Domino Effect of “No Model Year”

Reports of the elimination of model year designations by several marine engine manufacturers have identified challenges that marine retailers, in particular, will face in the months and years ahead. The impact is also expected to spread to the finance and insurance side of the business with the potential to disrupt boating consumers’ easy access to F&I products. The issue has attracted the attention of the National Marine Bankers Association which is planning to broach the subject with the engine makers and scheduled a “what to do” session about it at its National Conference.

It’s all about collateral value. When lenders make a consumer loan, they look at the deal in terms of selling price and the description of the boat, engine, add-ons, outfitting, etc. To spot check, they may track down the manufacturers invoice costs on the various parts. If it adds up, along with a reasonable retail profit, the selling price is thought fair and the loan approved.

However, if there’s doubt, lenders might impose a lower loan-to-value ratio, perhaps 80 percent vs. 90 percent, making down payments higher and jeopardizing the deal. In the worst case, when pricing appears flawed, loans are denied.

Lenders can establish the value by knowing the birth date of products, as opposed to their model years. Comparable values can be established, as in real estate, but this takes time and effort. If known, and trusted, hours of use could be used to formulate a value.

But, when the amount of time to verify pricing cuts too deeply into bank profits, marine loans will lose their luster. Price verification will be further complicated on older pre-owned transactions where a no-model-year engine provides no original sales date. Questions will also arise if that engine was the original power or a replacement, altering value.

Insurance firms will be similarly frustrated establishing dollar amount coverage for no-model-year products. How will they determine the payout for a covered product that might be two, three, or four years old when there is a claim? It’s possible the underwriters may need to switch policies to “agreed value” that pay a predetermined amount regardless of the original price or how old a boating package might be. These policies typically cost more than standard ones, so consumers won’t be happy paying the higher premiums. And if a boat can’t be insured, lenders will not loan on it.

Publishers of boating price guides will surely have a tougher job identifying and providing information about the values of new and pre-owned products. Instead of listings that classify all brands and models in the same model year, they will need to switch to a “year sold” system. New listings would somehow need to compensate for a boat being sold originally from, say, 2002 to any date later in time with multiple pricing outcomes. Lenders and others who now use the pricing guides to spot check pricing will be further frustrated trying to determine if the deal they are considering is fair or legitimate.

State boat titling routines, which provide a record of ownership important to both consumers and lenders, will need some tweaking. In most states, boats and engines are recorded as a unit, so the no-model-year engine will just take on the model year of the boat, whether or not the engine belongs on the boat (replacement, swap, legal or otherwise). In Texas, however, engines are titled separately, so a “when sold” or similar data entry will need to be recorded to attempt to correctly identify the product that should be on that transom and rightful owner.

Though there may be other strikes against “no model year,” complications will arise for consumers who may need to be notified about product recalls or cautions. It will be much more precise to identify products by a model year than identifying those affected by a range in dates (e.g., “if your engine was produced between February of ’05 and March of ’06”).

Engine makers have suggested dropping the model year will make it easier to build varying sizes and models and inventory products in a market notorious for wide swings in demand. If the net result of this change is to make it harder for owners to obtain financing and insurance for their boats, it may be prudent to take another long-term look at the practice.