higher end of the valuation range, as represented by NADA or AVIS.”

Crystal-Pierz Marine
Pre-owned boat sales are nothing new for Crystal-Pierz Marine.

The Minnesota-based dealership chain has always taken trade-ins and used to have a selection of pre-owned boats at each of its facilities.

“We had 12 locations that all did OK with used boats,” explains Luke Kujawa, COO. “Now we make higher margins on our used boats than our new ones.”

That’s partly because pre-owned boats are no longer taking a back seat to the dealer’s new product. With the launch of its Used Boat Superstore last July, Crystal-Pierz now has a detailing shop, service department, warranty department and sales staff devoted primarily to pre-owned boat sales.

There’s also a major difference between pre-owned and new boats that gives the superstore an advantage.

“When you’re in an aggressive market, like where we are in Minnesota, with as many dealers as we have selling a lot of the same [new] product, it tends to really, really drive down profit margins,” he explains. “With used boats, one of the nice things is you’re selling a one-of-a-kind boat. They can’t compare that exact boat to anyplace else so you’re able to hold margin a little bit better.”

That doesn’t mean overcharging, however. A pre-owned boat that has been cleaned, detailed, inspected and given a warranty offers consumers a lot of value for their money, he says. In fact, Crystal-Pierz has a one- to four-star warranty system based on the condition of the boat, its age and the options on it.

Kujawa believes the opening of the 200-boat superstore may allow the dealership to attract more used boat buyers away from the driveway-to-driveway market.

“If somebody was going to buy a boat from their neighbor or someone down the street, it would seem they would at least want to go shop and compare at a place with the largest centralized selection of used boats before they decide to make that purchase,” he comments.

Kujawa still considers the superstore to be in “test phase,” but he says initial results are “very positive.” The key to that success largely comes down to how the dealership now views its pre-owned boat business.

“It’s easy to get what we call ‘polluted by the deal’ and want to put too much money into a trade to get that front-end deal,” he explains. “When you’re an inventory manager in charge of overseeing a used boat center, you’re simply buying inventory that you’ll be able to sell and make a profit on. That gives you a whole different perspective.”

Islamorada Boat Center
Running a pre-owned boat business usually requires a lot of cash.

But it doesn’t have to.

Accepting boats on consignment can be an alternative — and profitable — way to have a presence in the pre-owned market.

Just ask Brian Lesko. The president of Islamorada Boat Center got his start buying, fixing up and selling pre-owned boats. But he owned a desirable piece of property along the highway, and boat owners began clamoring for him to sell their vessels for them. Now, 80 percent of his retail sales are new boats, and the remaining 20 percent is split between consignment and trade-ins. The consignment boats are more profitable, he says.

“I’m basically taking a 10-percent commission on the sale of that boat and don’t have to tie any of my money up in it or floorplan,” he explains. “It brings customers in and a lot of times, you can convert those customers looking for a used boat into a new boat.”

Islamorada conducts a 50- to 80-point inspection on each consignment boat, using the technician’s evaluation to make recommendations to the seller on work he might have done to get more money out of the boat. The dealership also makes that inspection checklist available to potential buyers so they don’t get any surprises if they decide to purchase it. If a consignment boat is in good condition, Islamorada will also offer a 30-day in-house warranty.

Lesko points out that since he is the only new boat dealer within a 20-mile radius that accepts boats on consignment, he often is able to convert the seller into a new boat buyer too.

“Because I’ve been willing to go the extra mile for them, I think there is a loyalty there from the customers,” he says. “Why other boat dealerships don’t do that, I don’t know. It just seems like, especially if it was your own customer, someone you had originally sold that boat to, I would think you would have some sort of loyalty to try to help them move that boat, especially if you’re not coming out of pocket.”

Islamorada is careful to choose the right consignment boats and boat sellers. Boat owners whose boat is no longer under warranty and starting to fall apart may want to make their headache yours. Those who are upside down may want to ask more for their vessel than it’s worth. Neither type makes for good consignment customers, says Lesko.

