Breaking News: ITC ruling a ‘major blow’ to Mercury?

WASHINGTON, D.C. – In what many are considering a surprise verdict, the International Trade Commission ruled today in a 4-2 decision that dumping by Japanese outboard engine manufacturers has not caused injury to domestic manufacturers.

The narrow ruling, which would have found the Japanese builders guilty had it received one more vote in favor of injury, brought a yearlong debate to an end, leaving Yamaha feeling vindicated and Brunswick’s Mercury Marine division claiming that the U.S. market remains an uneven playing field.

“The fact that the ITC sided with Yamaha and rejected Brunswick’s case is good for the whole industry,” says Yamaha Marine Group President Phil Dyskow. “And the good news is that we can all go back to focusing on the business of boating where we should have been all along.”

Brunswick filed the case last January in an effort, it said, to protect its customers, the industry and its shareholders. A public war of words followed, invoking Genmar Holdings Chairman Irwin Jacobs to join the battle against Brunswick. The Department of Commerce then ruled late last year that Japanese builders, indeed, were guilty of dumping, and it was up to the ITC to determine whether the dumping had caused any damage to domestic builders.

Brunswick claimed at the ITC hearing that its Mercury Marine engine manufacturing division was stuck “between a rock and a hard place” given its rising R&D costs and the difficulty of increasing pricing due to competition. And during its fourth-quarter conference call on January 27, the company said that it earns no profit on its sales of outboard engines in the United States due to competitive pricing from Japanese importers.

Mercury’s margins on the line
The impact of today’s ruling is considered a “major blow to Brunswick’s efforts to improve the margins on its outboard engine sales,” according to a “Heads Up” document sent to Boating Industry from analyst Gary Cooper of Banc of America Securities Equity Research.

“In our opinion,” the report says, “today’s ruling by the ITC presents a major setback to Brunswick’s efforts to drive the operating margins of its outboard business.”

Additionally, Banc of America Securities predicted after the ITC hearing that, “Unless the ITC rules in its favor, Brunswick faces the prospects of further margin deterioration and/or share declines for its external outboard engine sales.”

Mercury Marine President Pat Mackey told Boating Industry today that the company has a plan for increasing its margins and said “The turn in the road will come in the not too distant future.”

“It is a fact that the outboard business alone doesn’t make money in the U.S. market because of the dumping that takes place and could continue to take place,” Mackey said. “I said right from the beginning, the reason we took this on was to level the playing field. Today’s decision allows the playing field to be biased.”

But “It never distracted us from our primary purpose of being the premier outboard engine company in the world,” he added.

Mackey said that the company’s dedication to efficient manufacturing processes, using such tools as Lean Six Sigma and ISO certification, and its global manufacturing plans, including the small engine plant it is building in China in addition to continued innovation and growth in market share, “will certainly allow us to get to profitability in the United States over time.”

“I think we have the capacity through time, despite the competition we face, that we can right this ship, so to speak.”

Industry wins?
Despite Mercury’s claims that the dumping allegations were made to help the industry, insiders say that the ultimate outcome will benefit the industry.

“The industry was the winner and the consumers are the winners here,” says Jacobs, who voiced, numerous times, and testified to, his opposition to Mercury’s allegations. “No question about it. I’m very happy. It really makes you believe in the American system.”

“Basically, the rock and a hard place is where they’re still at,” says another industry insider who wished to remain anonymous. “Plus, they pissed off a lot of people in the interim. Net-net, this did not go well for Brunswick. Did the entire industry just win? It seems like even Mercury’s customers and dealers may have won. If you take out Brunswick’s personal stake in this, did anyone lose? Are there any negative repercussions?”

Again, however, Mackey says that he was attempting to level the playing field for his boat builders and dealers “so that they’re not disadvantaged in the marketplace.”

“If I had to do it again, I would,” he says. “I don’t think it has hurt our relationships with boat builders and dealers. I think the more thoughtful people realize that a competitor is using illegal practices … they recognize that is something that I can’t sit idly by and allow to happen. You have to take action, and that’s what we did. Ignoring it was not an option.”

“If I have one regret,” says Yamaha’s Dyskow, “it’s that when you look at the legal fees and tally up all the expenses that we incurred, the other Japanese manufacturers incurred and that Brunswick has incurred, we could have paid for this Grow Boating campaign for well over a year. That’s the unfortunate part.”
— Matt Gruhn and Liz Walz

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