Genmar Holdings,
Inc. the boat building conglomerate, threw in the
towel yesterday (6-01-2009) and filed Chapter 11
bankruptcy protection.
As far as ten years back I warned
Irwin Jacobs in several published articles about the
perils of creating that kind of company with all its
eggs in the one basket of the highly cyclical boating
biz. All it takes is a major economic downturn, and
you are finished. Great business executive, that Mr.
Jacobs, as brilliant as all the bankers and real estate
moguls, doesn’t
understand diversification as a survival strategy.
I also accused
him of megalomania when he bought Hatteras and tried
to turn it into a mega yacht builder in the face
of a market that was already over-saturated with
same. He didn’t stand a chance and proved it
within only a couple of years, taking a once great
company and effectively gutting it. Rubbing salt
in the wound, Brunswick then picks up the dregs and
foolishly attempts to do something with it. By then
the only hope would have been to pack up the molds
and blue prints and move Hatteras to Belize or China.
“If someone would have said to me as recently
as even one month ago that Genmar would someday be filing
for Chapter 11, I would have said it was not even a
remote possibility,” Jacobs said. Uh huh. Sure.
2009 sales were off 50% from 2008 which were off 50%
from 2007 and you had no idea. That was Jacob’s
problem: he had no idea, just delusions of grandeur.
After all, he
was the only “boating mogul” I’ve
ever met that wore black Armani suits with a hanky in
the pocket, in contrast to the likes of Bob Derecktor,
Jack Hargrave, Frank Denison, Dick Bertram and
others who wore coveralls or khakis.
Genmar brands
consist of Carver, Wellcraft (a brands that should
have died two decades ago), Four Winns, Hydro Sports
(another looser), Stratos, Champion, Larson, Windsor
Craft, Sea Swirl, Marquis, Ranger and Triumph a collection
of real winners there. The Jacobs strategy was to
pick up failing builders on the cheap and attempt
to make something of them. Other than Carver, which
didn’t need any help, do you recognize any of
those brands? Are any of them worth owning at any price?
The notion of
bankruptcy protection is something of a joke if the
info contained in several news articles is accurate.
According to the articles, Genmar has between ten
and fifty million in assets and liabilities of $100
to $500 million with 100 to 199 creditors. What’s
this “between” crap? Just that, crap. How
does one not know what its liabilities are? Ergo, the
truth is probably that Genmar has $10 million in assets
and $500 million in liabilities. Now, GM was just disclosed
to have a debt to equity ratio of 2:1, but Genmar takes
the cake with 50:1. Bankruptcy protection? There isn’t
anything to protect. A liquidation recovery of 2 cents
on the dollar would be great fortune, but the assets
(manufacturing real estate) at this time are likely
worth next to nothing.
Brunswick is next
in line for the chopping block, an outfit with only
a tad more diversification than Genmar, which had
none. Their stock is selling at $5 only because a
rising tide lifts all boats, even when they can’t
sell any boats because the lenders are withdrawing floor
plan financing from dealers. Apparently it is surviving
due to an existing line of credit, but that can’t
last long. Boating won’t much miss Genmar, but
Brunswick is a different matter.
Many of the independent
builders, so long as they don’t
have a big debt load, are hanging in there. They can
reduce operations to near zero without going bust, close
down even until the field is cleared of excess capacity.
However, they’re going to get hit with high fuel
prices once again so that in order to continue surviving,
they’ll need to change their product line to both
cheaper and more efficient boats. One way to do this
is to eliminate most of the eye candy and come up with
less costly designs. Be done with the Buck Rodgers space
ship nonsense and go back to “square is beautiful.” Shallow
bottoms, keels and single engines for smaller boats.
There will be no choice in the matter what with GM going
bust; the end of the V8 and probably V6 is at hand.
And no, those Japanese aluminum engines are not adaptable.
Don’t be misled if any should try that. We’ve
been down that road many times before and it will not
work.
For boating to
survive at all, builders will have to adapt to a
much poorer America that will be paying either cash
or very hefty down strokes, like 30-50%. That means
to sell anything in volume, they’ll have to cut
the price by half. Sound impossible? Its not. It will
just take time for attitudes to change that the boats
of the future aren’t going to be like cars with
all the eye candy and faux luxury. The boat of the future
will be more like a 1980 Chris Craft Catalina pictured
above. The American love affair with the automobile
is likewise coming to an end; henceforth, the car of
the future will be utilitarian by virtue of the fact
that people won’t be able to afford anything more.
Why boats like
the Catalina? Mainly because they are much less costly
to produce. Using computer controlled mold making
machines to create that abundance of curvy, wavy
lines is very costly. So is screwing around with
all the exotic hi tech materials. Boats like the
Catalina more closely resemble the traditional summer
cottage on the lake rather than a five star floating hotel
room. You get a fold down bunk instead of a queen size
berth that comes standard with a $1500 monthly payment.
What the boat
building industry needs is some people with vision,
who can see what the future holds and then create
products that will and can sell in that unfortunate
environment. Like the name of the movie, it means going “Back
to the Future.” That will only seem bad to people
who think things can develop and grow forever. Fortunately,
the world is not like that, otherwise we’d consume
everything to the point nothing was left. As it is,
we’ve already done too much of that. Like it or
not, the retrenchment cycle is at hand.
The United Socialist
States of America isn’t going
to be a very prosperous nation but a nation in permanent
decline. Believe it, accept it, and get on with it,
or emigrate.
Posted June 3, 2009 |