His customers are rarely among those upside down in a boat, however. Islamorada treats each new customer as if the dealership is beginning a long-term relationship with them.

“It’s better to make a little bit each time you deal with him than to make it all upfront,” he says. “Look down the road a little bit, know that this guy might be a customer coming back, and you’re going to have to look him in the face and explain to him why his boat is only worth half of what he paid for it and it’s because your pockets are nice and fat. You don’t want to be caught in that scenario.”

Z Yachts Inc.
James Weller is betting his future on the pre-owned boat market.

The former software executive quit his job to find a career he enjoyed, and in 2002 launched Z Yachts Inc., a national network of brokers, in an effort to bring a more professional and systemized approach to pre-owned boat sales — similar to what Century 21 and Remax offer in the real estate market.

Since then, the company has grown to about 50 employees spread over 30 locations across the country. It is forecasting the sale of 250 units worth about $13 million this year, and so far, sales are meeting expectations.

The average sale price of the boats Z Yachts sells is about $77,000, according to Weller. Over the past few years, he has been contacted by many owners of boats worth less than $30,000. However, it doesn’t make sense for brokers to spend their time on a sale that will only generate $500 for them, he says. Therefore, in April, Z Yachts created its BoatNET division, which targets the for-sale-by-owner market.

“There is an incredible market out there in terms of volume,” Weller says.

The new division offers what he refers to as “brokerage light.” There are two programs, both of which involve flat fees — either the silver level for $749 or the gold level for $999. In return, the company lists the boat on five to seven Web sites, sends out at least one e-mail campaign to its base of interested boat shoppers and offers buyers the ability to purchase an extended warranty, financing and a no-hassle closing with guaranteed funds. Clients have access to a personal account rep — not a broker — who can make adjustments to ads and price recommendations.

Now, Weller and his partner are working to take the company public, something they expect to happen later this year. While Z Yachts isn’t currently profitable due to investments in expansion, he expects it to return to the red by next year. Weller explains that his vision for the company is based largely on the results of market research it has conducted.

“It comes down to one thing: people want a brand they can trust,” he says. “The used boat market has taken a beating as far as reputation goes.”

eBay Motors and CarForce1
About 20 times more cars are sold on eBay Motors than boats. That’s one vehicle per 60 seconds vs. one boat every 20 minutes.

One reason so many cars are sold on the Web site is that car dealers use it to sell pre-owned inventory not moving on their lots to consumers across the nation. In fact, eBay Motors says 71 percent of the vehicles sold on its site are purchased by out-of-state buyers.

The site hasn’t caught on nearly as well among boat dealers. Half of the cars on eBay Motors are listed by dealers, according to Forbes magazine, whereas our analysis suggests only about 10 percent of those listing boats on eBay Motors identify themselves as dealers. This is due in part to the small percentage of pre-owned boat sales that take place through a dealership.

Many industry leaders believe the creation of a formal wholesale marketplace or auction system, like that the car industry uses, will encourage boat dealers to take on more pre-owned inventory. But sites like eBay Motors may also serve that purpose – perhaps more profitably.

Selling pre-owned cars on eBay Motors is often more profitable for car dealers than selling trade-ins and aged inventory on the wholesale marketplace, according to CarForce1, a dealer training and consultancy firm that helps clients make the most of eBay.

“Currently, there are only around 1,500 to 2,000 boat auctions going at any one time on eBay,” says Jim Womack, CarForce1 CEO. “I think as the amount of auctions for boats on eBay increases, the willingness to shop for boats on eBay will increase.”

That’s why CarForce1 has begun targeting boat dealers in Oklahoma and Texas as potential clients. Womack believes that by helping dealers properly market their inventory on eBay, his clients can save time and make more money.

“What we do is provide all of the technical skills and photography to get dealerships up and running on eBay,” he explains. “We photograph all the inventory, we have a program that allows us to post the inventory in a very professional looking layout, we write the ads and manage all the auctions.”

