Russell Baqir and John Durnien, both senior vice presidents at Northpoint Commercial Finance, noted last summer that the number of boats sold through the 2024 model year was actually on par with recent years. Their caveat for 2024 was “the aging inventory creep impacting the market today.”
In a normal market, Baqir says, inventory aging would be 10% to 15%. In the current market, the average is more than 12 months exceeding 20% of inventories, “which is not manageable for a dealer’s liquidity.”
“Everybody is struggling right now, trying to figure out how to balance their cash flow,” he says. “We haven’t had a downturn, or a reset cycle, in over a decade, so there are a lot of businesses that weren’t prepared for this.”
Increases in dealer inventories put pressure on the manufacturers. The OEMs have been asked to come up with ways to incentive consumers. “We haven’t seen the retail lenders bring their rates down too much, either,” Baqir says. “OEMs are looking for retail lending partners for better buy-downs, and those tools would be nice to have.”
Some dealers have gone out of business, but the rate of closures is not as severe as some people predicted at this point in the cycle. Neither, according to Baqir, has the rate of boat forfeitures by consumers been as high as some people expected.
And there are hopeful signs that the malaise caused by aging inventory, high interest rates and decreased demand may at last be waning.
Slowdown Timeline
Broadly, all the segments of the recreational marine industry are acting the same, says Chad Lyon, managing director for Wells Fargo Inventory Finance Business. “But there’s a bit of a timing difference,” he says. “The pontoons and some of the aluminum fishing boats, towboats, runabouts all slowed down earlier and started to see inventory aging,” he says. “[The] saltwater fishing yachts slowdown came a little later. Now, pontoons and the other ones are probably in a bit better shape to return, while some of the other segments still have a way to go to get into a more normal balance.”
“To execute this correction,” he adds, “dealers have had to take much lower margin sales to move product, particularly with higher unit costs and higher interest rates. It’s hard to correct their expenses quickly, as well. We’ve seen that hit dealers’ profitability, and we’ve seen weakening in terms of financial performance, but we haven’t seen a real downward cycle in dealer viability. The dealer situation has been slightly worse than normal, but not as bad as you might expect.”
Len’s Cove Marina, Portland, Ontario
Sean Horsfall is the general manager and third-generation owner of Len’s Cove Marina on Big Rideau Lake. “Essentially,” Horsfall says, “what happened to the industry during Covid was like going to one of the most amazing parties in the world, but after it, you have a bad hangover. That’s what we’re going through now.”
Since last year, he says, he has moved through some used inventory, freeing up cash flow. “We’ve decreased our new inventory by a significant measure,” he adds, “but it’s going to take more time. We measure our inventory by the percentage that is over 360 days old, and it’s started to drop, which is good news, but it needs to go further before we feel comfortable.”
Horsfall says that to manage floorplan financing, dealers who kept cash flow from prior years might buy out the inventory before curtailments hit. Or, he says, they can use lines of credit.
“A lot of dealers don’t have that luxury or didn’t put away that money,” he says. “We didn’t know when the gravy train was going to end, and I think it ended before we knew it did, and the tables had turned. We’re approaching our traditional lending institutions and seeing if there’s a way to reduce some of our expenses, like going to lower-interest-rate alternatives. It would be nice if the companies had a little more, perhaps, leeway when it came to rates and, perhaps, curtailment payments to help out the dealers, but they seem reluctant to do so.”
As a Canadian dealer, Horsfall has the additional complexities of exchange and interest rates between countries. “Because we import most of our boats from the U.S., we keep the vast majority of our new boats in a U.S. floorplan, so we’re paying rates based on the U.S. daily rate,” he says. “The U.S. hasn’t lowered rates as fast as Canada has. As the interest differential increases between the two countries, our currency devalues, so it gets more expensive to buy that inventory in U.S. dollars. We have tools like foreign exchange contracts and options contracts to manage the situation.”
