Boating Industry: If you had to grade your company on both the shape you were in coming into this downturn and the adjustments you’ve made since then, what grades would you give and why?
Jim Lane: Our financial statements are an open book, which is a significantly different situation than most boat builders. It’s important that dealers and customers alike realize the company is strong. If you were to rate our company before, I’d have to give us a triple A rating due to our financial strength and conservatism. And we’d also get a very strong score from the inception to now.
It’s very important to take a look at how a company might have adjusted and when they began the adjustment period. When did the downturn begin? In our case, we anticipated not the type of downturn we had – no one could have expected that. We’ve always had the policy of never pushing inventory to dealers. We’ve always wanted dealers to have a fair representation of our product, but not be overstocked. During the downturn, no one could have anticipated change in the U.S. economy. We’ve never built stock boats. We’ve always built to dealer spec. Our policy is to never try to sell a dealer something he doesn’t need. If we saw a dealer becoming overstocked, we didn’t ask him to take any more boats. We’ve had to adjust production dramatically because it was difficult for any of us to gauge how fast business fell off. Mostly our point to the dealer over the past six months has been, “Don’t order it unless it’s a sold boat.” And that’s basically what dealers have done.
Boating Industry: In the second quarter, your unit sales were down 77.9 percent, far exceeding the industry average. Why does it appear your company was so hard hit?
Jim Lane: It’s very, very hard to see a decline in business, but perhaps on the surface it wasn’t as bad as it sounded because we had a very strong quarter in the ’08 time period. Sales were down significantly compared to ’08, but not down that much compared to the previous period. Our sales are to dealers. That number doesn’t reflect sales made at the dealer level.
Boating Industry: Can you speak about the other adjustments you have made? Have you had to layoff many employees?
Jim Lane: Like everyone else, we’ve had to reduce our workforce, our expenses and reduce the square footage of our operations. Having everything in one place in Georgia, that type of contraction is easier than if you’re spread over multiple locations. We took a look at the orders and adjusted accordingly. You have to take tough steps. Could we do more? We probably could. But it doesn’t make sense to cut to the point where you have difficulty in returning. We’ve been carefully measuring the reduction in staff and space required to accomplish what we need to do here.
We have acted prudently in our staff reduction. It has been difficult. In a small town, you know everyone. You know their lives. We’re a little softhearted.
Boating Industry: Have you lost a lot of dealers as a result of the downturn? Are you looking to grow your dealer network?
Jim Lane: In one way, we’re trying to take an existing dealer and use our strength to help him grow his market share. In those areas where we don’t have a dealer, our goal is to fill in the spots.
The percentage of dealers we may have lost is relatively small, not even 2-3 percent. I’m talking about dealers, not the business they might have done. I think this economy will leave white spaces available for dealers that may be with other boat companies to contact us. And if we have the right opportunity available for them, we’d certainly like to have discussions with them. We’ve already had quite a bit of that with turmoil in the industry over the last couple of months.
Boating Industry: Many people are suggesting that there will be great dealer attrition by the end of July or early August. What is your viewpoint on this subject?
Jim Lane: I think you have to look at dealers exiting the business for two different reasons. One, they’ve decided they wanted to do something else. We’ve had some dealers make that decision. Then you have the other situation where a dealer might exit involuntarily because he doesn’t have enough money. The key is getting the aged inventory down. If the dealer gets his aged inventory in line, there is much less likelihood he will exit the business. If not, he’s considerably more at risk of being in financial difficulty.
Our goal is to make sure we do the best that we can to take the aged and excessive inventory away from our dealers. Those boat builders that can’t support their dealers for whatever reason, their likelihood of dealer failure increased. It depends on how a manufacturer looks at this issue and where they place importance.
I do think the number could be high perhaps, but we’re hoping to keep ours at an absolute minimum. Most of us have been encouraged by much of what’s happening in the economy. It depends on what TV show you look at the most. I do believe there are some positive signs occurring. The government has certainly spent enough money. For us in the marine business, it all depends upon the inventory in the field, and not just our inventory, everyone’s inventory. If we get our inventory in line, but our competitors don’t, his inventory will be more undervalued and then we need to deal with that, ourselves. The economy will start to make some significant improvements as we turn the corner into next year, and the marine business will start to achieve some slow growth depending on what happens with the inventory.