ANTIESTABLISHMENTARIAN

Finance, Fuel Prices, Economics, Markets

Genmar Pushing Daisies

Genmar Holdings, Inc. the boat building conglomerate, threw in the towel yesterday and filed Chapter 11 bankruptcy protection. As far as ten years back I warned Irwin Jacobs in several published articles about the perils of creating that kind of company with all its eggs in the one basket of the highly cyclical boating biz. All it takes is a major economic downturn, and you are finished. Great business executive, that Mr. Jacobs, as brilliant as all the bankers and real estate moguls, doesn’t understand diversification as a survival strategy.

I also accused him of megalomania when he bought Hatteras and tried to turn it into a mega yacht builder in the face of a market that was already over-saturated with same. He didn’t stand a chance and proved it within only a couple of years, taking a once great company and effectively gutting it. Rubbing salt in the wound, Brunswick then picks up the dregs and foolishly attempts to do something with it. By then the only hope would have been to pack up the molds and blue prints and move Hatteras to Belize or China.

“If someone would have said to me as recently as even one month ago that Genmar would someday be filing for Chapter 11, I would have said it was not even a remote possibility,” Jacobs said. Uh huh. Sure. 2009 sales were off 50% from 2008 which were off 50% from 2007 and you had no idea.  That was Jacob’s problem: he had no idea, just delusions of grandeur.

After all, he was the only “boating mogul” I’ve ever met that wore black Armani suits with a hanky in the pocket, in contrast to the likes of Bob Derecktor, Jack Hargrave, Frank Denison,  Dick Bertram and others who wore coveralls or khakis.

Genmar brands consist of Carver, Wellcraft (a brands that should have died two decades ago), Four Winns, Hydro Sports (another looser), Stratos, Champion, Larson, Windsor Craft, Sea Swirl, Marquis, Ranger and Triumph a collection of real winners there. The Jacobs strategy was to pick up failing builders on the cheap and attempt to make something of them. Other than Carver, which didn’t need any help, do you recognize any of those brands? Are any of them worth owning at any price?

The notion of bankruptcy protection is something of a joke if the info contained in several news articles is accurate. According to the articles, Genmar has between ten and fifty million in assets and liabilities of $100 to $500 million with 100 to 199 creditors. What’s this “between” crap? Just that, crap. How does one not know what its liabilities are? Ergo, the truth is probably that Genmar has $10 million in assets and $500 million in liabilities. Now, GM was just disclosed to have a debt to equity ratio of 2:1, but Genmar takes the cake with 50:1. Bankruptcy protection? There isn’t anything to protect. A liquidation recovery of 2 cents on the dollar would be great fortune, but the assets (manufacturing real estate) at this time are likely worth next to nothing.

Brunswick is next in line for the chopping block, an outfit with only a tad more diversification than Genmar, which had none. Their stock is selling at $5 only because a rising tide lifts all boats, even when they can’t sell any boats because the lenders are withdrawing floor plan financing from dealers. Apparently it is surviving due to an existing line of credit, but that can’t last long. Boating won’t much miss Genmar, but Brunswick is a different matter.

Many of the independent builders, so long as they don’t have a big debt load, are hanging in there. They can reduce operations to near zero without going bust, close down even until the field is cleared of excess capacity. However, they’re going to get hit with high fuel prices once again so that in order to continue surviving, they’ll need to change their product line to both cheaper and more efficient boats. One way to do this is to eliminate most of the eye candy and come up with less costly designs. Be done with the Buck Rodgers space ship nonsense and go back to “square is beautiful.” Shallow bottoms, keels and single engines for smaller boats. There will be no choice in the matter what with GM going bust; the end of the V8 and probably V6 is at hand. And no, those Japanese aluminum engines are not adaptable. Don’t be misled if any should try that. We’ve been down that road many times before and it will not work.

