Editor's note: Due to space constraints, our Boating Industry Q&A with John Pfeifer in the February issue needed to be edited. Here is the full Q&A.
The last year has been very eventful for Mercury, with the introduction of its first purpose-built sterndrive engine in 2014, along with a number of new outboards.
There was also a change in leadership, as Mercury president Mark Schwabero was named president and chief operating officer of Brunswick Corp. Taking over his role was John Pfeifer, who had served as vice president – global operations for Mercury since 2012.
Pfeifer joined Brunswick in 2006 as president of the Brunswick Asia Pacific Group, and in 2008 was appointed president of Brunswick Marine in Europe, Middle East and Africa. Prior to joining Brunswick, Pfeifer most recently held executive positions with ITT Corporation and Milacron, Inc.
Boating Industry recently talked to Pfeifer about some of the changes and innovations at Mercury, and where the company is headed.
Boating Industry: 2014 ended up being a pretty big year for Mercury, with a lot of new products from the purpose-built sterndrive to new outboards. What was the highlight for you?
Pfeifer: You’re right. 2014 was a big year for us and there are a lot of highlights. I would say probably the biggest overarching highlight was our 75th anniversary.
We’ve made 15 million engines. In September 2014 we determined that we had made our 75,000th L6 Verado. We’ve made 140,000 total Verados if you include the L4 Verado, so it was a big year.
Along with that, we won the Manufacturer of the Year award for the mega category in Wisconsin. We were up against some pretty tough competition, so we were pretty delighted that we had won that manufacturer of the year award in our 75th anniversary.
From a company standpoint, in 2014 we completed and brought on line additional capacity in our castings group, in our machining group, in our assembly with that new 4.5-liter marine purpose-built sterndrive product. And we brought on line added ability in research and development, so it was really a huge year.
Then you add to that the introduction of the 75 to 115 four-stroke product, which has been a blockbuster already. We’re gaining market share with that product. ... And, of course, the new marine purpose-built sterndrive engines. That’s the first marine purpose-built engine that we’ve had in the industry.
Boating Industry: Let’s talk about the purpose-drive sterndrive. Obviously, a significant decision for Mercury to go that direction. Why do you feel that’s the right way to go?
Pfeifer: This was a huge decision. I believe 100 percent – and everybody does here – that this was absolutely the right decision not only for Mercury, but also the entire industry.
For decades … all of our products, and all of the industry’s products, in sterndrive and inboard were automotive derivatives. That model served the industry pretty well for a long, long time. What’s changed and why we had to make a decision is that the auto industry is really working hard to meet and to exceed the fuel economy requirements that are coming from CAFE regulations.
So every year, the auto industry has to get its fleet to a higher level of fuel economy. As a result of that, the new automotive engines that are coming out are very different, they’re much more complex, they’ve got a lot of expensive new technology that is really aimed at on-road performance. Unfortunately, it’s not necessarily good for all marine applications. Some of the new technology they’re adding, like variable timing, they really don’t provide very much benefit … to marine applications and sometimes are hurting quality. They are adding cost without adding very much benefit.
Our new engines, they feature a cast iron block and the new auto engines are all aluminum There’s a problem with that as cast iron is certainly better for marine applications … because they [have] superior corrosion resistance.
Furthermore – and this is a critical point – a marine engine needs all of the torque and all of the power to be used continuously. If you look at an automotive engine, it needs torque and power during acceleration phases, but at cruise it doesn’t need nearly as much power. So we designed a new engine that’s reliable, that’s durable, at a continuous high-torque, high-RPM environment.
We believe we’ve got a really fantastic new product for Mercury and for the industry that’s really going to serve our boat builders well and is going to serve, most importantly, marine consumers really, really well.
Boating Industry: And we’ll continue to see that line of engines grow?
Pfeifer: This year we’ll come out with new products that are based on the same platform, a V8 for example, we’ll be bringing out in the third quarter of the year, so you’ll continue to see new products in this series.
Boating Industry: On the outboard side, you’ve got some new products coming out this year that I know you can’t talk about yet, but in general terms what can we expect to see from Mercury?
Pfeifer: I’ll talk as much as I can without giving away too many specifics. First of all, you’re going to see new outboard engines [at the Miami International Boat Show]. We’re really, really excited about them and we think they’re going to be fantastic new introductions for us. (Editor’s note: Visit BoatingIndustry.com during the Miami show to see our full report on the new Mercury engines.)
