CHESAPEAKE, Va. – As marine engine builder Volvo Penta of the Americas plans for the future, it’s spending a lot of time preparing to ramp-up its production in response to a marine market recovery, according to Clint Moore, company president and CEO.
“I think it’s going to be a big problem for the industry,” he said in a recent interview. “Everyone has ramped down so low … You can spurt for a little while, but if we get into a recovery, we can’t ramp our plant back up until our boat builders go up, which won’t happen until the pipeline of aged, unsold inventory goes away. Progress is being made at disposing of it, but there’s still too much ’08 and ’07 product in dealer inventories.”
Moore believes that there is very little current model year boat inventory in stock at U.S. dealerships, which means that once the repossessed and distressed inventory is finally sold, there will be tremendous demand for new product, especially given the new technology available to today’s boater.
“We have to think our way through how to get through that without inventorying millions in raw materials,” he said. “We’re not going to do that.”
Despite his expectations for recovery, the Volvo Penta executive doesn’t expect the market to return to the volume of business generated in 2005 and 2006 any time soon.
“There was a bubble in our industry just like the financial markets and the housing market,” Moore commented. “Much of the volume generated in the last cycle peak and up until late last year was artificially large, driven by too easy to get financing. The industry will become healthy again, but will be based on much more solid financial footing than in the past, and will be smaller, which is not a bad thing necessarily.”
More pain ahead
Before the industry can experience recovery, however, it must get through the months ahead, Moore suggested. Not only must the industry await the outcome of the Genmar bankruptcy, the impact of which it’s too soon to tell, it also must make it through the off-season.
“I think there will be substantially more failures at retail and perhaps at boat builders as well,” he stated. “We’re in the peak selling season right now. Once we get past Labor Day, it’s going to get pretty painful, I’m afraid.”
So far, Volvo Penta reports less than 100 of the more than 2,000 dealers that sell its product have left the business. But Moore said that some of his dealer and boat builder friends are going to reach a time when they have to decide whether to infuse new money into their businesses or walk away from them, something he called “a very difficult decision” for people who “love the business and have family members in it.”
For many, their companies’ ability to survive may come back to the shape they were in when entering the downturn and how quickly they reacted to it.
As far as Volvo Penta is concerned, Moore said it has done “a remarkably good job dealing with a deteriorating situation.”
For one, it didn’t make the bad decisions many made during the good times, he said. In addition, the company began enacting countermeasures to the downturn relatively early in late October of 2008. Finally, it has had the benefit of help from its parent company, Volvo Group, Moore pointed out.
“For example, we realized we needed to make a significant reduction in our white collar workers,” he said. “One of the nice things about the Volvo Group and their culture is that they care first and most about people. They put together a very attractive voluntary separation program where people could choose to leave rather than be laid off.”
As a global company that does business in many industries and parts of the world, it also provides a balance that has allowed Volvo Penta to invest where it needs to, in areas like new product development and human resources.
“Being a part of Volvo Group has enabled us to keep key people that are going to be essential for the recovery that will inevitably come,” he said.
Another Volvo initiative launched in response to the downturn has been an investment in securing its supply base, which is spread throughout the globe.
“It has been a real struggle to keep these people viable going forward,” he said. “If you had to compare the energy and money we’ve put into helping our customers through this storm, we’re spending more time and money on helping to secure the supply chain.”
Some of that help has come in the form of loans. Other strategies include pre-paying and buy-a-heads, he added.
No serious injury expected
Finally, the company is closely tracking the Genmar bankruptcy proceedings. Volvo Penta’s Marcia Kull, a vice president, sits on the Unsecured Creditor’s Committee, which Moore said can have a significant amount of influence on the bankruptcy judge who will decide the outcome of the case, in his experience. That experience includes the OMC bankruptcy, in which Volvo Penta was also involved.
The Unsecured Creditors Committee has launched its own Web site through which it will share updates on the case at http://genmarucc.spaces.live.com/.
“Obviously, we’ve had a long-term relationship with Genmar, personal and professional,” Moore commented. “It has been a good, mutually beneficial relationship. It makes you sick and sad to see such a great company in such shape. I have an enormous amount of respect for Irwin and his staff. If there’s a way through this, they’ll figure it out.”
While Volvo Penta isn’t planning for the debt Genmar owes to go unpaid, Moore said that if that were to be the case, it would hurt, but not do “serious injury to us.” The much bigger impact for Volvo Penta and the industry at large would be the potential loss of business a Genmar liquidation would provide.