2nd Attempt-Coronavirus Covid 19 and the Marine Industry

Please, people, this is not to discuss the politics or what any leader of any country should or should not have done or whose fault any of this is. This is only to discuss the impact of things as they are or we anticipate them being on the Marine Industry.

I'm only restarting this after communication with Carl. I will also be quick to report posts taking this off into politics and other discussions as I think this topic is very important to Yacht Forums. We're talking about the industry and it's future and in many cases it's very survival. I hope those who are in the industry and those in contact with people in key positions in the industry will add input to this topic. Now following is what I've learned or been told from the many people I've talked to in the various areas of the industry.

First, talking to yacht builders. On the record, they all say they're fine but others may not be. Off the record a bit less confidence. Talking to Italian builders they anticipate another round of elimination of small Italian builders, those without the capital to survive. In their own businesses, they've received cancellations of recent orders and have had some clients talking about how to escape from boats already started. The large Italian builders expect this to be equal to or worse than 2008 but feel like they're positioned to work their way through it. They also feel their ownership and investors will stay the route because they really don't have much of a choice.

British Builders. I'm not close to anyone with a British builder so the only person I talked to says "Everything is Fine." Now, the Italian builders and US observers are quick to say otherwise. Between Brexit and Covid 19 and self induced issues they already have, plus the ownership of one builder, most others see serious problems and the likelihood of a sale at a huge discount or bankruptcy. Now the problem is that both sides I'm hearing from have their own agendas. I personally think one British builder already had problems and Covid 19 will be so convenient for them to blame for their failure.

US Builders. There are three major US builders that are financially strong. They're shut down now and they believe a large percentage of future orders on hand will be cancelled. They don't know if it will be as bad as 2008 or not. The one that is owned by investors is much like the Italian builders said, the investor can't go anywhere, it's part of being an investor today. Now, everyone I talked to fully expects one of the other builders to go into bankruptcy again. One thing I heard from US builders was also that even before they shut down, the supply chain was about to cause them serious issues with China and much of Europe shutting down ahead of them. They feel we'll likely resume last so that shouldn't be an issue going forward.

US representatives of Asian builders don't foresee a problem with the finances of their businesses although they do with at least one American owned Asian builder. Again, that may be their own prejudice. Now, they all see problems getting orders. First, just shortage of funds for luxury purchases. Second, due to an anti-Chinese mood.

US small boat manufacturing. The one thing I heard most was brand consolidation. They said most of them had been through the recession and could handle it again but where single owners have multiple brands they expected some to be eliminated. It makes sense if you have 4 brands and your business drops 80%, then to go to two or three brands, build fewer SKU's just is logical. One question I did ask is what they expected from Brunswick. Note, no one I spoke to works for Brunswick. Many saw this as the death or start toward the death of Sea Ray. Everyone saw smaller brands in serious trouble.

Keep in mind that this is the key shipping and selling season for the US boat market. The season starts with pre-season boat shows. The big selling months are March to May. June is weak and no boats sell after June in most parts of the country. This year is lost for the most part. Most expect a great attrition of boat dealers.

One comment as a general observation on this and all other industries. We've had many years now of increased sales and profits and success. Theoretically, companies would have accumulated reserves to help them through this. That's just not how it happens though. Those profits went to owners and many of those owners are not willing to reinvest. They're willing to bankrupt their business but not themselves.

No one saw engine builders in any trouble.

Now what about those servicing boaters such as West Marine, Bass Pro, Cabela's, Outdoor World. Their situations are much the same as all other retailers. Those in trouble before are now likely to be in serious trouble. Those healthy before will find a way through it. Since they went private, the finances of West Marine are not known. However, I think they like nearly every national retailer will use this as an opportunity to at least reduce locations. Whether overall they can survive, I know nothing of their debt situation.

Marinas. This one sort of came from nowhere in hearing talk. Seems like the boats are still in slips even though no fuel sales to speak of. However, the marina world has had a huge amount of acquisitions over the last few years and consolidation into fewer hands. Those type acquisitions involve debt. One of the larger chains of marinas evolved after the bankruptcy of it's predecessor during the recession. The predecessor was unable to weather the reduction in business. However, there's a difference this time. They are now owned by investors and the largest is Koch. However, in January it was widely rumored that the two largest marina groups were both either looking for a buyer or "exploring strategic options." I'd expect those activities to have been halted but would think they both remain open to being sold. The issue with being sold is it may be to someone undercapitalized, we just can't know in advance. For now, I'd think they'll protect their marinas to protect their sale price.

Now, we've seen regular closure of mom and pop marinas and I'd expect a year like this one will lead to more just saying it's time to go.

Crews. Talking to a crew agency in Fort Lauderdale and Antibes, as they also charter and provide other services, their business right now is 95% closed. However, they estimate that 80% of all yachts have laid off some crew. Many have kept up to half of their crew but some have laid off all but perhaps two. I know many local captains with greatly reduced work right now.

Brokers. If 50% fewer boats are sold then 50% fewer brokers is likely. One broker I spoke to welcomed that eliminating the less professional and less serious brokers. Another worried greatly about maintaining their business as they have built overhead based on more brokers and more sales so saw it impacting themselves greatly.

I'd say to any boat buyers, be very careful about who you advance any money to. It will be very hard to know who is in financial trouble. I'm speaking largely about builders, but also to a lesser extent about dealers, brokers and affiliates of the builders.

I'm personally very worried about the industry. First, we're talking a shutdown of as little as one month and as long as three or more. However, more threatening is we're talking fewer buyers, fewer boaters, less money to spend on luxury. Every major company I know of faces severe financial challenges. Your boat buyers are often executives or business persons or they may be investors who are losing too. Will a recession impact the industry more or less than it does other industries? Last time it hit the marine industry harder. Most believe it will hit luxury buying harder this time as well. Just a small taste of perspective for today. It is estimated that 50% of all retailers did not pay their full April rent.

I can't imagine they'll have the show on those dates.

There are some things that it's just not the time for. I know Informa is trying to hold on to the revenue, but we're not going to be out of this in mid May and even if we are, to think that a boat show will be a priority is hard for me. I think travel will be one of the last things opened back up fully.