The Affordability Challenge
What’s driving up the cost of boats and how the industry is trying to keep boating affordable
It’s no secret that the cost of boats continues to increase at rates that easily outpace inflation. Since 2000 the average cost of a sterndrive, for just one example, has increased more than 75 percent.
Factors ranging from rising oil prices to increased government regulations to more technology have conspired to keep prices on the upswing. The recession has only made the problem more apparent. But many companies have recognized the issue and are trying to come up with solutions.
Boating Industry talked to several boat manufacturers about the challenges and opportunities of boating affordability, and asked dealers to weigh in as well.
More regs, more tech … and fewer sales
“Why do boats cost so much?”
When the affordability issue comes up at industry events, that seems to be the key question dealers (and their potential boat-buying customers) want answered.
“It is a concern for everybody in this industry,” says Mark Skeen, vice president of global sales for Stingray Boats. “We’re addressing it as we always have by trying to produce and have a boat out there that is the least cost to the consumer and has the most amount of value in it.”
The affordability issue affects all levels of the market. Even for a company like Cobalt that aims at a high-end market niche, the perceived value of boating is important.
“Our success is still very dependent on a growing industry for the long haul,” says Cobalt CEO Paxson St. Clair. “A Cobalt owner on average has owned over four boats. We depend on people getting into the sport, enjoying the sport, growing up on boats.”
Even if it’s not a price-point decision, buyers still want value when they buy a boat, whether it’s at $20,000 or $100,000.
“Sometimes when we look at our overall volume [as an industry], a lot of times we say it’s due to the economy and when the economy comes back, our sales will come,” St. Clair says. “I have to say, ‘Not so fast.’ The price point that the average family boat is at out there today is a huge investment … beyond the reach of too many people who would otherwise be boaters.”
Increased regulation of engines, fuel tanks and other components is one of the biggest factors in driving up costs.
“The government has dictated to the engine companies emission laws that have raised the price of engines by thousands of dollars and have not generated any benefit to the performance of the boat or the fuel economy,” says Jim Lane, president of Chaparral Boats. “We think that some of these decisions that were made have not been favorable to the price of boating. As a result, all of us in the industry are experiencing lower margins and less profitability to try to make the boats as affordable as we can.”
Skeen echoes that sentiment, noting that Stingray’s biggest struggles are those things the company can’t control. With a long history of playing in the value segment with entry-level boats, the company is particularly vulnerable to price increases.
“We are essentially forced into doing something that we might or might not believe in, and that provides a burden in our cost to the consumer for the total package and maybe takes our boats out of the price range that consumers are looking at,” Skeen says.
Other government regulations, such as the Patient Protection and Affordable Care Act, have also made the cost of doing business more prohibitive. Those expenses all add to the cost of the boat down the line.
“The new healthcare rules that are going into affect with Obamacare have raised our costs tremendously as well,” Lane says. “Boat building is still a labor-intensive process and we want to make sure that all of our employees have the right benefits and the right pay, and there’s just not a tremendous amount of manufacturing improvements to lower the price of boats.”
Consumers are also demanding more technology, from touch panel electronics to digital gauges.
“The new consumer coming into boating is expecting it,” says Jim Antolik, national sales manager for Premier Pontoons. “It’s playing a substantial role in increasing costs.”
With even entry-level automobiles including technology unheard of a few years ago, there is an expectation that those features will be included in boats.
“At this point it’s still more in the upper-end models, but we all have expectations that you’re going to see similar items that will come down to the entry level over the next several years,” Antolik says. “In our product planning, that’s just part of the plan. We know it’s going to happen.”
It’s also important not to overlook the role of rising petroleum prices. The per-barrel cost of oil has increased more than 200 percent since 2001. That has driven up the price of not only the many petroleum-based products used in boats, but also the costs of transporting all the components and the final finished product for that matter.
Add all those factors up and it’s easy to see the problem. To top it off, the rapid decline in boat sales, which predates the Great Recession, has made it much more difficult to achieve any economy of scale. According to the NMMA, unit sales have dropped about 40 percent since 2001. The difference in scale (millions vs. thousands of units) is also one of the biggest reason that the auto industry – facing many of the same regulatory and technology demands as the marine industry – has been able to keep prices more in line with what consumers are willing to pay.