Chris Catalina

For boating to survive at all, builders will have to adapt to a much poorer America that will be paying either cash or very hefty down strokes, like 30-50%. That means to sell anything in volume, they’ll have to cut the price by half. Sound impossible? Its not. It will just take time for attitudes to change that the boats of the future aren’t going to be like cars with all the eye candy and faux luxury. The boat of the future will be more like a 1980 Chris Craft Catalina pictured above. The American love affair with the automobile is likewise coming to an end; henceforth, the car of the future will be utilitarian by virtue of the fact that people won’t be able to afford anything more.

Why boats like the Catalina? Mainly because they are much less costly to produce. Using computer controlled mold making machines to create that abundance of curvy, wavy lines is very costly. So is screwing around with all the exotic hi tech materials. Boats like the Catalina more closely resemble the traditional summer cottage on the lake rather than a five star floating  hotel room. You get a fold down bunk instead of a queen size berth that comes standard with a $1500 monthly payment.

What the boat building industry needs is some people with vision, who can see what the future holds and then create products that will and can sell in that unfortunate environment. Like the name of the movie, it means going “Back to the Future.” That will only seem bad to people who think things can develop and grow forever. Fortunately, the world is not like that, otherwise we’d consume everything to the point nothing was left. As it is, we’ve already done too much of that. Like it or not, the retrenchment cycle is at hand.

The United Socialist States of America isn’t going to be a very prosperous nation but a nation in permanent decline. Believe it, accept it, and get on with it, or emigrate.

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June 3, 2009 Posted by | Boating Future | Leave a comment

GM Bust and Boating

Every gas powered  inboard boat built in the US and most in the world  are powered by GM V6 and V8 engines. Has anyone in the boating industry given any thought to what happens when GM stops making these engines? That day is coming very, very soon.

And of course the only option is to replace them with diesel engines at costs 100 to 150% higher, as well as requiring major design changes. Taller in line diesel engines will often not fit in spaces where the V6 and V8 will.

No one will buy GMs production facility and turn out these engines independently. Not enough market.

Just one more nail in the boating coffin.

May 28, 2009 Posted by | Boating Future, Uncategorized | 2 Comments

Boat Prices Down by Half

Well, it looks like my prediction for boat prices was right on target. Last December I wrote that I expected they’d be down by half from the former highs by May-June ’09. Surveying the “asking” prices at National liquidators, I see that most are easily down by half, which also accounts for the total number in weekly “auctions” down from over 500 to around 425, so the inventory is beginning to shrink.

But I also note that the average size is increasing; more 40 footers and fewer 16 footers.

Now I recognize that some will say that those prices are not representative of the general market. I agree, they’re probably not, but the fact remains that there is now a total disconnect between asking prices and actual selling prices, so there is no real way to gauge the general market. Therefore, it is the rate of price decline in the auction market that is representative and can be fairly applied to the general market as well.

Another interesting point is that the rate of bankruptcies of boat builders seems to have fallen off, all for reasons I can’t fathom. Brunswick continues to survive on a line of credit, but that won’t take them far. The boating market isn’t going to recover any more than the economy will. At the very least, we are in for a period of very long term decline reflecting the destruction of our industrial capacity and the attempt to survive on a financial Ponzi scheme. MarineMax is closing down stores and marinas at a steady rate, reflecting this decline. And with GM & Chrysler going down the tubes all at once, the writing is on the wall.

May 15, 2009 Posted by | Boating Future | 1 Comment

Boat Notes

Boat Notes

“If you don’t read the newspaper, you are uniformed. If you do read the newspaper, you are misinformed” – Mark Twain

Just received a copy of Destination Fish an ultra-slick fishing mag, yet another of the proliferation of same. One way to keep tabs on the state of boat building is by means of counting ads in the magazines. These have been steadily declining over the last year. This mag had only two ads for boats I’d never heard of before. Two, in a magazine that is typically loaded with boat builder ads. There were ads for chartering executive jets and helicopters, but no boats. Amazing. Continue reading

December 10, 2008 Posted by | Boating Future | Leave a comment

Mad Rush Out of High Tech

Long time readers are well aware of my disdain for the marine industry’s wild enthusiasm for anything high tech which has no greater advocacy than  Professional Boatbuilder Magazine. Oddly enough, the latest issues of that publication reveal a marked reversal of course as illustrated by the cover story in the latest issue which depicts a 1950’s era sloop loaded up with lots of wood. Smells of modernism reversed to me.

