Growing up on an island, I’ve always been intrigued by the boating world.
Many friends and neighbors have boats, and while I’ve spent time sailing and powerboating, I’ve never owned one. Mrs. Big Picture grew up with sailboats, as both her dad and two brothers liked to sail lightnings — affordable, family fun. I, on the other hand, don’t have that out of my system.
I don’t know a single boat owner who has been able to justify the costs of ownership. And yet, there is a two year waiting list at any of the local marinas for slips (but moorings are available 100 yards from our home).
Why all of this boating chatter? I am tracking two interesting data points regarding recreational products: Sales and financing. We know that Boating sales began slip as far back as Summer 2006, when Oil prices were in the $50 – $70 range. Those with existing boats, however, continue to enjoy their usage. Even with Marine gasoline at $5, its only a marginal price increase relative to their total sunk costs.
Peter Greenberg — the TODAY’s show Travel editor — notes the schism between two groups of boating enthusiasts: those who already own, and those who want to:
"If you already own a boat or an RV, chances are good that you’re planning to put your boat in the water and you’ve made plans for road trips in your RV.
That would seem counterintuitive, but the numbers speak otherwise. While retail sales for recreational boating topped $39 billion in 2006 — an increase of nearly six percent from 2005 — the last two years have not been as buoyant. In 2007, the industry saw a drop of 14 percent in unit sales, and nine percent in dollar sales. And this year will be worse. In fact, at the recent Miami boat show, many new boat dealers were downright depressed. "See that brand-new boat over there?" said the president of one upscale boat manufacturer. "I’ve sold it four times this week."
Translation: The prospective buyers couldn’t close financing."
And indeed, that is what we see from several capital lending firms that used to finance boat purchases. The most recent firm to exit the business? None other than GE Capital:
"General Electric Co’s (GE) decision this week to no longer lend consumers money to buy motorhomes and boats was more bad news for the recreational vehicle and boat industry.
While the move by GE Money is likely to prompt the many other lenders in this sector to tighten credit standards and push borrowing costs higher, analysts say it won’t significantly worsen the industry’s admittedly dismal fundamental outlook.
Even before GE, which operates one of the country’s biggest and most sophisticated finance companies, announced its intention to exit the retail RV market, rising gasoline prices, falling home values and tightening consumer credit had taken their toll on motorhome and boat sales."
File this under obscure economic indicators: Boating is (obviously) a nonessential activity. This is only one tiny aspect of the enormous US economy. But how Americans spend our leisure dollars, speaks volumes about the availability of credit, as well as the overall economy.
Stay tuned . . .
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Our Local Marina
Morgan Park, donated by J.P. Morgan
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UPDATE: May 12, 2008 9:14am
On the train in this morning, I chat with Bob — whose 42 footer is moored off of Centre Island.
Bob notes that there are two boating worlds — bigger than 100 feet,
and everything else. The > 100 foot world is doing just fine, thank
you. Even more amazing, there have been more 300+ footers sold over the
past 3 years than in all of previous history.
Sources:
GE exit from boat lending bad, but won’t sink sector
James B. Kelleher
Fri May 9, 2008 12:23pm EDT
http://www.reuters.com/article/reutersEdge/idUSN0651461020080509
WHY THE POWERBOAT INDUSTRY IS SINKING
Daniel Gross
Slate, Tuesday, July 18, 2006, at 4:55 PM ET
http://www.slate.com/id/2145890/
Even with pricey gas, travelers won’t abandon ship
Boaters and RV’ers don’t plan to retire their gas-guzzling toys this summer
Peter Greenberg
TODAYShow, 5:12 p.m. ET, Wed., May. 7, 2008
http://www.msnbc.msn.com/id/24508536/
Some wealthy people are deadbeats. GE Capital can probably provide fairly accurate numbers. The current inflationary environment probably makes the deadbeat purchaser a more common phenomena and GE has possibly decided the market for used boats will not offset the likely increase in walk-aways.
Boats are still discretionary purchases. When things are going well, cash will flow for all manner of fun things and new experiences. This concept applies to rich and poor and those in the middle. When cash is tight and the future is uncertain, people hunker down and postpone luxury items.
