Some Brunswick dealers are not sounding any alarms as a result of production cutbacks, layoffs and plant closures announced by the boatbuilder earlier this summer.
“We’re not concerned about it at all,” said Warren Moulis, sales manager at Fox Lake Harbor in Fox Lake, Ill.
“Brunswick is one of the largest boat companies in the country, so I don’t think there’s a problem,” Moulis added. “I think they’re just trying to save a little money with the production cutbacks.”
Tom Stidham, owner of Norris Marine in Norman, Okla., says difficult times sometimes call for “draconian” decisions.
“I think everybody has been making their own adjustments for what the market demands,” he said, adding that Brunswick is no exception. “I would rather see them do this sooner than later.”
Stidham says Brunswick and other boatbuilders are learning from the lessons of the late 1980s, when manufacturers flooded the inventory pipeline and pressured dealers into taking on more product than they could sell in a down market. By cutting back on production now, Stidham said Brunswick is ensuring its own long-term financial health, as well as its dealers.
“I think they just have to react to the marketplace,” he said.
There is no argument there from Phil Keeter, president of the Marine Retailers Association of America.
“Brunswick has to answer to its shareholders and dealers are not selling anything,” Keeter said.
“None of this makes me terribly happy.”
Given its size, Brunswick can weather the storm and consolidate, Keeter said.
“I just wish there was some way to gain back consumer confidence. The industry is doing everything it can with its dealer certification programs, Grow Boating and Discover Boating campaigns,” added Keeter.
In late June, Brunswick announced plans to close four plants in the coming year, in addition to the eight plant closures already completed or announced. This will bring the number of plants down to 17 or fewer by the end of 2009, compared with the 29 it had in 2007, and will reduce the company’s fixed-cost structure by $300 million.
The company also notified employees it would reduce its hourly and salaried workers at some of its marine plants by 1,000. Further work reductions of about 1,000 hourly and 700 salaried employees across the company’s marine business units are under consideration.
Lake Forest, Ill.-based Brunswick previously announced furloughs at nearly all its U.S. fiberglass plants in July.
“The objective of our downsizing efforts is to ensure solid profitability for our business in this tough domestic marine market,” said senior vice president and CFO Peter Leempuette.
“Efforts to reduce our hourly workforce help to ensure that direct labor remains a truly variable cost as we face lower unit volume. In other words, it is a key factor to prevent further slippage in growth margin,” he added.
Leempuette said savings of about $100 million are expected by the end of 2008, with the full $300 million in savings coming by the end of 2009.
“Maintaining liquidity will continue to be a key priority in these uncertain times,” said Dustan E. McCoy, Brunswick’s chairman and CEO. “We are resizing the company for solid profitability under current conditions.
“We cannot plan based on an assumption that markets will, on a unit basis, reach levels of three or four years ago in the near term,” McCoy said during a recent conference call. “We’re not predicting where the market is going. What we’re doing is sizing ourselves so no matter what happens with the market, we’ll be able to be profitable.”
McCoy, in his statement, said the company has addressed “the prolonged downturn in the U.S. marine market by continually reducing production rates throughout our marine businesses, divesting underutilized assets, exiting or divesting certain businesses, eliminating discretionary spending and reducing head count.
“While these efforts have resulted in significant savings, the realities of the current U.S. marine market have caused us to step up the pace and magnitude of these efforts.”
Retail sales of powerboats in the U.S. have been in decline since late 2005, but that number has been dropping at a quickening pace, said McCoy. Industry retail unit sales were down 13 percent in the fourth quarter of 2007 and down 21 percent in the first quarter of this year, compared with the respective year-ago quarters.
He said Brunswick is not assuming that the uncertain economy, high fuel and food prices, slumping home sales and values, rising unemployment and other factors that continue to erode consumer confidence will ease up anytime soon.
“Our objective is to thrive and prosper while the U.S. marine market remains under pressure and to outperform when we see a rebound in demand,” McCoy said in a statement.
See the full story in the August issue of Soundings Trade Only