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If it floats, it's better to rent than own — that was never truer of yachts and boats than after the financial crisis struck. But several years on, signs are emerging that the new boat market will finally return, potentially creating an opportunity even for practical investors.
Boating is perhaps the most cyclical consumer sector imaginable. Vessels are expensive, time consuming and completely discretionary. So the moment consumer confidence began to slip, so did boat sales. The largest listed boating company, Brunswick, saw its marine sales peak in 2006, not long after its shares reached their all-time high.
The boat market has recovered little ground since then. In 2013, new U.S. unit sales of outboard motor boats were 64 percent of their prior peak, while some varieties of inboard motor boats were at just 18 percent of their highs, according to Tim Conder, an analyst at Wells Fargo.
But investors who look more closely at the boating industry may see that demand is alive and well. The real problem holding the sector back is a glut of supply.
When the crisis hit, many boat owners who weren't seriously rich became eager to unload what they didn't need. That created a flood of used but relatively young boats on the market at deeply depressed prices. They became far more attractive than new boats to potential buyers. At the same time, owners who wanted to sell or exchange their existing boats had less money for new purchases.
Sooner or later, the supply of attractive used boats is bound to run short. While new boat sales volume is still depressed, used boat transactions are happening as frequently as ever. On its most recent earnings call in January, Brunswick said that used boat sales transactions surpassed pre-crisis levels in 2012 and likely did so again in 2013.
The upshot is that the used boat market, currently around 800,000 units annually, could contract by 180,000 units in 2015, Conder estimates. That could shift a huge amount of demand to the new boat market, currently under 200,000 units.