Industry forecast worsens

DENVER – Following the company’s June lender call, A.G. Edwards analyst Tim Conder reported that the pipeline of loan applications for retail boat deliveries have caused expectations for the year to decline slightly over the past month.

While the company previously predicted retail dollar sales would be down 5 percent for the year and unit sales would be down 10 percent, it now suggests the retail boating market may see dollar sales decline 5 to 10 percent and unit sales decline 10 to 12 percent.

“This will likely necessitate further modest production cuts in the second half of 2007 and the first half of 2008 to bring retail inventories in line by the end of the second quarter of 2008,” he wrote in his report.

This recent decline can be attributed in part to increases in boat loan interest rates. While Conder reported that boat loan rates have been “relatively stable” over the past year, they have risen 25 bp since the beginning of the month because of the rise in market rates, he explained.

Dealer inventory levels remain heavy, Conder reported, and it is believed that pipeline inventories greater than 12 months old remain close to 3-year highs and have stabilized over the past month, causing some continued concern. Much of the retail sales activity of the past month has been the result of dealers working to clear their old inventory, Conder suggested.

As always, there is some geographic variance in market conditions. Conder reported that in the North East, sales were disappointing throughout ’06, were a little better in late May/June year over year (YoY), but remain down year to date (YTD). In the Great Lakes & Midwest, sales remain down on a YoY YTD basis. The South is the better performing region YoY, specifically in Georgia, Mississippi, Louisiana, and Texas because rain has been benefiting water levels and there has been good weather. This is the only region that appears to be up YoY., he said.

Florida continues to soften YoY, primarily because of the housing market and higher insurance rates, and remains the weakest part of the country. In California, the second weakest of the major geographic regions, YTD YoY sales remain down. The Pacific Northwest is flattish/down modestly on a YTD YoY basis as this region remains the second strongest. Overall drought conditions in the western U.S. should not materially hurt water levels in ’07 nor negatively impact boat sales in ’07, Conder added.

“Florida has seen boat sales weaken since the Ft. Lauderdale and St. Petersburg boat shows in fall ’06,” he wrote. “Florida unit boat sales fell 5 percent in ’06, and are on track for a solid double digit decline in ’07 (this is not factoring in the possibility of hurricanes or poor weather). Significant YTD weakness is also apparent in California precipitated by the same leading cause – the housing market.”

Within the powerboat market, Conder reported that ski boats have been selling well recently, while cruisers and inboard boat sales are the softest with the upper end of the cruiser market taking the brunt of it. Small boat sales are steady at lower trend levels seen in 2006, he added.

“We’ve heard an increasing amount of boat manufacturers, retailers and lenders comment that 25-50 foot boats appear to be the weakest YTD segment of the fiberglass boat market,” Conder stated.

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