Wednesday, June 3, 2009

Boating Industry Bankruptcy – Is it really that surprising?

I am writing today in inspiration to an article a fellow Twitter writer sent my way. It was in regards to the recent Genmar boat builder (one of the world’s largest manufacturers of recreational boats) filing Chapter 11 earlier this week. It seems that a boat manufacturer (or perhaps such a large one) filing bankruptcy has completely shocked the marine industry. I did not have such a shocking take to this considering the economic collapse of the lending industry, the current housing industry and the more recent auto industry – luxury items were not too far to follow.  The current state of today's boating industry has been the product of a logical series of economical outcomes.

Perhaps it is my insight into the housing market from my real estate experience (and no, I am no real estate expert – I am sure there are far better foreclosure and short sale agents out there that could school me on the topics), but it seems a lot of folks have ignored the writing on the wall.

What is happening to the boating industry now with a flurry of repos and bank seizures is exactly what has corrupted the housing market.

Allow me to explain…

Boating Professionals

In 2005 to early 2007 when the economy was booming and income soaring, people everywhere were cashing in. Everyone qualified for loans, lots of people were pulling equity out of their home to buy toys and treating their houses like ATM machines and last but not least… no one went without. (Okay hardly anyone.) With the surge of income, labor being at a premium and companies paying lots of money to make hay while the sun shined to keep their employees in house, most people did not want for anything. The gluttony of the hot market, the soaring economy and sub-prime lending gave people a veil over their faces that it would always be like that, they would always have a secured high-paying job and the proverbial bubble was not going to burst.

If you didn’t get a direct loan for a boat you did the next best thing – took out an equity loan on your home and purchased one against your house (and your house's value was way over-estimated due to the housing inflation in the current economy). So either way, you’re still making payments on that boat. The demand for such luxury items sky rocketed as no one had ever seen before… Showroom stock was getting depleted, dealers were screaming into the phones to manufacturers to build them more inventory, times were good – times were very good for many. This sudden surge in demand caused boat manufacturers to max out their warehouses and staff. Many new employees were hired to keep up with the growing list of new boat sales and needs of the dealers. It was, after all, what the public wanted, right? The manufacturers began cranking out boats as fast as they could. The more people wanted, the more they hired to deliver. The boats were flying off the shelves as soon as they were in.

Then… suddenly… everything stopped. Like an eerie calm washing over troubled waters, the stillness in the economy was palpable. No more 30 customers walking the lot daily, no more Johnny Come Lately’s swaggering down payment checks about, no more lay-down deals, nothing. I bet some can pinpoint the month this occurred for them. What happened? You guessed it. The bubble burst. Thanks sub-prime loans for all you’ve done…

First the lending institutions started to call on their notes, those adjustable rate mortgages started to become more than anyone could possibly afford for the income and the economy in their areas (here in Central FL we have seen that terribly).  If people can’t afford to pay for their homes, they most certainly cannot afford to pay for their luxury items such as their boats, cars, recreational vehicles, etc… And guess what further complicated this? Yup, you got it, the lending industry. Most of these items were purchased on the home equity lines of credit on properties. Do you know what that means? They are second high-rate mortgages on a home. All of these foreclosures and short sales happening – they get next to nothing. Joe Blow buys a $60,000 boat on his home equity line, defaults on both mortgages and if he can actually sell at a short sale the second mortgage holder only gets no more than $3,000… or nothing if it foreclosures and is taken into possession by the first mortgage holder. A lot of these items are getting repossessed on the out-right boat loans. When times are hard you trim the fat – so you are going to be worried about paying your mortgage and your rent “and let the boat go back.”

Dealers are getting struck hard with the economy right now. Boats being luxury items are in very low demand. Faltering dealer businesses are causing liquidation of those companies. All of that stock must be liquidated and is hitting the open market below market value to pay off creditors.

What am I rambling on about? Well, all of these repossessed, liquidated boats are now flooding the market… Who in the world is buying new boats right now with all these deals floating about?? I am sure there are some well-to-do folks that are above being affected by the economy – but for the most part, this is big. Really big. Now, boat owners who legitimately own their boats or are current on their payments cannot sell them because they are being undercut by repos and liquidation assets. Sound familiar? Take a look at the housing market – the same thing is happening. Short sales and foreclosures are inundating the market with undervalued brand new or slightly used homes, home owners cannot compete with these prices and builders are certainly feeling the horrible pinch.

So now, you have a flood on the market of distressed assets (repos and liquidations), the new boats can’t compete with those prices. Even less boats are being made. Now all of those high-volume, high-paying employees are sitting around with nothing to do – manufacturing plants are quiet with lack of work needed. Lay-offs and plant shut downs are eminent. We’ve already seen the tip of the iceberg with dealerships being affected. It is no surprise really the news on Genmar – the boating industry was not going to be a far cry from other leading industries showing signs of pressure in the deteriorating economy. It will take a while for the market to flush out the distressed sales and consumers to feel comfortable enough to take advantage of those opportunities. The over-all market is still correcting itself. If the big guys can hold out, times will turn around and stabilize again. Until then – we might be in for a bumpy ride as far as the boating industry goes.

For those of you getting ready to enjoy the water this spring, check out our last post on Dewinterizing - Spring Fling Cleaning For Your Boat. Christine Transport offers professional and courteous service of your investments - for a free transportation quote, feel free to visit our our transport homepage or call us direct at 352-553-8637.

- Christine Barber -
Christine Transport
Free Boat Transport Quotes: 352-553-8637
“Get your boat to where the fun is."

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