If you own a boat (or a nice TV) you will still use it, but you will not be too quick to buy a bigger boat (LCD TV) and discard the old one. In this way, the rich aren’t different, they only buy different toys.
Thus, the rally in stocks at this time is a sucker rally. Basic Econ 101 thinking says that if your extra cash is going down the gas tank and for basic foodstuffs, then there is less to spend on new toys and experiences. Therefore, those who supply those discretionary purchases can expect slow times ahead. Therefore, profits will be light to none and higher stock prices are based on fantasy aspirations. This will continue to be true until wages rise to offset higher prices and we enter an inflationary spiral.
This is true in spite of the pundit / sales people visitors on CNBC who say it is a good time to buy and the market will somehow reclaim it’s past glory in the 4th quarter. Where are these fantasy profits going to come from?
Perhaps it’s peculiar to Michigan where the economy has been so bad for so long, but a local marina where slips are privately owned by individuals (dockominium) is seeing a marked decrease in owners putting their boats in the water this season. A record number of slips is for sale. The assessed valuation of the slips decreased last year by about $2,000. From what I’ve heard, at least 50 slips will be empty this season.
Many owners live “downstate,” and use their boats as weekend cottages. The price of automobile fuel may be affecting owners’ willingness to make long trips just to sit on their boats.
There is NO waiting list, and last summer, transient rentals were way down. This marina has all of the amenities one could want (including a swimming pool) and is located in one of the most prime cruising areas of the Great Lakes – within viewing distance of the Mackinaw Bridge.
Interestingly, though, an employee of a high end powerboat dealer recently told me that their business is just fine. So, some people are getting financing, or just don’t need it.
KathyP said
Interestingly, though, an employee of a high end powerboat dealer recently told me that their business is just fine. So, some people are getting financing, or just don’t need it.
alternate explanation: The salesman was lying and trying to get new buyers in via the bandwagon effect. Advertising that ‘things are slow’ just keeps them slow because people will think that others know something they don’t. Lying about ‘good times’ and ‘business is great’ just keeps people listening and might bring in another fish.
There’s a two year waiting list for slips, and no one wants moorings for a reason. Many (most) boaters spend much (most?) of their time sitting at the marina playing cards and drinking. It’s a summer cottage as someone said.
Moorings are less attractive for the Cocktail Circut, and are mainly rented by people who plan on using their boats as boats.
Anyone who thinks there’s a strong market for boats, needs to check craigslist, people are practically giving them away.
One guy once told me that the two happiest days in a boat owner’s life are the day you buy it and the day you get rid of it.
as oil prices escalate–and we have the potential for real shortages and perhaps rationing, the boating industry will suffer, snowmobiling will suffer, off road motorcycles and atv’s will suffer and private planes will suffer, among other sectors (ever watch small private planes just circling on a weekend?)
Go to SE florida and watch the souped up speed boats merely running back and forth buring huge amounts of fuel and not being so environmentally clean.
I’m in Cape Cod this weekend at the VT Trader summer location. Yesterday was a great beach day, 60, sunny and calm.
I went to the Falmouth harbormaster yesterday to see how we are progressing on the local mooring waitlist. Only 2 years to go! Harbormaster said things are getting off to a slow start. The manager at the local West Marine/WMAR told me that things are very slow.
There was a huge boat for sale next to the office. Her name? Reel Leverage
It would be interesting to see how many firms have now exited financing for these purchases. From the Regions Financial 10K:
“This lending category has historically included marine loans and loans on recreational vehicles. Regions made a business decision to no longer offer these lines of lending in 2007 . . . Outstanding marine and recreational vehicles loans totaled approximately $1.0 billion and $1.2 billion at year end 2007 and 2006 respectively.”
I am sure the remaining portfolio is rock solid too.
A good friend of mine visits relatives frequently in a rural area north of Ann Arbor, MI, and he says that you can’t drive for any distance down any road without seeing ATVs, jetskis, skimobiles, Harleys, powerboats, sailboats, and all other forms of non-essential transportation offered for sale on one residential lawn or driveway after another. As long as fuel prices stay this high, the leisure craft/vehicle industry is going to be hurting bigtime in Michigan. Hunting is a significant source of income for many businesses up north, and I would expect similar hard times for these folks as well, given the long distances that downstate- and out-of-state hunters drive during deer season.
