Sourced from http://online.wsj.com/article/BT-CO-20090713-713297.html
CHICAGO (Dow Jones)--After once trying to emulate auto giants Toyota Motors (TM) and General Motors Corp., recreational boat builder Brunswick Corp. (BC) is now shrinking itself to fit a boating industry facing a permanently smaller horizon.
Boats are typically among the first luxury items to get tossed overboard when consumers pull back on discretionary purchases in a bad economy. But the severity of the sales pullback has touched off a wave of employee layoffs, bankruptcies and structural changes in the way boats are built and sold that parallel many of the remedies deployed in the ailing automotive sector.
Brunswick Chairman and Chief Executive Dustan McCoy has concluded that boat sales won't rebound to their pre-recession levels when the U.S. economy improves. McCoy sees the loss of extra income from the collapse of the residential housing bubble weighing down boaters' buying power for years and making lenders cautious about providing cheap credit for boat purchases.
"Credit will have a significant impact on the industry's growth," said McCoy, 60, who's headed the Lake Forest, Ill., company since December 2005. "There are naturally going to be fewer dealers and fewer boat brands. We've got to get our costs positioned to be profitable at a lower sales volume."
Brunswick, whose 19 brands include Bayliner, Sea Ray, Hatteras and Trophy, recently began guaranteeing loan payments for boat buyers who lose their jobs, an idea borrowed from the auto industry. But McCoy is counting on Brunswick's ability to come up with user-friendly, value-added features to expand the customer base for motor boats and increase profit margins from a smaller sales volume.
He's especially optimistic about joystick steering technology, which allows boaters to easily adjust the direction of the propulsion from inboard engines, making it easy to turn large boats in crowded marinas and maneuver yachts into tight slips.
"It takes the inhibition out of getting on a boat," said McCoy, who joined Brunswick in 1999. "This is the next big thing in boating."
Others are more skeptical, noting that Volvo (VOLVY) already offers some of the same capabilities on its marine engines. Moreover, stubbornly high inventories are keeping dealers from restocking new boats with joystick steering.
"In the short term, it's not going to drive sales by itself," said Philip Gorham, an analyst for Morningstar Inc.
Industrywide sales of power boats fell 24% last year from 2007 to 203,000. Brunswick expects industry sales this year to slip to about 150,000 boats, roughly half the sales volume for 2005.
Brunswick's 2008 revenue fell 17% to $4.70 billion, 77% of which came from marine sales. Pool tables, bowling equipment and exercise machines made up the remaining 23%. Forty-four percent of its sales came from outside the U.S., mostly from Europe.
Brunswick lost $788.1 million, or $8.93 a share, last year. The red ink spilled into 2009 as the company reported a first-quarter net loss of $184.2 million, or $2.08 a share. Overall sales plunged 45% to 734.7 million, led by a 64% reduction in boating group sales.
Brunswick's stock price has plunged about 76% from its 52-week high last September. It closed Monday up 23 cents, or 6.18%, at $3.95 a share.
To stem its losses, Brunswick has closed 14 plants and reduced its marine and administrative work force by 46% since the end of 2007. It's also killed or sold five boat brands, some of which were acquired during a buying spree earlier in the decade that elevated it to the world's largest recreational boat manufacturer.
Inspired by the strategy once used by General Motors to conquer the auto industry, former CEO George Buckley, who now heads 3M Co. (MMM), envisioned the acquisitions giving Brunswick an extensive lineup of boat types at every price range. By increasing the production volume of boats and engines, Buckley reasoned that Brunswick could drive down its costs and impose a Toyota-type consistency for quality and reliability to keep boaters with Brunswick brands as they purchased other boats.
"If the economy had kept going like it was, it would have been a wonderful strategy," said Phil Keeter, president of the Marine Retailers Association of America.
