Interview with Brian Lesko, president of Islamorada Boat Center

Boating Industry: I understand Islamorada Boat Center has its roots in the used boat market. Can you give me some background on you and your business?

Lesko: I basically started the business as a hobby. I had no desire to really even sell boats. As a hobby, I would buy boats, fix them up and sell them. We were in the marine industry anyway: my parents had owned a marine interiors business and fabrication shop, canvas work, T-tops and all that stuff for 30 years. I worked at all the marinas around town and would run across some really good deals once in a while and basically started with that – finding good deals and fixing whatever needed to be fixed on the boat and putting them out by the road and selling them.

We had quite a bit of property here in Islamorada that was vacant on the main highway here – I started putting them out front for sale, and one boat led to five boats led to 10 boats and from there, it just kind of grew into a consignment type basis also. People would ask me if I would sell their boat on consignment. Space is limited down here, and there are restrictions. Business from there kind of started to take on a life of its own.

Boating Industry: I saw that the boat center was launched in 1996. Where does that fit into this timeline?

Lesko: We were incorporated in 1996. I basically started this as a hobby in 1994 or 1995.

Boating Industry: From what we hear, so many dealers are reluctant to get into the pre-owned boat business. Why do you think you were able to be profitable in that business when a lot of other dealers weren’t?

Lesko: This business started as a hobby. All I knew was pre-owned boats at the time. If I had walked into a business that was selling new boats, I think the tendency would be much less to dabble in used boats. Now that I’m involved with new boats, I have weaned the business quite a bit away from the used boat market. A good 80 percent is new boats. It’s 20 percent used and consignment boats. The tendency now is to sell new.

But not having that at my disposal, I didn’t know any better. I can see an existing business not necessarily have the desire to enter the used boat market. It’s a lot more competitive too because just about anyone can be a used boat dealer. There’s not much criteria. There’s not much credit required. It’s fairly simple.

Boating Industry: It doesn’t seem that simply to make it profitable, though. I hear about a lot of dealers taking trade-ins because they feel like they need to in order to get the new boat sale, but they don’t tend to be profitable with their pre-owned boat sales. Has the pre-owned boat sector been profitable for you?

Lesko: It is – and I see the tendency to not make it profitable because it is competitive. The new boat market is so competitive. We as new boat dealers are forced to give more money for trades than sometimes we would like to in order to make the sale on the new boat, which gives you a very small margin on the used boat.

A lot of times the tendency for the new boat dealer is to give whatever you think you’ll be able to pull out of that boat wholesale and give that number for a trade just to move your money pretty quickly. The tendency there and the push with manufacturers these days to sell volume is to get the sale, whatever it takes.

It’s not as profitable in that sense because you’re having to give more money for the trade than you really want to. A lot of time you feel pressured by new boat companies to do the volume.

Boating Industry: How does the profitability of your new boat business compare to your used boat business?

Lesko: When we say used, we’re talking about a couple of different areas. We here sell boats on consignment. Now that’s profitable in the sense that I don’t have to put any money into that boat. I’m basically taking a 10-percent commission on the sale of that boat and don’t have to tie any of my money up in it or floorplan, so that’s pretty profitable in the sense that I really don’t have to put much out and it’s still a draw, brings customers in and a lot of times, you can convert those customers looking for a used boat into a new boat. A lot of times people don’t think they can afford a new boat. And so you get talking to them and realize they’re going to come out of pocket for a used boat for the whole amount, whereas they could finance a new boat for a very little amount. A lot of times you end up converting that customer – that’s not the goal, but that ends up being what happens a lot of times.

Consignment is a pretty cut and dry case, and it is profitable in the sense that you don’t have to put out any money of your own.

Boating Industry: Do you have a difficult time with customers that want to give you their boat on consignment that may not be in great shape, that you may be reluctant to have associated with your dealership? How does that work?

Lesko: Yeah, that’s a line you walk there with the consignments. We’ve very fussy with what we bring in on consignment. You have a couple different scenarios there – you have the person who is upside down – priced his boat for way too much. He owes way too much money on it and now he wants to try to sell it and get out of his payment, but he’ll never get what he has into the boat out of it. That’s a boat we wouldn’t want to take on consignment here.

You also have the boat that’s old and starting to break. It’s out of warranty, and he wants to sell it because it’s becoming a headache for him. That’s obviously somebody you don’t want to sell a boat for because you’re not making a happy retail customer on the other end. We’re very selective on what we bring in on consignment boats.