Dealers on eBay have an advantage over private sellers when they offer more value through certified pre-owned boat programs and limited warranties. If they deliver more value, they’re also likely to get a higher price for a boat on auction.

And selling on eBay Motors isn’t very expensive. It costs just $40 per vehicle to list a boat, and another $40 when eBay delivers a buyer.

eBay Motors recommends dealers be selective about which inventory to list on its Web site, focusing on “aged inventory that you’d normally sell to a wholesaler or at a dealer auction, vehicles that tend to sell well in other regions and climates, vehicles that have a strong following … and vehicles that are hard to find ….”

The Web site also suggests that dealers provide a lot of information about each vehicle, including a report based on a mechanical inspection and lots of photos.

“Stating that the inspection was performed by a certified mechanic, even if it is your own, will increase a buyer’s confidence and reduce their hesitation to bid,” the company stated within the dealer section of the eBay Motors Web site. “In fact, disclosing everything about the vehicle, even the minute defects, has proven to raise potential buyers’ level of trust even further.”

eBay recommends that dealers set their minimum reserve price at wholesale to encourage consumers to bid on their inventory, though they will often get more.

Of course, there are several dealers using the site to sell boats today. MarineMax, for example, has created an eBay store featuring parts, accessories, gear and used boats. As of late spring, however, the used boat inventory it was listing was minimal. Other dealers, such as Guntersville Boat Mart in Alabama, have used the site more extensively. Their profile suggests that they’ve sold 191 items over the past year, most of which appeared to be boats. Over 97 percent of buyers providing feedback commented positively about the experience.

Lakeside Marine Inc.
Lowell E. Joy wants all of his dealership’s customers to enjoy boating.

The happier they are, the more products he sells.

With 50 percent of Lakeside Marine’s business coming from brokerage boats and trade-ins, that means taking care of the pre-owned boat buyer.

That’s why Joy established the Gold Care Service program, which provides a 12-month warranty to all pre-owned boat buyers. He explains that if a dealership sells a boat as is and there is a mechanical failure, the customer will usually complain and eventually the dealer will give in.

“You end up fixing the things for him anyway as a matter of customer service, but you’ve done it in a negative atmosphere because the guy ranted and raved and screamed and hollered,” he says. “If you put a positive attitude on it and say we’re going to fix it anyway, you might as well take advantage of that and say to the customer, ‘It’s covered under warranty for 12 months.’”

In Ohio, six of the 12 months are winter anyway, and Joy says if something is going to go wrong, it usually happens pretty quickly. Only four or five percent of the pre-owned boats the dealership sells end up back in the service shop for a major problem within that warranty period. That’s because before the dealer takes a boat in on trade, it runs it through a checklist and if there are problems, it either decides not to take it or puts the money into fixing it.

“We set it up because when we take a boat in trade, we obviously want to sell it to a customer that’s going to be happy,” sums up Joy.

Lakeside Marine also offers a 24-hour service hotline to all customers. This allows them to talk to a live person when they have a problem to either walk them through a solution or send someone to them to take care of the problem.

Joy says his dealership’s average margins on pre-owned boats are comparable to its new boats, in part because it sets and sticks to an actual cash value (ACV) on each boat taken on trade.

“When we take a boat in trade to sell a new boat, that ACV is going to be followed,” he declares. “If it’s an outdated model or we’ve got too much new boat inventory, we’ll take a loss on the new boat inventory. Unless we do something wrong, we should be making our normal margins on that used boat.”

Part of Lakeside Marine’s business philosophy is to stand out from its competitors. The dealership mentions its Gold Care Service program in its TV commercials, for example, because it’s one more reason why potential boat buyers might choose it over other dealers that offer the same type of boats.

“If you want to be special, you have to do things that not everybody is doing,” Joy says. “We’ve got things in the works right now to kick it up another notch in the way we go to market and serve our customers. That’s a big priority for us — to keep improving and doing a better job of running the business.”