High interest rates and recession haven't sent the Washington region's boat business to the bottom this year, but all but a few segments of it know they have been in a serious storm.
Nationally, rumors are rampant about manufacturers in trouble with sailboat sales off between 30 percent and 40 percent by most accounts. Smaller sailboats have been very hard hit, with builders shutting down for extended periods this summer to reduce inventories. Locally, some smaller dealers are folding and others have seen sales tumble. Some brokers selling larger yachts are marketing them as potential tax shelters to try to prop up sales.
Along the Potomac and around Chesapeake Bay, most parts of the industry are holding on, hoping for a brighter future even if not a return to the halcyon days of the the late 1970s when eager buyers snapped up sailboats as fast as they could be built. Meanwhile, chartering is up substantially -- higher air fares to the Caribbean has sent potential island-hoppers to the bay -- and many firms are expanding into new areas, such as renovating sailboats and repowering power boats, to increase income.
Power boat sales, hard hit in earlier years by a fear of fuel shortages, have been much stronger than those of sailboats in 1982, dealers say, probably because the fear has evaporated. However, that business is off, too, just not as much.
Those in the industry who saw some tentative signs of a pickup in business last month are hoping the U.S. Sailboat Show, the nation's largest with about 500 craft of all sizes on display, will encourage buyers to open their pocketbooks again when it begins Thursday in Annapolis. The U.S. Powerboat Show follows there a week later.
Here and there a particular company is already bucking the downward trend.
In Mayo, on the bay a few miles south of Annapolis, Steven DiLeo is about to add 3,500 square feet to the building in which his company is making the Galilee 15, a sleek day-sailer he designed and started building in his father's garage two years ago. He has only a handful of dealers but he has built and sold about 100 boats, which retail for about $3,400, since he took the first one to the Washington Boat Show last year.
Across the bay in Trappe, Md., an expanding Dickerson Boatbuilders expects to produce this year about 15 of its customized 37-foot cruising yachts, which sell for about $110,000 to $120,000. Dickerson's president, Ted Reed, says sales will be up about 70 percent over 1981.
The common thread running through the businesses that are making it, whether expanding or just hunkered down waiting for better times, is a strong sense that they are indeed businesses, not romantic boating enterprises. "People go in and out of the business all the time because it is romantic," says DiLeo. "And they go out of business because that is the way they run it, on a romantic basis."
Almost everyone in the business seems to have been a sailor, whether sail or power, and most of them don't get out on the water very much any more. The demands of their businesses do not permit it. That is the case with Jay Smirnow, the owner of Backyard Boats, an enterprise with a marina and repair yard in Shady Side, Md., and retail showrooms in Alexandria and Annapolis.
Smirnow began selling a small catamaran he had been sailing 13 years ago when a friend, Tom Magenau, head of Tri-State Marine in Deale, Md., let him have some on consignment. He borrowed $800 from a bank, and working out of a rented house on five acres on the Potomac south of Mount Vernon, Smirnow sold five of the 12-foot catamarans the first day he ran a newspaper ad.
He made about $1,000 that day, far more than the $250 a month he had been earning while nearing completion of a doctorate in physics at American University. Eventually he walked away from graduate study -- "I just left one day and never went back. I didn't even clean out my desk," he recalls -- as the business took more time. Now it has taken the place of his sailing as well. ackyard Boats sells no power boats. It handles everything from a $399 Sunflower, a tiny sailing dinghy, up to a $70,000 Catalina 38, along with a full line of boating equipment. Smirnow says sales are down about 15 percent this year, the first year-to-year drop he has ever experienced. Surprisingly, he also says he will make more money in 1982 than 1981.
Sales of smaller boats are highly seasonal, as are actual deliveries of larger boats, which are counted as sales only when they go out the door at Backyard Boats. Some months boat sales may be as low as $100,000, and in others as high as $1.5 million, Smirnow says, ranking his business in the top five boat dealers in the region.
"This is the first year that the sailboat business has really felt the recession," he explains. Sales started to sour in January when a major snowstorm hit and never really came back. "It was like somebody pulled the plug. We never knew the two earlier recessions were there. We had a sailboat boom and money was no problem the way gas seemed to be for the powerboats.