Boating Industry: Because ultimately, even though it’s on consignment, they’re going to associate it with your dealership.

Lesko: Absolutely. It’s still a reflection of my dealership. We would certify every boat that comes in here too. Any boat that comes in on consignment is gone through. There is probably a 50-80 point inspection done on the boat. Anything that is broken on the boat is checked off on the list and we bring that to seller’s attention. It’s at their discretion whether they want to fix it or not, but at least we’ve made them aware of the situation so they don’t come back and say, “It was working when it came in.” On the other side of it, when somebody comes to buy the boat we can say, if you’re going to buy the boat as is, these are the issues the boat has, if any, so they know what they’re getting, so there are no surprises.

Boating Industry: Can you tell me about your certification program?

Lesko: It’s a 50- to 80-point inspection, depending on the boat. It’s just a form that one of my technicians would use in going through the boat from the bow to the stern, checking all the wiring, lights and switches, do a compression test on the engine, anything mechanical on the boat and then the overall appearance of the boat is basically noted on the form. At that point, we go back to the seller and make a recommendation. If the boat needs to be buffed and detailed or if it’s a simple matter of just some wiring or what not that needs to be fixed on the boat. If it’s something simple for not a lot of money that we can put into the boat where we feel the seller can get more money out of the boat, we make that recommendation. If it’s something he does not want to put more money into, then we at least have made him aware of the situation and we do relay that to the person coming to buy the boat.

Boating Industry: So when did you set up your certification program? Do you advertise it?

Lesko: We advertise it in the sense that whenever someone comes to look at a consignment or a used boat here, we can show them the form and say look this is the process we use for our used boats or consignments boats. What you’ll get from us is the straightforward. Look at the boat, and you’ll know we’re going to be as honest as we can about everything we know about the boat since we’ve gotten it in. That also helps the relationship with the new customer. He understands we’ll work on the problem so there’s nothing left to chance and nothing is a surprise when they come to pick the boat up.

Boating Industry: Do you advertise it so that consumers come in to your dealership looking for that certification?

Lesko: I haven’t really marketed it. I haven’t used it as a tool. I haven’t put it into my advertising other than word of mouth. Obviously, if you’re selling quality pre-owned boats, that’s going to come back to you. The last thing you want is to be involved with something you’re only making 10 percent on and making an unhappy customer – that would obviously cost you more in the long-run.

Boating Industry: So you were saying before you’re fairly profitable on your consignment boats …

Lesko: Consignments seem to be the most profitable in the used market only because we don’t tie up any money of our own. We’re selective on what we bring in, it has to be priced accordingly, and it has to be fairly new product, preferably under warranty. We also offer a 30-day warranty in-house on select boats – anything that is in good condition. If the consumer is hesitant about it in any way, we let them know that we’ll stand behind anything for 30 days in most cases.

Boating Industry: So, would you say you’re profitable on the used boats you sell that are not under consignment?

Lesko: Yes. I’m probably the same as other dealers in the sense that my tendency on a trade more times than not is to just give a wholesale dollar amount and then go ahead and wholesale it. Now, we do have boats that come in that are fairly new – say they’re a couple of years old – they still have the manufacturers warranty on them, and we’ll turn around and put them out on the lot for sale and make what we can on them. Most of the time, most of the time those numbers are coming in between 10 and 15 percent. It’s not real profitable but it does help.

Boating Industry: What do you do when someone comes to you with a boat you’re not willing to put out on your lot? Do you have a way of getting rid of it?

Lesko: We have a couple of options for people. The best thing for them to do at that point if it’s something we’re not interested in, we’ll direct them to see if they can advertise it themselves or sell it themselves and get their money out of it that way. If that’s not successful, we’ll actually put them in contact with some of our wholesalers we use here, and have them make offers on the boat directly. That way, we’re not involved in it and we’re trying to help the guy out of his boat and get into a new boat.

Boating Industry: One of the things I’ve been talking to other dealers about is a lack of a real wholesale marketplace, like the auction system they have in the auto industry. Can you tell me about the wholesalers you work with?

Lesko: The wholesalers that I’ve dealt with throughout the years are generally the guy who’s working off scraps at the dealership, basically buying one, two, five boats here and there. Maybe they have another market to unload them — make very little on it – at another location.

