In 1776, at the beginning of the American Revolution, Thomas Paine wrote this famous line. And with today’s economy, one could again say, “These are the times that try men’s souls.”
The economy has been in the tank for months, and recessions always seem to impact the recreational industries first and hardest. In the Midwest, matters have been made worse by the cold and wet spring we have endured.
Owning a business can be stressful in the best of times. I know. I’ve been there, having owned a new car dealership in better times than today. But in the worst of times, like we have today, owning a business compounds the stress.
In our current “worst of times” recession, many dealers and boatbuilders have had to shut down their businesses or at the very least, downsize significantly. And some big names in the industry have even been forced to file for Chapter 11 bankruptcy or are on the verge of doing so. So what can dealers and boatbuilders, who have survived up to now in this disastrous 2009 recession, do as the season winds down and the long, off-season is ahead?
I am sure that these survivors have already done the basics, such as cutting expenses as much as they can, reducing employees, cutting back on inventory where possible, and so on. But there are a couple more thoughts that I would like to share that I really think might also help boatbuilders and dealers make it to and through to better times.
Profit with pre-rigging in 2010
I think it is time to bring up the subject of pre-rigging again. Back in the mid-1990s I wrote two columns entitled, “Is it time to unwrap the packages” followed by “Is it time to unwrap the packages—Part II.”
The survey of dealers that I did then revealed that those interviewed had made greater margins when they did their own rigging than when they bought boat, motor, and trailer packages. As one dealer in the survey reported, “I now average 14.5 percent to 15 percent on packages. But I need 15 percent to break even. Ten years ago my margins were 20 to 22 percent.” Others reported package margins of 10 to 16 percent compared to margins of 20 to 22 percent in pre-packaged years.
There is no question that dealers love the convenience of not having to rig every boat they sell. No one wants to go back to that. And builders understandably like selling their boats with complete styling that incorporates all of the instruments, controls, steering, etc., that are professionally installed at their factories. But this can all be accomplished with pre-rigging rather than complete packages with outboard engines. And pre-rigging offers the potential of attractive profits at lower costs and less investment for both dealers and boatbuilders.
Boatbuilder advantages with pre-rigging
First off, builders need to consider their cost of money to inventory outboard motors. The cost of money today is very likely in the one percent per month range. That is what kicks in after the 30-day free floorplan from the engine manufacturers expires and the builder has to start paying the interest “juice.” At that point a lot of operating capital or cash reserve can get tied up in engine inventory or in paying floorplan interest. Added to that is the cost of handling the inventory, warehousing costs, labor to move the outboards around, install them, ship them, and more.
Next, boatbuilders can get a very nice “broker’s fee” from some of the engine manufacturers for rigging boats with a specific outboard brand for their mutual dealers. At least one engine manufacturer is already on the street with an attractive “broker’s fee” of several percentage points for builders who pre-rig boats with their outboards. With such a deal, the builders can make a sweet profit without having to buy the engines or face the financing expense on an inventory of outboard motors.
I suggest that boatbuilders have their accountants put a pencil to this concept and figure out how much they could sweeten the bottom line in the long run with a pre-rigging deal like this while reducing the hassle of engine inventory. I think they will find it very practical and profitable. And I expect it will be popular with their dealers.
There are also several advantages for dealers with pre-rigging. First off, dealers can cut their best deal with their outboard manufacturer instead of getting engines through the boatbuilders. Then they have the benefit of installing the engine size (and brand) their customers want on the boats they buy. For example, a dealer may get a boat, motor, and trailer package with a 115 hp outboard but then have a sale where the customer wants it with a 150 hp motor of a different brand.
At least one engine manufacturer is also offering their dealers very attractive incentives to buy engines direct on their pre-rigging program. That sweetens the pot even further for them.
Another significant advantage for dealers is they would not have to tie up as much of their floorplan credit line on the boats packaged with outboards if they get them pre-rigged. They could then keep a smaller inventory of loose engines and would have a greater inventory turn.
Then there is the advantage of dealers being able to decide what brand engine they want the boats pre-rigged for instead of being forced by some builders to get them with just one brand that the boat company has cut a sweet deal with.
Stay home and hunker down for the winter
During the time when I had my Chevrolet dealership, there was a short and rather mild recession. But it did slow down sales for a while. Especially with trucks, and I was in a good truck market. So until things turned around, I refused to attend any dealer or association meetings that involved more than a day trip. I could easily attend a one-day meeting in Chicago and get back home the same day. But I put off attending any other meetings that required air travel and hotels until the recession was over.
In today’s tough economy, most dealers are in a crisis cash management mode. I recommend that that they hunker down this fall and winter, stay at their businesses, and only attend dealer and association meetings and conventions that can be day trips for them. This will reduce expenses and reduce the amount of time away from their businesses, which is especially important when operating with a reduced staff.