My complaint was that high tech added economically unsustainable cost and complexity to boat building. This was proved by the fact that boat sales had been in a long 15 year decline as the cost of ownership went up and up. Instead of simplifying to make boats more affordable, the industry went in the opposite direction. I suppose not being able to buck the tech trend had a lot to do with it, and I’m somewhat sympathetic to that. But mirabile dictu! It is precisely those few small builders who did buck the trend that will ultimately be the survivors, while the purveyors of “inter-galatic space vehicles” bite the dust. The later is my view of the styling of the modern power boat.

Most of us are now aware of what would happen if the auto industry is allowed to fail. A century’s worth of build up of supporting parts and materials manufacturing and distribution will disappear overnight, causing the unemployment of millions. The loss will be irreplaceable since it took 100 years of capital accumulation to create it. If and when the economy ever turns around, it will NOT automatically spring back, for the knowledge, systems, equipment and capital will be gone, probably forever.

The boating industry is one that has been steadfastly ignoring what has been happening to it for a decade-and-a-half, due in large part to a tunnel vision that saw no further than next year’s profits. The middle class was shrinking, yet a tiny fraction of the very rich was growing, so many builders foolishly shifted their focus to this tiny market, apparently believing that it could grow forever. Sound familiar? That was the story of Hatteras. I had also been writing for many years that the industry should be very wary of bubbles since it suffers the firstest and worstest effects of bubbles. Take advantage of bubbles, I said, but plan for the devastation that inevitably follows them. No one did, and now here we are with an entire industry almost completely wiped out.

To illustrate my theory I repeatedly pointed to the history of Chris Craft, once the greatest boat builder of all time, but ultimately reduced to ashes by mind-boggling stupidity of ownership and management. They perfected the art of self-destruction by increasing production into recessions. Such stupidity leaves me speachless.

Contrary to all economic data, boat builders, like the automakers, continued to add product into a declining market. Now there is gross over production and the auto industry will shrink by half, but the boating industry will shrink by 80% or more.

Just think of all the components that go into a boat. Then consider that profit margins on this manufacturing is extremely low due to very low production levels. The reduction of sales by just a little wipes out a lot. From hardware to heads to composites, a wipe out of these manufacturers is underway. All of the fancy new high technology gobbledygook in composites will soon be gone. Not some of it but all of it. What will be left will be the equivalent of the boat building materials of thirty years ago, if that. Paints, finishes, fabrics, cores, resins, adhesives, electronics, over-priced parts, systems and tools, all gone. All the computerized stuff will also go, such as computer controlled hull and parts mold shaping, along with the very complex designs that these costly machines make possible. One of the lessons to be relearned is that making things rounded and curved is vastly more costly than square.

For powerboats there is yet another insurmountable problem, engines. For engine manufacturers it will no longer be profitable to produce marine versions of their automotive engines and so they will be dropped, leaving the powerboat industry powerless.

One can gauge the loss of dozens, if not hundreds of vendor products just by taking note of the disappearance of vendor advertising from magazines like PBB. A cursory estimate is that it is down by 2/3rds and almost no full page ads. Bye-bye magazines and boat shows, of which there are also far too many.

Banks are recalling dealer floor plan loans by the dozen as well. And whereas when US boat sales dried up, most builders quickly turned to foreign markets. Now, those too, have dried up. None of them seem to have seen this coming, nor made adjustments by closing down excess production early-on, as they should have done. As usual, they crossed their fingers and went on with business as usual, and like the bankers who showered them with money, refused to consider the hard and cold economic data. Instead, they harbored dreams of shifting production to China. A few actually did.