We’ve got a new commercial range of outboard engines that are just being released. It’s called a Mercury SeaPro. It’s a range of more powerful outboards that are specifically designed to meet commercial operator requirements, so that means products that are used on a daily basis with a lot more demanding applications than just a recreational outboard.
That’s another big move for us in ’15. They’re not designed for the recreational consumer, but a quarter of the market globally is commercial outboard product.
Boating Industry: As you look at 2015, what’s your outlook for the year?
Pfeifer: I’ll start by talking about 2014. We started 2014 terribly in terms of the market conditions. In the first quarter, GDP in the U.S. shrank and … our sales declined in the first quarter as a result of that. Everybody likes to talk about how terrible the winter was and that had some impact on the economy, but who really knows?
The second quarter didn’t start that well, but it finished extremely well. Our business started to grow really well, especially in the second half of the second quarter, then we got into the third quarter and things really picked up. We had a fantastic third quarter. The year built as it went from being really weak to really strong.
As we head into 2015, we are really optimistic about the U.S. market. We see continued growth in the U.S. We have some concerns globally. Particularly those concerns are in Europe with continuing economic weakness in some of the core economies of Europe like France and Germany. Russia is a big concern with the ruble devaluation being so dramatic. South America has not been great.
So it’s a balance between a pretty good outlook in the U.S., a pretty good outlook in Asia, but we’ve got some places that we’re concerned about as well.
Oil prices, we see that being very positive for the industry. Gas prices going down can only help the marine industry.
Boating Industry: What do you see as some of the top challenges in 2015 and beyond for the industry?
Pfeifer: First of all, the sterndrive segment is a big challenge for the whole industry. It’s a challenge for Mercury, it’s a challenge for some of our competitors and it’s a challenge for a lot of boat builders. The sterndrive segment has been depressed since we went into the global financial crisis, so that’s a big challenge.
And I say it’s a challenge because that segment’s not going away. The sterndrive segment is going to be an important part of the industry for a long time. Anybody that’s been involved in the industry for very long understands that there is a need for a sterndrive product in the industry to meet boater’s needs.
There are some factors that are preventing the sterndrive segment from recovering and we’re trying to work aggressively on that. The fact that we’ve invested quite a bit in our marine purpose-built sterndrive engines is a piece of significant evidence that we believe this is a critical market for the long term.
Another challenge is E15 fuel. You see a lot of push for higher levels of ethanol in fuel. We see that as a threat to the marine industry because of what ethanol can do to an engine. If your engine is used everyday for 12 months out of the year like an auto engine that level of ethanol sometimes doesn’t have an impact, but in a marine environment that can have a negative impact when engines go two, three months out of the year, sometimes even longer, without being used.
Fishing regulations are also a challenge, making sure that regulations are not hindering recreational fishing. Sometimes commercial regulations can hurt recreational fishing, so we try to get involved to make sure that doesn’t happen.
Boating Industry: The industry certainly has challenges in the sterndrive segment as you mentioned. What needs to happen to revitalize that market?
Pfeifer: What we need to do to get it revitalized is we have to start with product. And when I talk about product, I mean engine product and I mean boat product. We as an industry need to make sterndrive power more intuitive – easy to use, easy to operate, not intimidating for a consumer. We need to work on the cost. We need to work on providing compelling new product that provides consumers with features that they really want.
I think too many times in the industry … if you really listen to the voice of the customer, we sometimes are adding cost by adding features that the consumer doesn’t care about. We need to be very careful with providing consumers with what they really value.
Boating Industry: We talked about challenges, but let’s take the other side of that. What do you see as some of the opportunities, the things that make you optimistic about the marine industry?
Pfeifer: We talk a lot at Mercury about a general equation, which is the benefit minus the cost of boating equals what a consumer’s value is. The benefit being the enjoyment that somebody gets out of being a boater. The cost is two-fold: how much does it cost to buy the product … and operate the product and how much effort does it take to use your product.
The cost side is a big opportunity for the whole industry, in terms of product cost, ownership cost and effort. If you look at product cost – both boats and engines – we need to develop compelling products that people are really willing to pay for. That’s when consumers will see a lot of value.
The second point is that effort equation. We need to make boating easy for people. Sometimes boating is seen as taking a lot of effort or being very hard. We can’t make boating hard for people. This is where manufacturers and dealers have to get together and make it easy: Easy to buy a product, easy to service a product, easy to get out on the water on your boat. The more we can reduce that effort, the better we’re going to be as an industry.
There are a lot of competing interests for people’s times and we have to provide the means – all of us together – for an unintimidating and easy experience for people to get out on the water.