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Kiekhaefer On The Industry: Three Questions

Being president of Mercury Racing, the world’s largest builder and supplier of high-performance marine engines, gives Fred Kiekhaefer a unique big-picture perspective on the go-fast boat world. Of course, he sees the engine side—he lives it daily—and under his tenure Mercury Racing has created a remarkable engine line from the 525EFI to the 1075SCi, and other fine products such as the bulletproof No. 6 Dry Sump drive. He sees the boat-building or “Original Equipment Manufacturer” (OEM) and dealer sides. And as someone who’s logged thousands of hours on the water, he also sees the performance-boat owner side.

I’ve known Kiekhaefer for 15 years, and I’ve always found him thoughtful, straightforward and articulate. We spoke this morning, and I asked him three questions. Here’s what he had to say.

MT: How would you describe the last two years in the high-performance marine industry?


FK: Obviously, there has been no shortage of pain to go around. The folks who can afford to play in the performance-boat market have a feeling that they shouldn’t. I think it’s more psychology than substance. I feel it myself. There’s a certain desire not to flaunt what you have when so many others are suffering.

Those on the fringe of the market need credit and they can’t get it. They need to be able to trade in their current boat to move up, and there is a relatively small number of dealers out there who can handle trades. Those who need financing can’t get it.

We feel their pain, and we feel it deeply. The good news for us, as part of a big company with access to capital and resources, is we have not been as hurt as many others.

MT: What’s it going to take to turn things around?

FK: We’re going to have to burn through a lot of field inventory. There’s no question that a lot of people were caught by surprise. Dealers were caught with a lot of product when consumer and floor-plan financing dried up, and suddenly they couldn’t afford to take trades.

People’s perception of their own wealth—a lot of that was pretty much gone with the mortgage crisis. People all of the sudden were looking at their disposable income and savings and saying, “I don’t feel so rich anymore.” So instead of buying a new boat, they upgrade or maintain what they have. Maybe they boat a little less, but they still have a good time going to a poker run or two.

When that happened, the transaction volume went down, and that was detrimental for the dealers and OEMs. The lucky ones down-size and maintain their service business. The unlucky ones face decreased cash-flow levels they can’t wet weather. The good businesses manage to reorganize and restructure. The weaker brands disappear. The net result is the industry shrinks.

Our belief is it’s not going to reverse anytime soon. We’ve battened down the hatches to weather the storm, but not without a great deal of pain. I feel terrible for some of the folks who’ve been hurt by this.

But we do we see some signs of strengthening. I was encouraged by the reports about orders I got back from the Fort Lauderdale Boat Show.

MT: What will the industry that emerges look like?

FK: I think they’ll be fewer players on the propulsion side. Some of the custom engine builders will have a very hard time when, in three years, they are held to the same emissions-compliance standards as the big players. That will be a bigger challenge for them than the economy. We’re actually thinking about offering services to help our competitors be compliant, just to be a good corporate citizen. I’m having a tough time with that, but I’m thinking about it.

Carbureted engines are going to completely disappear, because you can’t get there, to emissions compliance, with that control methodology. Anybody (engine builder) who hasn’t already made the jump to electronic fuel injection won’t survive.

Over time, the OEM market will come back, though it will be smaller. I think the Donzis and the Fountains and the Bajas will come back into a volume play at some point, but it will be awhile. The custom boat builders who build more innovative stuff—there will always be place for them.

People like to see boats in showrooms, so the volume, entry-level builders will come back. There will just be fewer of them. You’ll have good, high-volume players as long as they can provide value for the money.