"In a way, the recession is a blessing in disguise. We had a banner year in 1981. Our sales were way up, about 25 percent, but so was our overhead. This year we will have more profit than last year because we cut our overhead to the bone," he declares.
That cutting has involved reducing his $1 million-plus inventory of boats, trailers and outboard motors to escape some of the high interest costs of financing it. Up until this year, rapid price increases for boats had pushed up the value of that inventory, and those profits "hid a multitude of sins," Smirnow says. Now prices are going up very little and that source of profits is all but gone, another reason for cutting back stocks.
Through attrition rather than layoffs, Smirnow has also trimmed his current payroll to 43 people from a top of about 70 -- though some of that is a seasonal reduction. That has reduced his weekly labor cost by about $4,500, or "more than $100,000 for the year," Smirnow estimates.
The recent drop in the prime lending rate at commercial banks has cut the cost of financing Backyard Boats' "floor plan" -- a term borrowed from auto dealers referring to financing of cars on dealers' lots. On the other hand, rates charged customers on boat loans have come down relatively little, Smirnow and other dealers note.
"The availability of credit for buyers has been no problem, not like it was in the spring of 1980. The rates peaked out at about 18 percent earlier this year, and now you can shop around and get 16 percent," he says. Generally speaking, banks will allow boat loans to run about a year for every $1,000 borrowed, up to 10 years. They may go to 15 years on larger amounts, say $30,000 or $40,000.
While Smirnow and other dealers all hope business is going to turn up, they are not counting on it. "I'm preparing for another year exactly like this one," he declares. "I don't want to get caught with my pants down again inventory-wise."
At Tri-State Marine in Deale, Tom Magenau is equally determined to keep inventories in line, though he has not seen a sharp drop in sales because of an emphasis on power boats and outboard motors. With aggressive pricing and advertising and staying open seven days a week year 'round, Tri-State expects to sell about 250 power boats, mostly Grady-Whites with price tags ranging from about $5,000 to $35,000, about 700 outboard and stern-drive power units, and about 70 sailboats, mostly Hunters with prices up to about $70,000. It all adds up to a gross between $5 million and $6 million in sales annually, Magenau says.
The Maryland Department of Economic and Community Development says the state still has more than 200 dealers in marine equipment of all types -- including commercial equipment -- with total annual sales of more than $100 million and payrolls of over $10 million. The state has nearly 40,000 boat slips and more than 135,000 registered boats.
Within Anne Arundel County, which includes the Annapolis area, the boat business is approximately the same size, economically speaking, as the automobile business, Magenau says. Even so, he adds, "The total pie has gotten smaller in the last three years, perhaps even since 1973 in real dollars."
His guess is that the overall decline may be on the order of 10 percent, while the number of dealers has fallen perhaps 20 percent with many others still in business only on a nominal basis as a sideline to a marina operation.
As other dealers have dropped by the wayside, Tri-State has captured about a fourth of the outboard sales in the region, Magenau says. John Slattery, Tri-State's general manager, estimates the average boat dealer probably has sales of about $1 million to $1.5 million a year now. "Most of the 'mom-and-pops' are gone," he says.
With first powerboat and now sailboat sales off, overall sales of boats have "not been a growth area for several years, though I think it will not necessarily remain that way," Magenau observes. But while total boat sales have not been going up, Tri-State has begun "trading to the after-market."
That has meant getting much more deeply involved with brokering of used boats, and in re-powering, which means putting new engines, whether in-board, outboard or stern drive, in older boats. In the sailboat part of the business, which is run by Don Miller, a part owner of the company, it has also meant stocking a new line of smaller boats.
Smaller sailboats have not been selling very well this year, and that has hurt not only area dealers such as Backyard Boats which specialize in them but also a few companies that supply components to the manufacturers. Chesapeake Cutters in Annapolis has really felt the crunch.
The company specializes in cutting sailcloth and in some cases making the completed sails for smaller production line boats, including the Hobie Cats and Lasers. It also is doing the sails for DiLeo's Galilee 15.