I took my mom to one of her favorite eating establishments for Mothers Day located at Dana Point Marina (cushy-cushy part of Orange County, CA), and I have never seen so many boats in slips with big For Sale signs on them.
A friend once described to me how I could imagine life as an owner of a sailboat. He said buy yourself a yellow slicker, get in the shower, turn on the cold water full blast, and start tearing up $100 bills. The cost of fuel is only one component of boat or RV ownership. All upkeep and repairs make the local car dealer look like a charitable organization.
I am a RV owner. Spent the weekend in NW PA camping. The campground was packed solid, with lots of old and shiny new RV’s.
IMO, RV’s are a bit different than boats. Boats are just expensive toys. A RV is more like a vacation on wheels…at least you can justify the expense of an RV by using the thing to go on vacation…unlike a boat. Owning an operating a boat is for people that have no problem with burning $500 for a day trip (and it makes that dolphin or tuna that you caught a mighty expensive piece of fish…).
The increase in gas prices is mildly painful, but again the use of the RV is justified b/c we are just not taking as many “big trips,” i.e., vacations that would require a plane trip and a hotel stay, and are taking more, shorter RV trips.
Unfortunately, though, owning an RV is akin to owning a house. I’d like to upgrade, but I doubt I’d be able to get any real value out of my current RV at this point in time….so in this regard, I have to agree with cinefoz’s point.
I remember it wasn’t that long ago when Toll Brothers was considered untouchable because it’s clientele was so upscale. Look at them now. I’m wondering if we’re hearing something similar here about rich boaters immunity to economic downturns. I’m dubious, at best.
The population grows but the coastline does not. So moorage in populated areas will always be at a premium. It’s the entry level that fluctuates wildly with the economy, just like furniture.
E*Trade was big in to boat and RV loans-see their investor website. Talk about getting “distracted” from your core business. I wonder if they are still making those loans?
I’ve heard that one can duplicate the feeling of boat ownership by standing in a cold shower with your clothes on while flipping $20 bills down the drain.
larster & Eric:
I heard the same thing about skiing…
Pay your local butcher to lock you inside his meat freezer; stuff ice cubes into a blender, place your face directly over the blender and turn it on; Then burn $20 bills to keep warm.
From the various bubble blogs.
“If it floats, flies or fornicates, rent it.”
Barry, you’re right about the marginal cost of fuel for many. My 23 ft hardtop costs about $5K year for winterizing, summer-izing, launch service, etc.
Since I don’t have to cruise great distances to have a good time during the summer, my fuel costs, even at $5/gallon won’t exceed $800. That is for a power boat that burns about 8 gallons and hour at cruising speed.
I think the real problem for boat owners isn’t the fuel but everything else while being squeezed between inflation and slowly growing income.
The rising fuel prices is just an extra incentive to stop boating, but also an extra scary factor for new buyers, thus the huge inventory.
I think you should get a nice 20 foot Boston Whaler and put it on a mooring if there is one so close.
It isn’t about the cost per hour. After a season of your life, how many special memories do you carry forward? If you own your own boat, odds are that there will be some new experiences you would have missed otherwise. Anyway, that is my rationalization and it works for me.
I’m missing a few things…
Is GE getting out of the non-essentials because those loans are going bad?
Or is this just a panic move of minimizing all exposure?
Or is the customer base drying up?
All you need to do is look at Brunswick stock. It began falling in the first few months of 2005 and has never looked back. Now, down 70% and still falling. Boats for sale and open slips everywhere are pointing to disaster. The most significant set of consumers for boats are aspirational consumers. Party’s over for aspirational auto owners as well. Especially in the financial sector where we will start to see significant and protracted wage contraction.