“Having the lower volume, you can’t spread your fixed cost over as many units and the per-unit cost goes up,” Skeen says. “Volume drives lower cost in our facility. There’s no doubt about that.”
That trickles down to suppliers as well. A company making 100 dashboards for an OEM can’t get the same deal on the components that they could when they were supplying 500 for a given model. Every company in the supply chain is trying to spread costs over a smaller number of units, driving up the price of each part of a boat.
Looking for solutions
The lack of volume has the potential to create a nasty cycle of lower volumes increasing prices, which drives down volume, which increases prices, and so on.
That’s why a number of companies are looking at more entry-level boats at an affordable price point to reach out to those new boating consumers.
Chaparral introduced its H2O with four models for the 2012 model year. The H2O line has allowed Chaparral to gain market share in the entry-level market, but also gave the company greater volume over which to spread overhead costs, says Chaparral founder Buck Pegg.
“Our goal was to develop an entry-level product that people would know was a Chaparral, that they would know would have the same DNA as our other products – one that would look, feel and perform like our other Chaparral models,” Lane says.
It was very important to the company that the H2O did not hurt the Chaparral brand. To that end, the materials used in the H2O are the same as those the company uses in its traditional product lines, built by the same skilled employees.
“We don’t use different gel coats or different resins or different glass, or any of those materials,” Pegg says. “It’s all the same. We build them in the same plant.”
Instead, Chaparral cut its margin on the boats and asked its dealers to do the same. Before launching H2O, Chaparral talked extensively with its dealer network. The dealers have been very happy, even with the lower margin, Lane says, because it was business they were not capturing before.
“Virtually all of our dealers complimented us on the product, on the marketing approach, on how successful it was in getting new customers in,” Lane says.
The numbers certainly bear that out. According to Chaparral’s post-sale CSI surveys, approximately 65 percent of H2O buyers were new to boating compared to 28 percent of all Chaparral buyers. Chaparral has also gone from “virtually no market share” in the 18- to 19-foot market to nearly 15 percent since the H2O launch, Lane says.
The rollout has been such a success that Chaparral is adding two more models to the H2O line and has launched four entry-level boats for the Robalo brand as well.
The new products have also been supported by a new marketing campaign designed to promote the fun of boating. A “No Haggle Real Deal Pricing” promotion for the H20 also helps new buyers feel more confident in the price they are paying for the boat.
Like Chaparral, Premier Pontoons has not typically played in the entry-level market. Two new lines rolled out in 2012, though, have allowed Premier to compete in that arena: the Leisure Sunspree (designed for cruising) and the Leisure Navigator (for fishing).
“We’ve gotten much more aggressive on the pricing of those products and it’s paid off in spades,” Antolik says. “We’re really seeing the difference on the wholesale side with the dealers stepping up and taking it to market.”
The Leisure models are designed with more basic furniture arrangements, less technology and fewer options to make it easier for dealers to stock and turn inventory.
“It’s a balance – you don’t want to destroy the Premier brand by coming out with something that is poor quality or is so bare bones that it doesn’t fit,” Antolik says.
Premier’s dealers were instantly impressed when the company rolled out the Leisure models at its dealer meeting in August 2012. It helped fill a niche Premier wasn’t delivering in and many dealers even dropped other entry-level pontoon lines to begin carrying Leisure.
“Because we have not been as aggressive in that market, to some degree it’s incremental business for us,” Antolik says. “It’s a real bonus for us. It’s not necessarily the most profitable part of the business, but we have to be in that game.”
Stingray has always focused on the entry-level value segment and continues to do so with its RX, a “bare bones” 19-foot model, Skeen says.
“We had a similar model that worked well for us in the mid-2000s,” he says. “I still think price sells. There’s no doubt about that. There’s still somebody looking for a good boat at the best possible price.”
Stingray tries to put that value proposition in all its boats, helping it gain market share in almost every length segment in which it competes over the last few years. An important part of that strategy is keeping the product and options as simple as possible.
“We have to make sure that we don’t confuse the customer too much,” Skeen says. “We find lots of times that options when given to the consumer do nothing but delay the buying process. We have to really work to keep it simple and have products for them.”
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