A gap in industry knowledge

gap in the boating industry’s understanding of its own consumers may make it hard to accurately gauge the potential impact of the petition Mercury Marine submitted to the International Trade Commission (ITC) in January.
Mercury’s petition alleges that Japanese engine builders have been selling outboards in the U.S. for an amount significantly less than what is being charged in Japan, called “dumping,” and that its market share has suffered as a result.
Together, Japanese engine manufacturers held 59 percent of the market during the first 9 months of 2003, the National Marine Manufacturers Association (NMMA) reported. This compares to a 43-percent share for the year 2000.
While Mercury Marine remains the No. 1 manufacturer of outboards in the U.S. market, it claims its market share has been eroded over the past three years as the Japanese engine builders’ shares have grown.
Yamaha, for instance, has risen to the No. 2 outboard builder in the U.S. market.
Japanese engine manufacturers and their supporters defended themselves from the allegations during a preliminary ITC hearing in late January, claiming that Mercury’s decline in market share over the past three years has been due to a lack in the variety of four-stroke models Mercury has offered and quality problems it has suffered with its Optimax direct injection engines, not because of price. They hadn’t, however, spoken publicly about the alleged gaps in engine pricing between the U.S. and Japan as of early February.
This argument isn’t a new one. Manufacturers accused of dumping typically point to American quality as the reason for lost market share, according to many sources.
Ultimately, however, Mercury will have to prove it has been damaged by the pricing strategies of the Japanese builders, and not by product issues, to win the case.
As of early February, both the ITC and the Department of Commerce were investigating the allegations, with plans to make a preliminary declaration by Feb. 23. It is likely, however, to take up to a year for the investigation to be completed, should it be determined that there is enough evidence to continue.
If Mercury is successful in establishing damages from dumping, the Japanese engine manufacturers may be required to pay a tariff based on the industry’s average dumping margin. However, each company will have the opportunity to demonstrate that they are not guilty or that they are guilty to a lesser extent, and thus should pay a smaller amount than the Japanese industry at large.
In addition, at least one Japanese builder has said it may consider moving its manufacturing to the U.S. if the tariff is levied.

The consequences
The industry currently lacks an understanding of how heavily boating consumers weigh price when making purchasing decisions, however.
Even J.D. Power and Associates’ consumer surveys fail to ask consumers about the importance of price in their boat and engine buying decisions.
If any Japanese engine builders are found to be guilty of dumping outboards in the United States, the importance of price to consumers may be quickly illustrated through an adjustment in market share across the outboard industry, or a lack thereof. However, the answer may come before then.
The task force created out of an industry forum on growing boating this past fall has included cost as one of three main barriers it sees to expanding the number of boaters in the U.S. market and is currently researching its impact, says Thom Dammrich, president of the National Marine Manufacturers Association.
If the tariffs are enacted, consumers’ responses to the increased pricing may not be entirely clear, however. Mercury says it has fixed the problems with its OptiMax engines, and it currently is in the process of launching its own line of four-stroke engines, both of which may help Mercury grow its market share and could confuse the issue of whether the tariffs, should they be enacted, were effective.
Ultimately, Mercury says it just wants “a fair playing field” during a time when competition in the outboard engine market is at its most fierce. It doesn’t expect to be awarded damages from the hearing; that wasn’t why it filed the petition, Mercury says.
If Mercury’s allegations are not proven to be true, the engine builder may see a backlash from industry boat builders and dealers, which could make it even harder for the company to recover any lost market share.
However, whether or not Mercury’s claims are validated by the ITC, it may continue to have certain disadvantages in its competition with companies like Yamaha, Suzuki and Honda. The sheer volume of engines Japanese manufacturers build across multiple industries give them advantages Mercury is unlikely to ever match. Though Mercury continues to seek out ways to cut costs, such as manufacturing its engines in low cost economies, if pricing indeed is No. 1 in consumers’ minds, Mercury may continue to struggle. — Liz Walz

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