What about the now low fuel prices, won’t that help the industry? A reasonable question to which the answer is. NO! For one thing, it is far too late. For another, fuel prices will not stay low. Nothing has changed about the fundamentals of oil supply and production is now falling faster than demand. Yet another shortage induced crisis and huge price spike is on the horizon, probably by next summer.

For those few boat owners who do manage to weather the storm, there is some good news in that those $75/hr and higher boat yard labor rates are history. Ownership costs across the board are plummeting, from insurance and dockage to maintenance. However, they can also look forward to serious replacement parts shortages in the near future as one manufacturer after another bites the dust. It will also be interesting to see what happens to the huge glut of rack-n-stack marinas when small boat owners can no longer afford to pay high rents. Most of these operations are financed to the hilt and will default as owners pull their boats out and marina revenues crash. When I drive by the two local marinas on a weekday, these places look closed down there is so little activity.

The Aug/Sept issue of PBB features a nine page spread on the glories of Cruisers, Inc., outlining all the wonderful things they do and plan to be doing in the future. Problem is, this company has no future, and like all good boating media, they choose to maintain the illusion right up to the very bitter end.

Only two months later the magazine shifts its focus to sail boats, but those aren’t selling either.

How about inexpensive, insulated fiberglass tents to meet the needs of dispossessed and homeless foreclosed homeowners? Now there is an industry with a future!

December 2, 2008 Posted by | Boating Future | , , | Leave a comment

Wave of the Future

Ah, those Euros, always so innovative. Here it is, folks the boat of the future:solar boats. Just think of it, not spending a dime on gas or diesel for a week-long outing with friends and family. Not even when you each have your very own boat. So sorry, since there’s no room for anyone else, it has to be that way. But the boats are small and you can cluster close together, and since the power is electric and quiet, you can easily swap jokes about your solar boats without being overcome with engine noise or diesel fumes. Won’t it be great? You are just one click away from the glorious future that awaits you. Go ahead, CLICK IT Continue reading

June 12, 2008 Posted by | Boating Future | 1 Comment

Simple Math

Click for larger view

The above graph tells us all we need to know about our immediate future. It is a graph of oil discoveries since 1900. The amount of oil discovered peaked in 1964 while the amount of oil consumed has gone parabolic. We now use three times more than is discovered.

The next graph is typical of the production cycle of later day oil discoveries. In this case, the great North Sea discovery. Note how quickly it rises and falls. This is typical of virtually all later day discoveries.

The simple question is: How much longer can we continue using more oil than we find? The unassailable truth is that we are running out. We will be forced to reduce our consumption simply because it does not exist to consume at the rate of 31 billion barrels/year any longer. At the present rate we are using three barrels for every one barrel of new discovery. Anyone wish to argue with that fact and its ultimate meaning?

Source: http://www.theoildrum.com/

June 9, 2008 Posted by | Boating Future, Oil Updates | Leave a comment

Repo Extravaganza

Did you catch the Fox News story yesterday featuring Fort Lauderdale and the booming business of seizing boats (repossessions) that people can’t pay for? It made prime time news. Readers of this blog know that I’ve been periodically reporting on what’s happening with the National Liquidators repo boat auctions. It blew me away to see it on TV. I came to it late and so didn’t see the whole thing. Continue reading

May 28, 2008 Posted by | Boating Future | , , , , , , | 2 Comments

Is Slow Cruising the Answer?

From the discussions I see on many forums many boat owners think that it is, though its clear that many haven’t tried it and have yet to experience the results. The advantage of cruising at nine knots as opposed to twenty-five or so usually translates to a 60-70% fuel savings per hour consumption. With the price of fuel doubled over last year, this essentially solves the cost problem. Continue reading

May 14, 2008 Posted by | Boating Future | , , | Leave a comment

The Looming Energy Recession

While oil prices dropped last week by nearly $10, for me that was no cause for joy since it only represents a panicked sell-off by hedge funds trying to meet margin calls. Well, one good thing came out of it: we now know exactly how much speculators pushed up the price – exactly 10% as price fell from $110 and stabilized at around $100. Continue reading

March 25, 2008 Posted by | Boating Future | Leave a comment