Engine company execs look to minimize disruption

MAPLE GROVE, Minn. – As troubled as the industry has been by the announcement late Monday that Genmar Holdings has declared Chapter 11 bankruptcy, engine companies such as Yamaha Marine Group, BRP and Volvo Penta are reserving judgment on the impact it will have on the boating industry, and their companies and dealer networks in particular, while hoping for a quick and smooth transition out of bankruptcy for the boat building giant.

“I hope Irwin is going to find a good plan to keep his business running,” said Roch Lambert, vice president – general manager, Ski-Doo, Sea-Doo and Evinrude division for BRP, in an interview yesterday. “He is a significant customer for us. We have a lot to gain by him getting back in the game strong and growing again.”

Yamaha Marine Group President Phil Dyskow advised dealers in an interview on Wednesday not to over-react in the short-term as it’s too early to gauge the impact on the industry or its individual businesses.

“Irwin is one of the most capable and financially sophisticated individuals in our industry,” said Dyskow. “If anyone can evolve through this process successfully, it is him.”

While Genmar is one of Yamaha’s largest OEM customers, the company doesn’t owe Yamaha any money. In addition, Dyskow pointed out that Yamaha has “a very broad-based OEM business” with over 110 boat builder clients.

BRP isn’t so lucky. Newspaper reports suggest that BRP is among the companies to which Genmar owes money. However, Lambert says that isn’t an important concern right now.

“The amount of money involved is not going to make any different for BRP,” he commented. “Right now, my concern is more to see how he’s going to make it through for the employees, for the network. I trust he will make all efforts possible to make it as unimpactful as he can.”

One way BRP is hoping to minimize the impact to its dealers is by communicating its policies to them. The company put out a new edition of it’s the Real Deal newsletter yesterday, reassuring dealers that its warranty policies haven’t changed as a result of this recent development.

“I want you all to know that whatever [Irwin Jacobs’] strategy is moving forward with the boat brands, your inventory of Evinrude engines is, of course, still fully supported,” wrote Lambert in the newsletter.

Volvo Penta also is listed as one of Genmar’s creditors. The company said it was “saddened” at the bankruptcy announcement in a statement issued earlier this week.

“As one of Genmar’s major engine suppliers, we believe that it is necessary at this stage to continue to work responsibly with Genmar and its important dealer network to minimize disruption and facilitate a smooth exit from bankruptcy,” noted Clint Moore, president and CEO of Volvo Penta of the Americas, in the statement.

Looking ahead

While the industry seems to be taken aback by the news of Genmar’s bankruptcy, most admit that they expected the severity of boat market conditions to put some boat builders out of business.

“When I compare boating to how the rest of our industries are performing, it’s under incredible pressure,” commented Lambert. “When you plot out what you used to sell vs. what you’re selling today, it’s very shocking. While it’s a surprise that a leading company like Genmar has to go to that extent to protect their business assets, it’s not surprising that a boat manufacturer is facing this alternative.

“I think this underscores how challenging the marine business environment is today,” said Dyskow, “because Genmar historically has had very strong management and very strong resources, including financial resources.”

Dyskow and Lambert both shared expectations that more bankruptcies would likely be announced in the coming months.

“I certainly hope there won’t be more bankruptcies, but it would be dreaming to think that things would rebound fast enough so that everybody would have positive results, at least in the short term,” commented Lambert. “I hope I’m wrong, but that’s not what the data would say.”

“We’re in a bottoming out period, and that’s when these things come to light,” Dyskow said.

Yamaha does see some positive signs in the overall economic outlook, including a slowdown in the rate of unemployment, encouraging data about housing starts and sales in May, and improvement in consumer confidence and the Dow. But Dyskow said it doesn’t have a direct impact within the marine economy.

“The marine economy is still in the middle of an unprecedented period of disruption,” he said. “What we are forecasting is that we will stay in this period of disruption for a number of months, and we will start to see a leveling off in the next three quarters of the year. We are in our company projecting some very modest growth next year as the GDP starts to improve, as it is forecasted to do, but not significant growth until 2011. 2009 will be a bottoming out year.”

Even in 2011, the industry is unlikely to reach the levels of business recorded in 2004 and 2005, Dyskow added.

“The best advice I could give a dealer is to circle your wagons around the strongest brands available to you, focus on your strengths, focus on taking care of the customers, on strong CSI, and recognizing that sales are few and far between right now, carefully control your costs,” Dyskow concluded.

Meanwhile, Lambert said he feels good about BRP’s performance in the first five months of the calendar year. The company is seeing “a limited impact in terms of losing dealers,” it has gained market share, and it has depleted its inventory to the lowest level in many years.

“We’ve put in place conservative plans. We’re in line with what we expected,” Lambert stated. “But events like what Genmar is going through might change some data going forward. It’s not going to be the greatest retail season, but it is holding up quite good.”

He expressed particular pride in the aggressive promotions the company has launched to help dealers deplete inventory and get rid of non-current product, including wholesale programs that support the curtailments imposed on dealers and discounts to give dealers flexibility going forward. Lambert said BRP has received positive feedback on them from its dealer network.

“We are cautiously optimistic right now,” he said. “We feel good about what we’ve done in our position.”

• For more of the latest news, click here.