Boat dealerships see a slow start to 2007 season

For many boat dealers, the 2007 sales season has started like a stubborn outboard -- with more pulling and sputtering than purring.

Want evidence? Consider this snapshot of two of the nation's largest publicly-traded boat manufacturers:

Brunswick Corp. -- whose expansive product line includes Lund, Mercury, Crestliner and Boston Whaler -- reported its boat sales during the first three months of 2007 were down 7 percent compared with the same period last year. Its earnings from boat sales during the quarter tumbled even more drastically, dropping 60 percent, from $48.4 million to $19.5 million.

Fountain Powerboat Industries Inc., a North Carolina-based manufacturer of high-performance sport, fishing and cruiser boats, reported its 2007 first-quarter sales slipped 11 percent compared with the same period last year. The company's gross profit plummeted 52 percent from $2.8 million to $1.3 million.

That's bad news for investors, but not necessarily for consumers.

"Without a doubt, the smaller margins this year make it a buyers' market," said Luke Kujawa, president and chief operating officer of Crystal-Pierz Marine, a chain of 12 boat dealerships, including a newly opened Hermantown store.

Ray Hernesman, owner of RJ Sport & Cycle in Hermantown, confirmed that sales started slowly in 2007. He attributed part of the slowdown to higher interest rates and pointed out that the industry received a big boost in recent years from the home refinancing boom.

Terry Olson, manager of the Hermantown Gander Mountain store, said that consumers aren't spending as freely as they were a year ago.

"There's not as much money floating around," he said.

Olson said he believed high fuel prices are influencing consumers, as well.

"With today's gas prices, we're selling a lot more 50- rather than 200-horsepower boats," he said.

Dan Kontny, owner of Iron River Sports Center in Superior, said he has seen less demand for higher-horsepower watercraft. He said steep gas prices seem to be fueling sales of new high-efficiency engines.

"We see people trading up from two-cycle to new four-stroke engines," he said, noting that some of the new engines burn 30 percent to 50 percent what their predecessors did.

Nevertheless, Kujawa said he doubts gas prices have greatly affected people's decisions about what kind of boats to buy. He said the cost of fuel, compared to the price of a watercraft, is still a relatively small expense for most boat owners.

"I think high gas prices have more of an effect on consumer confidence, in general," Kujawa said.

"Consumer confidence has been bouncing around all over the place for the past 20 months," said James Petru, director of market statistics for the National Marine Manufacturers Association. "It's a tougher business this year. You might say we're in a bit of a recession."

Not all boat dealers are singing the blues, however.

"The self-propelled market hasn't suffered, as best we can tell," said Scott Neustel, owner of Ski Hut Inc. of Duluth. He described kayak sales as about equal to last year and canoe sales even stronger. He said demand for canoes has outstripped supply.

"The lead time for canoe orders is greater than I've probably seen in about eight years," Neustel said.

Neustel said he didn't think canoe and kayak sales have received much of a bump as a result of gas prices.

"If I was all fired up about buying a boat with a 125-horsepower engine, I probably wouldn't go out and buy a kayak because gas was too expensive," he said.

Neustel described the paddle and motorized boat markets as distinct and different. He pointed out that people interested in fishing big lakes or waterskiing are unlikely to find a canoe or a kayak an attractive alternative to a motorboat.

To buoy sales, many motorboat manufacturers and dealers have been offering incentives this year, including deep discounts and attractive financing offers.

Consumers seem to be responding, Kontny said. He said Iron River's sales for the past several weeks have been on a par with last year.

Kujawa, too, said May sales were strong and his dealerships are entering June with momentum that makes him optimistic Crystal-Pierz may be able to make up ground. He said sales at the new Hermantown store have surpassed his expectations.

Given market uncertainties, Hernesman said he took a conservative approach to ordering his 2007 inventory. In light of strengthening sales, Hernesman suspects RJ Sport & Cycle will be able to sell out most of its supply.

Boats are big business in Minnesota. The state had about 863,000 registered watercraft heading into 2007. Minnesota has the highest rate of boat ownership of any state in the nation. There are about six Minnesotans for every registered boat in the state.

Wisconsin comes in a close second with 627,000 registered boats -- one for about every nine Wisconsinites. The figure is hard to compare with Minnesota's, because Wisconsin doesn't require canoes and kayaks to be registered, as Minnesota does.