For instance, we’re down here in the Florida Keys, so a lot of times if marinas don’t want to deal with it, they can take it back to Miami and have people that will either part it out or if they’re buying a boat with a blown motor, they have another motor they can match it up with. Whether it’s a little more of the used stuff that they can mix and match stuff and make a package together and make some money out of it. That’s your general guy down here.

Now, I have dealt with wholesalers in the past that are a little more organized – actually businesses out of like Palm Beach that have nothing but have people on the road looking for wholesale units, and they’ll bring them back to their facility and rebuild the engines themselves and put them out and sell them retail. So there are a couple of people I’ve dealt with in the past who were pretty professional and had their own facilities. Actually, clean, repair, repower, repaint, touch up gelcoat there and then actually have a retail facility to sell them to.

Most wholesalers are just looking to be middle men and make a little bit of money.

I do believe someone could do very well if they were organized enough to buy boats wholesale, get them to an area, and have the auctions similar to the automotive industry. I think that’s a niche that could be filled for sure.

Boating Industry: Do you think that if you knew you could get rid of boats that way, through a wholesale marketplace like that, that you’d be more willing to take on a larger used boat inventory?

Lesko: I think that if all of the dealerships in my area knew that we had a reliable source and a consistency of what we could get for the boats, we would be more apt to take in more trades. The thing is the wholesalers that don’t have a lot of money, they like to pick and choose just the better … I think if we had a source to sell everything, somebody that would take the good with the bad, we would be more apt to give more for the trades or be a little more aggressive taking in trades if we had a source to move them.

Boating Industry: Do you think other dealers do as much consignment business as you do?

Lesko: No. Within a 20 mile radius from where I am, there is just about every major boat manufacturer represented – for this area, anyway. I think I’m the only boat dealership that sells consignment boats as well as new boats. Most of them might take a boat in on trade and then turn around and sell it, but in general do not advertise they sell boats on consignment. I’m the only one.

We do have boat dealerships in the area that do nothing but consignments and used boats, similar to the way I started off.

Boating Industry: If someone came to you for advice, would you suggest they take consignment boats on?

Lesko: I guess it really depends on their market and the space they have available to them. I think if you have the room, the ability to do it, it’s a good source of revenue, it’s a good way to keep your customers happy. A lot of times I’ve made new customers by other dealerships turning their customers who want to sell their one- or two-year-old boat over to them away. They’ll go back to buy a new boat. They won’t want to take it on trade. Go down to Brian because he’ll sell it on consignment for you.

Well, ultimately, I’ll not only end up selling that boat for them but I’ll sell them a new boat because they’ll save the tax. If I have the boat here on consignment and I sell it for them, I can flip that into their new boat, so they’ll save the tax on their new boat, so I’ll actually get a shot at selling them a new boat just because I’ve sold the boat on consignment for them. Not necessarily for tax purposes, just because I’ve been willing to go the extra mile for them. I think there is a loyalty there from the customers.

If you buy a boat from a dealership, you go back a couple of years later, “sorry we can’t help you and we’re only going to give you ten cents on the dollar for your boat, but if you go down the road, he’ll help you sell it on consignment.” I don’t have a problem selling the boat on consignment and then putting them into a new boat. That seems to work out fine.

Why other boat dealerships don’t do that? I don’t know. It just seems like, especially if it was your own customer, someone you had originally sold that boat to, I would think you would have some sort of loyalty to try to help them move that boat, especially if you’re not coming out of pocket. If you’re just willing to sit it there and you sell it on consignment, I don’t see why they wouldn’t want to do that for you.

Boating Industry: I’ve heard some dealerships have done well by having separate sales staff sell their pre-owned product or even placing it in a separate location. Is that something you’ve considered?

Lesko: I don’t have the physical property to do that. We’re just not that large of a dealership. Could you have your own program for certified pre-owned boats? Absolutely. If I had the land, if I had the ability to do that, I think that would probably make a lot of sense to open a second location with nothing but certified pre-owned boats.

Boating Industry: The certification program – can you tell me about the idea behind it, when you started it, and if you think it really makes a difference?

Lesko: The obvious difference is that the people feel more comfortable that we’re willing to stand behind the product for at least 30 days if there is no manufacturers warranty on the product. The actual certification we do – we can show them the sheet that, one by one from bow light to bilge pump to you name it, we can at least give them peace of mind knowing that a certified technician has looked at the product, gone through it, and it either is working or isn’t working. They have a little bit of peace of mind that they’re not just walking up to a lot and having a salesman telling them, “The boat works great. Everything works on it.” It’s not the same as if they see it in writing.