With a Gerber System 90 computerized cutting machine, Chesapeake can cut up to 30 layers of cloth at a time, and have every piece exactly the same time after time. Sales manager Duncan Skinner, who is also a part-owner, says Chesapeake's work force has dropped from 30 to only nine as production of sailboats fell this year. Nevertheless, the company still will cut cloth for about 8,000 catamaran sails and about 15,000 sails for smaller boats this year.
"The boating industry was just terrible this year," Skinner declares. "We had 30 employes last year but we had to lay off most of them. If the economy comes back, we could be up to 40 or 50 again quickly."
Chesapeake also has a plant in Northern Ireland that will turn out about 50,000 sails for the burgeoning wind-surfer market in Europe this year, Skinner adds.
Along the Annapolis waterfront, the yacht brokers getting ready for the Boat Show hope it will mark a turning point.
"We used to think this area was immune to downturns in business," says Ed Harner, one of the partners in Dockside Yacht Sales. "Well, this year the boat business is down."
Dockside's volume is roughly $3 million a year, about evenly divided between sales of new and used boats. The smallest new boat the firm sells is a Morgan 32-footer priced at about $60,000.
To keep sales going, Dockside has begun to market boats as tax shelters. Harner does not give tax advice per se, but he points out that a boat that is bought and made available for charter can be written off for tax purposes over a five-year period using an accelerated depreciation schedule to boot. As with vacation homes, the owner cannot use the boat personally more than two weeks a year without losing the write-off.
But since few owners want to undertake the hassle of chartering out their own boat, Dockside has had to undertake management of a charter fleet for those owners. With 45 boats now in that fleet, and all the maintenance required, the number of Dockside employes has jumped from six to 21.
Harner describes his outlook as "conservative but not gloomy. I've cut down my orders for new boats but very cautiously. In this part of the boat business, you deal with the top 2 percent of people in terms of income. They have always had money and the always will."
For those who still need to borrow part of the price, Harner says, "There may be no home financing, but there is plenty of boat financing" because boat buyers are incredibly good risks. "Apparently, people will sell their house before their boat or before they will let it get repossessed."
Typical terms today on a $70,000 boat might be a 20 percent down payment, with the remainder financed at 15 1/2 percent for 15 years, he says.
Next door in the same Yacht Haven building, Victor Solomon of McMichael Yacht Brokers says his firm is just beginning to get into chartering for the same reasons as Dockside: maintaining sales. "It used to be that people would look at a boat and say, 'What a beautiful hull,' or 'Look at that trunk.' Now they want to know what is the return after three years," Solomon says.
"The market has forced all the dealers to become businessmen. You know, people think the margins are high in this business because it is glamorous. Well, we have had to tighten up to move the boats, and we have to move some boats to keep the builders alive."
One thing new this year to Solomon, Harner and the people at Tri-State Marine and Backyard Boats is what Harner calls the "vultures," people with a chunk of cash who want to do the dealers and brokers a favor by taking a boat off their hands at a price well below their cost.
"They think you have to sell your inventory to survive, and they think they can steal something from you. I've had them come in and offer $80,000 for a boat that cost me $100,000," Harner says.
The Morgan yacht handled by Dockside, Harner maintains, is the "finest line of production boats" being made. Across the bay in Trappe, Dickerson Boatbuilders represents the next step up the ladder--a customized production yacht that is selling well.
Tom Reed, who abandoned a career as a stockbroker five years ago and with two partners bought Dickerson, is expanding in several directions at once. Its basic business is still customized yachts, each of which takes about 11 or 12 weeks to build. The fiberglass hulls and decks are made by a subcontractor in Cambridge using Dickerson molds. Most of the company's production workers are skilled carpenters, electricians, mechanics and riggers who turn the hulls into finished boats.
The company has just acquired more land on the other side of Trappe Creek, including a large building in which bay work boats are now made. With the added land, Reed will put in more slips for Dickerson's new charter fleet and boats to be offered by a growing brokerage service. In addition, he hopes soon to be building a new line of racing yachts designed by New Zealander Bruce Farr especially for the lighter wind conditions of the bay. Finally, Dickerson will also be doing major renovations of older boats.
"We are up to 32 employes now. I expect to be up to 65 or 70 next year, and that's as far as I want to go," Reed says.
"The trick is to find your market and narrow in on it. The tough times aren't over by any means, for us or the industry. But we are headed in the right direction."