Even so, Horsfall says, he “ordered a fair number of 2025s. We’re in a perfect position with our Barletta pontoons, but with our fiberglass runabouts, outboards and I/Os, we have more than we need. People expect discounts on those non-currents, and that hurts profitability. I think it’s going to be another year before we’re in what I’d call a normal business cycle where we’ll take trades on a normal basis and order what we need for the year versus keeping in mind what we have left over.”
The Sportsman, San Benito, Texas
Christi Romero, owner of The Sportsman, has worked with the dealership since 1988. She started earning $3.35 an hour as a receptionist with no high school diploma and was mentored by the previous owner, Rob Youker. “He saw something in me that I didn’t see in myself,” Romero says, “and allowed me to grow and then blessed me with the opportunity to purchase the business from him.”
Her dealership sells two lines of boats — Shallow Sport Boats and SCB — and has 40 units of dry storage available with a parts and service department. She hasn’t had to floorplan many boats lately. “It hurts to have to floor a few boats, but the majority of our inventory is not floored,” she says. “We currently only have three units banked. We held a model-year clearance sale a few months ago to clear out our 2024 models and make room for the 2025 product that was coming in, and it was successful. We did have to extend some extra discounts and/or incentives, but I didn’t want to hang on to it any longer.”
Before Romero purchased the business in October 2020, it hardly ever had to floorplan inventory. “It was always paid cash, and when we had to floor on a rare occasion, the owner would finance from his personal funds at 5 percent,” she says. “When I purchased the business, I received an interest rate of 6 percent. On my last renewal, it increased to 9.5 percent.”
Romero is currently renewing her line of credit and says she’s anxious about what the new rate will be. “I’m hoping it will be lower, especially since I am having to floor some units right now,” she says.
Manufacturers pushing as much inventory on the dealers as possible, she adds, but demand from customers and dealers is low. She is hoping the fall 2024 sales uptick will continue with the new U.S. presidency, since consumers in her area seem optimistic about the economy improving in 2025.
Regal & Nautique of Orlando, Fla.
Jeff Husby, owner and general manager of two locations, founded his dealership in 2008. Regal & Nautique carries all sizes of Regal, Centurion and Supreme towboats, and Bennington and Balise pontoons. In February 2024, Husby and his team opened a 19,000-square-foot showroom specializing in the Nautique brand. He is also president and CEO of WaterSports Central, which has six locations in Georgia, South Carolina and Tennessee.
Husby deals with freshwater and saltwater markets, and says aged inventory is cycling through slower than he expected. “But in my experience, anytime there is an election year, the boating industry has been flat to down,” he says. “On the wholesale end, it’s important that, as a dealer, you’re in a good cash situation so that you can make the curtailments on that aged inventory. At some of our stores, we have written the aged inventory down to the balance owed to the financial institution, which in turn has made it more attractive to a retail consumer.”
Wholesale interest rates also remain a concern, Husby adds. “They’re much higher than what we’re normally used to operating our business on, so that pushes our operating costs up, which hampers our ability to make a profit,” he says.
Husby sees a six- to eight-year cyclical swing up and down in the industry and says it’s in the downcycle now. “I am optimistic,” he says. “My five-year outlook is a nice increase in sales over the next few years.
The upcoming boat show season will be a good gauge of consumers’ reaction to the new president, he adds. “The Atlanta show starts the second week in January, and that will be a good benchmark.”
Strong’s Marine, Long Island, N.Y.
Jeff Strong of Strong’s Marine has also seen these cycles before. His company has a track record of weathering the economic highs and lows since his grandfather went into business in 1945, leading to the establishment of Strong’s Marine in 1965. Since 1992, Strong and his family have grown the business, which has 12 locations and more than 100 full-time employees offering seven premium brands, preowned boats, brokerage, indoor boat storage and repairs with haulout capabilities of 85 tons.
Strong is also part of a Cobalt 20 group and current chairman of the Marine Retailers Association of the Americas, which represents about 3,200 dealers around North America. From what he’s seen and heard, 2024 “has been hand-to-hand combat, basically,” Strong says.