Boating Industry: There are probably a handful of dealers I know about that have a certified pre-owned boat program. Do you think it is fairly widespread?

Lesko: Most dealerships just don’t do used boats. They just don’t. The little boats they do, they probably do the certification on an as-needed basis. If the guy says, “I’ll pay someone to go through that” – I’ve had that also. When I was starting off, people that were looking at the boats, there were a few mobile mechanics around town, and I would give them their numbers and say, “Look, do yourself a favor, call one of these mobile guys, pay them an hour of their time, have them go through the motor, boat, whatever, so you feel comfortable about it.”

They’re still welcome to bring an outside mechanic in to check out the boat. I actually prefer that because it lets me off the hook.

I find that works out real well for you in the long run because if they do have an issue down the road, not only did their mechanic check it out or did we have the peace of mind of knowing we checked it out, but the consumer doesn’t feel you tried to pull a fast one on them.

Boating Industry: One of the things you mentioned earlier in our conversation was financing. You were saying a lot of times you can convert people who come in looking for used over to new because they can get that new boat financed. Do you not have any way to help a consumer finance a used boat?

Lesko: No, we can absolutely finance a used boat. The terms are much different on a used boat than a new boat. The terms on a new boat would go 15 up to 20 years, depending on the dollar amount. You’re usually going only 5 to 7 – 10 years at most, depending on how new the boat is used and the interest rate is much higher on a used boat. So, if somebody is looking to buy a used boat and is only looking to put 10 percent down, it’s a much better deal a lot of times for them to buy a new boat. They get much better terms, and for the same payment, they can end up with something brand new, under the manufacturers’ warranty.

Boating Industry: Do you have the same problems other dealers face with your customers coming back to you upside down in a boat?

Lesko: My philosophy has always been since I started the business … I have always worked on a smaller percentage margin. I’ve always felt that if you have this customer and you feel he’s going to come back and buy another boat from you, it’s better to make a little bit each time you deal with him than to make it all upfront. Instead of throwing the extra $5,000, $10,000, $1,000 onto the profit upfront, look down the road a little bit, know that this guy might be a customer coming back and you’re going to have to look him in the face and explain to him why his boat is only worth half of what he paid for it and it’s because your pockets are nice and fat. You don’t want to be caught in that scenario.

Now, we all have our own margins to deal with, and the competition is going to keep you competitive as it is. I think that some boats lose their value faster than other boats. My philosophy has been not to make it all at one time, try to build the customer so I can look him in the eye when he comes back to trade it in and have him not be upside down.

I have dealt with a lot of people and I’m dealing with some now … this one this morning that came in. He got taken by another dealership. He is upside down in a boat, and there’s not much I can do for him. He’ll have to come up with probably $10,000 to pay his boat off before we can even start talking about a new boat. I don’t know that I would have that problem if one of my customers came back in a year-old boat.

It’s something that exists in the industry for sure, yeah. And you have finance and tax – just that alone you’re going to lose money on. There is going to be a factor where they are a little bit upside down. But some of these people are way buried in these boats. I would hate to be the dealership that sold him a boat. I don’t know how you look a customer in the face and say, “Sorry. Your boat is only worth half of what you paid for it.”

Boating Industry: Do you think some of it has to do with what brands you carry?

Lesko: I do. I think a lot of it has to do with the brands you carry. I think a lot of brands with the bigger names, the higher perceived value have higher mark-ups and higher profit margins. I think the brand names of the boats play into it a lot.

Some of the more affordable boats that are more competitive to begin with, there is less profit margin in them just by competition alone. You’re going to lose maybe a little bit less money on something than with a brand name where somebody is paying for the prestige of the product.

Boston Whaler is a good example. Boston Whaler talks about how good their resale value is – as long as you weren’t the guy that bought that boat new, yeah, it’s got a great resale value. But if you paid $22,000 for an 18-foot boat, that’s a lot of money when you’re only getting half in a few years. I think a lot of it has to do with the name of the boat too.

When I’m selling a boat new, my salesmen here are kind of trying to build customer relations more so than just get the sale and make a home run on the sale. It concerns me more to build customer relations with a person. I’m looking to sell boats to people that want to be a long-term customers more so than either the best deal they can possibly get. I’m not looking to gouge someone just to make a one-time sale.