Even when the economy and the boat market recover, however, observers predict dealers' reduced access to credit will likely keep them from accumulating the large inventories needed to sustain production at many boat factories year-round.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com
CHICAGO (Dow Jones)--After once trying to emulate auto giants Toyota Motors (TM) and General Motors Corp., recreational boat builder Brunswick Corp. (BC) is now shrinking itself to fit a boating industry facing a permanently smaller horizon.
Boats are typically among the first luxury items to get tossed overboard when consumers pull back on discretionary purchases in a bad economy. But the severity of the sales pullback has touched off a wave of employee layoffs, bankruptcies and structural changes in the way boats are built and sold that parallel many of the remedies deployed in the ailing automotive sector.
Brunswick Chairman and Chief Executive Dustan McCoy has concluded that boat sales won't rebound to their pre-recession levels when the U.S. economy improves. McCoy sees the loss of extra income from the collapse of the residential housing bubble weighing down boaters' buying power for years and making lenders cautious about providing cheap credit for boat purchases.
"Credit will have a significant impact on the industry's growth," said McCoy, 60, who's headed the Lake Forest, Ill., company since December 2005. "There are naturally going to be fewer dealers and fewer boat brands. We've got to get our costs positioned to be profitable at a lower sales volume."
Brunswick, whose 19 brands include Bayliner, Sea Ray, Hatteras and Trophy, recently began guaranteeing loan payments for boat buyers who lose their jobs, an idea borrowed from the auto industry. But McCoy is counting on Brunswick's ability to come up with user-friendly, value-added features to expand the customer base for motor boats and increase profit margins from a smaller sales volume.
He's especially optimistic about joystick steering technology, which allows boaters to easily adjust the direction of the propulsion from inboard engines, making it easy to turn large boats in crowded marinas and maneuver yachts into tight slips.
"It takes the inhibition out of getting on a boat," said McCoy, who joined Brunswick in 1999. "This is the next big thing in boating."
Others are more skeptical, noting that Volvo (VOLVY) already offers some of the same capabilities on its marine engines. Moreover, stubbornly high inventories are keeping dealers from restocking new boats with joystick steering.
"In the short term, it's not going to drive sales by itself," said Philip Gorham, an analyst for Morningstar Inc.
Industrywide sales of power boats fell 24% last year from 2007 to 203,000. Brunswick expects industry sales this year to slip to about 150,000 boats, roughly half the sales volume for 2005.
Brunswick's 2008 revenue fell 17% to $4.70 billion, 77% of which came from marine sales. Pool tables, bowling equipment and exercise machines made up the remaining 23%. Forty-four percent of its sales came from outside the U.S., mostly from Europe.
Brunswick lost $788.1 million, or $8.93 a share, last year. The red ink spilled into 2009 as the company reported a first-quarter net loss of $184.2 million, or $2.08 a share. Overall sales plunged 45% to 734.7 million, led by a 64% reduction in boating group sales.
Brunswick's stock price has plunged about 76% from its 52-week high last September. It closed Monday up 23 cents, or 6.18%, at $3.95 a share.
To stem its losses, Brunswick has closed 14 plants and reduced its marine and administrative work force by 46% since the end of 2007. It's also killed or sold five boat brands, some of which were acquired during a buying spree earlier in the decade that elevated it to the world's largest recreational boat manufacturer.
Inspired by the strategy once used by General Motors to conquer the auto industry, former CEO George Buckley, who now heads 3M Co. (MMM), envisioned the acquisitions giving Brunswick an extensive lineup of boat types at every price range. By increasing the production volume of boats and engines, Buckley reasoned that Brunswick could drive down its costs and impose a Toyota-type consistency for quality and reliability to keep boaters with Brunswick brands as they purchased other boats.
"If the economy had kept going like it was, it would have been a wonderful strategy," said Phil Keeter, president of the Marine Retailers Association of America.
Even when the economy and the boat market recover, however, observers predict dealers' reduced access to credit will likely keep them from accumulating the large inventories needed to sustain production at many boat factories year-round.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com
