In my last column for offshoreonly.com, I touched on floor-plan financing for high-performance powerboat dealers. In this one, I’d like to elaborate on that topic because when it comes to this industry making a comeback, I do not believe it will ever come back to what it once was unless we get a rebound in floor-plan financing.
For those of you unfamiliar with the term, floor-plan financing is the money banks used to lend to performance boat dealers so they can stock their inventory, new and used. The boat dealers, in turn, repays those loans with interest and pay boats off in full once the transaction is closed. The key words here are “used to,” because with a few exceptions—and none at the national lending institution level—floor-plan financing is not available to the high performance sector of our industry.
What happened? The simple explanation is that when dealerships and boat companies began failing at a horrific pace several years ago, the banks that floor-planned the dealers were stuck with inventory that wasn’t selling. There were other reasons, of course, most notably that many dealers didn’t see the obvious signs of the impending high performance boat market crash, and a number of them kept ordering boats at levels that were sustainable in the past rather than the present and unforseen crash of the overall economy. This is the new economy and businesses need to learn to operate in the “black” now so if/when it does turn, it will only be better.
When the bottom of the market fell a number of these dealerships closed shop, as did a number of builders who under normal circumstances would have had to take back the inventory per their agreements with the lenders known as “Recourse Agreements.” (That was standard stuff back in the day—the builders had to take back the inventory from dealers that failed and closed their doors.) But without the builders to take back the inventory, the banks were stuck with a bunch of new boats they couldn’t sell instead of loans being repaid with interest. I actually know of one bank that ended up with more than 7 million dollars in high-performance boats that it could not move.
Were there other issues as well? No doubt. Dealer and manufacturer greed, coming out of the boom years for the go-fast market, certainly played a role, as did unscrupulous practices such as floor-planning boats on multiple floor plan lines (using Peter to pay Paul). As a result of this perfect economic storm, national lending institutions now view high-performance powerboat dealerships for what they are—high-risk lending opportunities.
We have used the same lender since we opened in 2003 and we maintain a mutually beneficial relationship. But unfortunately, Pier 57 Marine is in the minority these days. Floor-plan financing for high performance boats is all but impossible right now. Those dealers who are finding it are doing it at the local level.
I do think it will come back, though—like the high-performance boat market itself—never to the levels of its hey-day though. Banks are funny that way: they’re in business to make money. Loan default is bad enough for them, but when the collateral itself can’t be moved and is losing value every day they tend to run scared and they have.
In order for this market to rebound, floor-plan financing has to come back. In the meantime, dealers will be forced to maintain lower inventories and buyers will have fewer showroom choices. For now, that’s a probably a good thing as new-boat demand is light at best but getting better with the premium financially stable brands. The market is still fragile, and the dealers left need to gradually rebuild the confidence of the banking industry—starting at the local level and, in time, eventually moving up the national lending food chain.