For every action, there is an equal but opposite reaction. For the Wall Street mindset that believed we would push money around for a living and all work for hedge funds, banks, mortgage companies, real estate firms or become financial advisors……….None of which increases our country’s sustainable wealth.
the other stock to look at is arctic cat
To complement Barry’s comment about recreational boating a Bloomberg report looks at the impact of the credit crisis on the cargo shipbuilding industry. According to Bloomberg as much as $14 billion in ship orders is threatened by cancellations and delays. Tightening in the supply of vessels supports rates and this could be one reason behind the rise in the Baltic dry index.
You should check boat insurance claims..gee, wonder why so many claims are being filed for boat fires.
I’ve been told that the two happiest days in a boat owner’s life is when he buys and sells it.
>Hunting is a significant source of income for many businesses up north, and I would expect similar hard times for these folks as well, given the long distances that downstate- and out-of-state hunters drive during deer season.
Hunting is counter-cyclic in Michigan. Many of my cousins there count on filling the freezer with meat that way. Fuel to get to the hunting cabin (often in groups even in good years) looks cheaper when you view the alternative as going to the grocer’s meat case. This isn’t catch and release fishing on a $30k sparkly finished cruiser we’re talking here. We’re talkin’ serious grub.
I actually ran through Morgan Park on Saturday! I was at the Webb Institute for an Intercollegiate Regatta for the Weekend (currently a college sailor). The area is very pretty.
I think there are some people who can justify costs of ownership, such as people who club race and develop business contacts at their club. At the club where I crew for people at there are a wide range of people from a number of professions (but mainly what you might expect, finance/lawyers/medical industry). Certainly some people there get referrals or business from other people at the club.
The biannual Newport-Bermuda race is this summer, the most prestigious event in sailing. I would say that registration for that race might be a pretty good indicator, it’s perhaps not so cheap to do.
Glen Cove???
BR, I always figured you lived in Manorhaven, aka “South Sands Point”.
We all know the old joke about the two happiest days of your life: the day you get the boat and the day you sell it. Well it’s more or less true in my experience. I’ve had sailboats and because certain US coastal waters have sailing limitations (eg. Chesapeake shallow and relatively windless in high summer) also powerboats. Mine were’t over 100′ but neither were they at the bottom end of the market either. The big twin engined powerboat I had used to consume about 18 gals an hour at max speed. I knew quite a lot of folks with more limited means than I with similar boats. Gas of course costs about about a buck a gallon more on the waterfront than it does at your local gas station and some marine engines demand premium gas. So there’s no doubt there hundreds of thousands probably millions of middle class to upper middle class boaters shelling out plus or minus $250 to fill tanks and I’m going to bet it’s busting family budgets. So the boats are sitting there in a slip costing at least $2000 bucks a year or maybe they never had it unwrapped and readied for the summer. What it all adds up to is a hell of a lot of boaters praying for their second happiest day. None of this really applies to the 100′ plus crowd of course who are basically the richest 2% of the country and have seen a massive addition to their net worth over the past seven years.
I don’t find anything so amazing about the >100 ft boat boom.
After all, that “giant sucking sound” turned out to be most of the nation’s money being slurped upwards, from the middle class into the hands of those who already had more than enough…
Why a boat?
In most coastal communities a boat is the only possible way to enjoy the waterfront. The cost of a waterfront property is completely out of the question except for those who can purchase the 100 ft yacht as well.
It seems that with most long term boat owners the idea of not owning a boat is totally unacceptable.And as far as the short term owners are concerned they, and the runup in real estate as well as the drop in sales following the real estate crash go hand in hand.
When you hand a guy a heloc for $100,000 without them having to qualify for it he will either buy a Harley, a Corvette, or a boat.
I have been in the boating industry for almost 30 years and we have all seen trends come and go, just as these will.
The real concern that I have for the industry and for the U.S. is that the Manufacturers are starting to move from Florida to the Carolinas to cut costs.
As we have seen in so many industries this is just a prelimanary move before the exodus to Mexico. Some have already left.
This is the real problem for tommorrow, a country where a man cannot buy a boat or a car because he has no middle class job in a manufacturing firm to pay the bills. This is quickly becoming a country of service industries and resellers of products that were made somewhere else.
That in my humble opinion is the real problem and if we can fix that, the sale of boats or real estate will take care of itself.