What Does Boating Tell Us About the Economy?

Monday, May 12, 2008 | 06:57 AM

Growing up on an island, I've always been intrigued by the boating world.

Many friends and neighbors have boats, and while I've spent time sailing and powerboating, I've never owned one. Mrs. Big Picture grew up with sailboats, as both her dad and two brothers liked to sail lightnings --  affordable, family fun. I, on the other hand, don't have that out of my system.

I don't know a single boat owner who has been able to justify the costs of ownership. And yet, there is a two year waiting list at any of the local marinas for slips (but moorings are available 100 yards from our home).

Why all of this boating chatter? I am tracking two interesting data points regarding recreational products: Sales and financing. We know that Boating sales began slip as far back as Summer 2006, when Oil prices were in the $50 - $70 range. Those with existing boats, however, continue to enjoy their usage. Even with Marine gasoline at $5, its only a marginal price increase relative to their total sunk costs.

Peter Greenberg -- the TODAY’s show Travel editor -- notes the schism between two groups of boating enthusiasts: those who already own, and those who want to:

"If you already own a boat or an RV, chances are good that you're planning to put your boat in the water and you've made plans for road trips in your RV.

That would seem counterintuitive, but the numbers speak otherwise. While retail sales for recreational boating topped $39 billion in 2006 — an increase of nearly six percent from 2005 — the last two years have not been as buoyant. In 2007, the industry saw a drop of 14 percent in unit sales, and nine percent in dollar sales. And this year will be worse. In fact, at the recent Miami boat show, many new boat dealers were downright depressed. "See that brand-new boat over there?" said the president of one upscale boat manufacturer. "I've sold it four times this week."

Translation: The prospective buyers couldn't close financing."

And indeed, that is what we see from several capital lending firms that used to finance boat purchases. The most recent firm to exit the business? None other than GE Capital:

"General Electric Co's (GE) decision this week to no longer lend consumers money to buy motorhomes and boats was more bad news for the recreational vehicle and boat industry.

While the move by GE Money is likely to prompt the many other lenders in this sector to tighten credit standards and push borrowing costs higher, analysts say it won't significantly worsen the industry's admittedly dismal fundamental outlook.

Even before GE, which operates one of the country's biggest and most sophisticated finance companies, announced its intention to exit the retail RV market, rising gasoline prices, falling home values and tightening consumer credit had taken their toll on motorhome and boat sales."

File this under obscure economic indicators: Boating is (obviously) a nonessential activity. This is only one tiny aspect of the enormous US economy. But how Americans spend our leisure dollars, speaks volumes about the availability of credit, as well as the overall economy.

Stay tuned . . .

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UPDATE: May 20, 2008 8:13AM

Today's NYT has an article about Repo Man:

Times Are Tough, Except in the Repo Business

Boating was traditionally the pastime of the well-off, but the long housing boom and its gusher of easy credit changed that. People refinanced their homes and used the cash for down payments on a cruiser, miniyacht or sailboat. From 2000 to 2006, retail sales for the recreational boating industry rose by more than 40 percent, to $39.5 billion, while the average loan amount more than tripled to $141,000.

Last year, as real estate faltered, the gears went into reverse. The number of boats sold fell 8 percent. Many boats are fuel hogs, and rising gasoline and diesel prices meant a weekend jaunt could cost hundreds or even thousands of dollars. Owners found they could not sell a boat for what they owed and could not refinance either.

   

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Our Local Marina

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Morgan Park, donated by J.P. Morgan

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UPDATE: May 12, 2008 9:14am

On the train in this morning, I chat with Bob -- whose 42 footer is moored off of Centre Island. Bob notes that there are two boating worlds -- bigger than 100 feet, and everything else. The > 100 foot world is doing just fine, thank you. Even more amazing, there have been more 300+ footers sold over the past 3 years than in all of previous history.


Sources:
GE exit from boat lending bad, but won't sink sector
James B. Kelleher
Fri May 9, 2008 12:23pm EDT
http://www.reuters.com/article/reutersEdge/idUSN0651461020080509

WHY THE POWERBOAT INDUSTRY IS SINKING
Daniel Gross
Slate, Tuesday, July 18, 2006, at 4:55 PM ET
http://www.slate.com/id/2145890/

Even with pricey gas, travelers won’t abandon ship
Boaters and RV’ers don’t plan to retire their gas-guzzling toys this summer
Peter Greenberg
TODAYShow,  5:12 p.m. ET, Wed., May. 7, 2008
http://www.msnbc.msn.com/id/24508536/

Monday, May 12, 2008 | 06:57 AM | Permalink | Comments (31) | TrackBack (0)
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Comments

Some wealthy people are deadbeats. GE Capital can probably provide fairly accurate numbers. The current inflationary environment probably makes the deadbeat purchaser a more common phenomena and GE has possibly decided the market for used boats will not offset the likely increase in walk-aways.

Boats are still discretionary purchases. When things are going well, cash will flow for all manner of fun things and new experiences. This concept applies to rich and poor and those in the middle. When cash is tight and the future is uncertain, people hunker down and postpone luxury items.

If you own a boat (or a nice TV) you will still use it, but you will not be too quick to buy a bigger boat (LCD TV) and discard the old one. In this way, the rich aren't different, they only buy different toys.

Thus, the rally in stocks at this time is a sucker rally. Basic Econ 101 thinking says that if your extra cash is going down the gas tank and for basic foodstuffs, then there is less to spend on new toys and experiences. Therefore, those who supply those discretionary purchases can expect slow times ahead. Therefore, profits will be light to none and higher stock prices are based on fantasy aspirations. This will continue to be true until wages rise to offset higher prices and we enter an inflationary spiral.

This is true in spite of the pundit / sales people visitors on CNBC who say it is a good time to buy and the market will somehow reclaim it's past glory in the 4th quarter. Where are these fantasy profits going to come from?

Posted by: cinefoz | May 12, 2008 8:05:41 AM

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