The annual North American boat show season kicks into high gear this week with five major expos, from Atlanta to Toronto, opening nearly simultaneously, including one of the year's biggest inside the McCormick Place convention center here on Lake Michigan.
The next eight weeks will be critical for marine manufacturers and retailers. Experts say between 40 percent and 60 percent of the industry's annual sales come from deals signed or leads generated at these events.
"The shows are really the No. 1 marketing tool for the industry," said Thom Dammrich, the president of the National Marine Manufacturers Association, a Chicago-based trade group.
But coming into this year's crunch show season, the boating industry finds itself in troubled waters, beset by rising interest rates, a slowing economy and the sharpest housing slump in 15 years, which has U.S. consumers nervous.
As a result, the industry saw unit sales decline last year — a trend expected to continue in 2007, according to Dammrich.
In an interview with Reuters ahead of the Chicago show, Dammrich said his members hold out little hope that 2007 is going to be any better. The reason? Historically, boat sales take a dip any time the Fed funds rate gets above 5 percent, as it is now, or when U.S. economic growth fall below 3 percent, as it did in the third quarter, according to the Commerce Department.
"I was just talking with a pretty large group of manufacturers earlier ... and, if we get a flat year in '07, they'll be very happy," Dammrich told Reuters.
But there are signs that even hopes for a flat year may be wishful thinking. MarineMax Inc., the largest U.S. boat retailer, has slashed its earnings forecast for the fiscal year ending September 30, 2007.
And Tim Conder, a leisure industry analyst at AG Edwards, thinks that, as bad as the story is at MarineMax, it is even worse for other retailers because the Clearwater, Florida-based company is "the largest and best dealer network" in the business and "significantly outperforming the marine industry."
The bad news from MarineMax was the latest sign the industry is taking on water. Late last year, Brunswick Corp., the world's largest manufacturer of recreational boats, said it would cut more than 600 jobs as it responded to falling demand for its products brought on by higher interest rates and energy prices and deteriorating consumer confidence.
The cuts came after the Lake Forest, Illinois-based company reported in October that its third-quarter earnings dropped 59 percent from a year earlier as the woes of the Detroit auto industry translated into "significant declines" in sales in the upper U.S. Midwest -- a key market for the pricey toys Brunswick makes.
Scanning the horizon, Dammrich at the NMMA says there are signs of light. Chief among them is the recent dramatic plunge in oil prices, which promises to lower the cost of all kinds of petroleum-based products the industry relies on, including fiberglass, resins and foams.
Lower crude prices also translate into lower fuel costs at the dock -- a small part of overall ownership costs, but one that can discourage first-time buyers from taking the plunge.
What's more, while the overall industry saw sales decline in 2006, some segments did quite well, including the ski- and wake board boat market, as well as the jet ski and wave runner markets.
While personal water craft typically sell for less than $10,000, the ski boats can easily top $70,000.
Looking out to 2008, Dammrich said manufacturers are optimistic the industry will rebound. That will mark the third year of the "Discover Boating" campaign, the industry's first- ever TV ad campaign.
Since the boat ads began airing in early April on CNN and other cable networks, Dammrich said about 6 percent of the target market has moved from being "not interested in boating" to "interested."
Since it typically takes two to three years for would-be buyers to go from "interested" to outright ownership, 2008 could be the year the campaign starts lifting sales.
In addition, Dammrich is confident the Federal Reserve will have eased rates and the economy begun to grow by 2008, if not earlier.
"The combination of those two things bodes very well for '08 and '09," he added.