The year will be solid for Strong’s, he adds, a good year but not a record. Heading into 2025, he sees a moving target. “Our business, from a revenue standpoint, isn’t off a lot, but from a profit standpoint, it’s down significantly, as it is for most dealers,” he says. “There are fewer buyers out there and more inventory, so people are going to shop more aggressively, and dealers are going to be as agile as they can in moving products because, in this environment, it’s about minimizing losses, earning a customer and moving on to the next thing.”
A big facet of Strong’s strategy is online marketing. His in-house team of three pros takes specific inventory and tries to tailor a message for specific markets. His teams are also aggressive about making financing readily available to customers. “We have a business manager, and together we work with more than 10 different banks, and financing has been available for people with a reasonable down payment and decent credit,” he says. “People might not have financing and terms on their radar when they’re shopping, but we can help them, and I think we’re doing a better job lately of offering those options to the customer before they even think about it.”
Strong considers diverse revenue streams critical to business health. Most of his locations are marinas that also offer dockage and boat rentals, and that take trade-ins of all kinds, including RVs, cars and planes. “Those diverse activities keep the cash moving, keep our employees busy and productive, and keep us engaged with our client base,” he says. “Maybe someone isn’t going to trade-in at the moment, but they might upgrade their electronics to improve their boat, and maybe next year they’ll trade it in, but it’s always about keeping the clients engaged and feeling good about their investment.”
Salespeople are trained to be disciplined and hungry, and Strong invested in upgrading his system for customer relationship management to track response times in minutes instead of hours. He says he does “absolutely see a difference in the results with response times from salespeople.
“For people who can afford to go boating, in general, time is their biggest asset,” he adds. “They might have an hour to go online and get information about a purchase, and if they don’t get responses within that hour, they might move on to another dealer, or maybe to a car, or an RV, or a vacation. It’s not just about boats; it’s about their recreational dollars and how the responses they get from their inquiries feel to them.”
Strong says Northpoint and Wells Fargo have been helpful with flexibility in curtailment programs during the winter, and with interest rates: “You’re not getting a free ride, but over the winter, they do allow us to not pay some of those fees, which is very helpful to us,” he says.
In recent months, Strong has seen signs of encouragement. His teams track leads, their origins and their conversion rates. “Inventory for Strong’s Marine is still a little higher than we’d like it to be, particularly on some of the larger products, but it is in a better place than it was this time last year,” he says. “Historically, from what I can sense, the inventory at a macro level is still higher than what the boating industry would like it to be, but it has made some headway, as well. The manufacturer partners have helped offer different pull-through programs to incentive dealers on aged products. Those relationships with both our banking and manufacturing partners are helping us pull that aged inventory through.”
Expectations for 2025
In many boat categories, aged inventory is leveling. Economic conditions appear secure, early boat shows had good returns for many manufacturers, and interest rates may drop in the coming months, according to numerous sources. Barring black-swan events, Baqir and Lyon are optimistic that the 2025 model year will be the start of better times.
“It’s going to be interesting to see how those cuts come into place in the new administration,” Baqir says. “I think you’ll see inflation forecasts coming down. I think we’re going to see a nice little turnaround. The boat manufacturers will see the benefit in this next model year. We’re going to be a smaller, leaner industry, but we’ll be prepared when the consumer comes back. We’ll have a nice little run once we get through this period.”
Similarly, Lyon says: “Every little bit of lower interest rate helps. We see longer-term interest rates and shorter-term interest rates coming down, and that’s helpful from the consumer standpoint. Our optimistic view is that manufacturers have done a good job bringing down shipments this year.”
Looking ahead, once inventory woes get cleared, Lyon sees a question about what expectations should be for new-boat sales. “There was a fairly big move higher in prices over the last six or seven years,” he says. “Two-thirds of boat buyers are repeat buyers, so how will the higher unit prices affect them? The dollars will be there, but will there be a slightly lower unit level? Will it change the buyer’s trade cycle? That’s what people are paying attention to now.”
The other side to that concern is that the consumer is much healthier than at any other time, he adds. “We think there will be a nominal increase in retail unit sales next year,” Lyon says. “The four-year decline has put inventory in the right place. The long-term interest rates combined with other good economic trends will create a good environment for buyers and dealers.”
