The worst is over, but Mercury Marine still cautious

MIAMI – Mercury Marine thinks it has seen the worst in the U.S. market, said Kevin Grodzki, president of sales, marketing & commercial operations, during an interview at the Miami International Boat Show on Friday. However, the company is planning on a flat year in terms of the number of overall boats sold.

“In certain pockets, such as the pontoon market, we expect to see year-over-year growth,” he said.

If the market exceeds Mercury’s expectations, “we’ve done some work on rationalization of our capacity,” says Grodzki. “We are agile and flexible enough to respond to an upset.”

If Mercury’s predictions come true, a flat year will be much of the same for the company’s outboard business. It was plus or minus one percent last year vs. 2009. However, the company’s fiberglass sterndrive and inboard sectors didn’t see bottom until the end of the year, Grodzki explained. It was down 30 to 40 percent, year-over-year, “after the depths of 2009 where we thought it couldn’t get worse.”

So far this year, Mercury has been encouraged by boat show results and the retail market. It has been the beneficiary of dealer restocking, but whether that will translate into retail sales as the season continues remains to be seen, according to Grodzki. He did point out, however, that Mercury has begun to see the harmonization of wholesale and retail.

Reasons for concern
In looking forward, Grodzki mentioned two areas of concern. One is the cost of catalysts and related onboard systems, which he called “a significant departure from what the industry is used to.”

The use of technology can add as much as 30 percent to the cost of an engine, he suggested. And with high unemployment and relatively low consumer confidence, a lot of people are focused on the cost of boating.

“It has the potential to affect demand,” he said. “We have to take as much cost out of that as possible.”

With that said, Mercury has decided to catalyze its entire product line, from 3 liter to 8.2 liter engines, a strategy that makes the company unique.

“Our view is that environmental regulations will only tighten,” he said.

As an example, Canada made the decision last Tuesday to adopt the U.S. EPA’s policies as it regards use of catalysts in marine engines, according to Grodzki.

Another concern of Mercury’s is the cost of fuel. Consumers are asking more about fuel economy these days, a sign that they are paying close attention to the price of fuel.

“If we hit $100 per barrel of oil at some stage due to economic or political factors, I believe boat usage could go down,” concluded Grodzki.

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