State of the Industry, 2012: Nine Leaders Speak Out

As the high-performance marine industry faces new challenges, many companies will be putting their best foot forward to continue to advance the sport over the coming years. There are a lot of questions surrounding our market, so we thought now was as good a time as ever to sit down with nine of the most knowledgeable and respected people in the business to get their thoughts on the immediate future and the most pressing issues facing this industry.

FRED KIEKHAEFER

President, Mercury Racing

Do you expect to see positive industry progress in 2012?

The marine industry will slowly crawl back. Mercury Racing business will improve in 2012, but not by much, and never back to the levels of 2006. The incompetence in Washington and the worldwide economic destruction has changed consumer behavior forever. Those of us who scaled back during hard times, yet retained the capacity to innovate, will endure — even prosper — but not like before.

How do you anticipate engine emission regulations affecting the industry in 2012?

2012 regulations are pretty much set; Mercury’s offerings are compliant. We’re working in 2012 to get the international governing bodies to adopt U.S. EPA (Environmental Protection Agency) emissions standards. One worldwide standard would make life much easier for all manufacturers and be better for the environment. In 2012, there are products we simply will not offer for sale in some parts of the world because either the cost or capability to comply with local standards vastly exceeds any potential financial return.

What are your thoughts regarding the potential harmful effects of E15 on marine engines?

E15 is a bad idea. First, E15 makes an engine run hotter, which we have shown can cause engine failures. Older engines were not designed to accept E15. The opportunity for mis-fueling is real and damage can be expensive. Second, while next-generation engines can be designed to run on E15, new (and old) boats will have a more serious problem. Alcohol absorbs water, whether from condensation in fuel tanks or introduced with bad fuel, and can separate leaving a layer of water at the fuel pickup. Last I checked, marine engines run over water, not on it!

Also, ethanol will clean out fuel system deposits and can form sludge in the fuel tank that can’t get through the pickup. Furthermore, ethanol can destroy composite fuel tanks. None of this is good. At sea, you cannot simply pull over to the curb and call roadside assistance.

The California Air Resources Board (CARB) wants to go to an E10 certification fuel for engines, but EPA has proposed E15. We can live with what CARB wants, but are trying to educate EPA on the hazards of E15. Sadly, I believe the push toward E15 is driven by the ethanol lobby and a desire to appear “green,” not by science or any risk/benefit analysis. I think government should end ethanol subsidies; farmers should grow corn for people and livestock to eat.

What event(s) are you most looking forward to in 2012?

1) Miami International Boat Show, 2) Desert Storm Poker Run and Shootout, 3) Lake of the Ozarks Shootout, 4) Florida Powerboat Club’s Miami to Key West Poker Run.

SCOTT PORTER

President, Formula Boats

Do you expect to see positive industry progress in 2012?

I am hopeful that there will be some industry progress in 2012. However, I expect there to be plenty of distractions with the elections and continued volatility in the oil and stock markets to cause ups and downs in consumer sentiment. Presently we are seeing several news reports of positive economic movement. The Consumer Sentiment Index was up for November (although still down from 2010), auto sales are doing well and exports have been up, too. If these improvements lift the GDP then the boating industry should benefit in 2012. Interest rates continue to remain low, providing great opportunities for financing a new boat purchase. This is truly a great time to get a fantastic value.

How can you attract new buyers when so many are being cautious with their spending?

By keeping our offerings exciting and providing a high-quality experience. We are always working on new graphics, both design and color. Formula has been very flexible in helping its clients create a craft of their dreams. We’ll also continue to offer exciting alternatives to the traditional performance model by way of Formula’s fresh FX line. We’re also working aggressively at facilitating trades. Formula has been working with its distribution network to provide trade capital and expanded avenues for sale of pre-owned boats.

Do you envision a trend toward smaller boats?

Not saying this won’t happen, but we have not seen evidence of it.

BOB LATHAM

President, Latham Marine

Is it difficult to develop innovative products, and can you offer a sneak peek at anything new you have in the works for 2012?

The short answer is yes. It costs a lot of money to develop a product, do the testing, and of course the marketing, not to mention actually bringing a product to market. The difficult part is that not every idea is a winner. For 2012, we will be coming out with a variable-speed steering system for the outboard market. For example when you’re driving at low speed or at idle, the system automatically adjusts for slow-speed operation. Then when you get on plane and up to speed, the system responds appropriately and speeds up.

What do you think needs to be addressed in regard to safety concerns when it comes to both pleasure and race boats?

That’s a broad subject. In light of the tragedies in Key West (in November), let’s talk about racing. Racing organizers need to be very proficient at initiating safety into their organizations and backing it up with stricter rules — and that’s not what we have now. This is what has to be done, and that’s the end of discussion. The rules cannot be flexible and they should always be improving. You can’t leave it up to an individual race team either — enforcement is essential. Everybody who climbs into a race boat understands things can happen. I raced for many years and saw a bunch of my friend die. But organizations need to be doing their job because the boats aren’t getting any slower.

On the pleasure side, that is a whole other issue. There are a bunch of boats that will go 150 mph and even 180 mph. But I don’t think everyone understands, what can really happen at those speeds. As the boats get faster, the people involved really need to understand the equipment that they’re riding in and they have to be proficient at orchestrating that equipment safely.

Do you foresee more people upgrading their current boats or even buying something used to fix up?

Yeah, there is definitely more of a trend of people upgrading their boats as opposed to buying new ones. The good and bad thing about that is our equipment stands the test of time so people don’t have to fix our parts very often. On the flipside, we do get the opportunity to sell equipment to boaters needing to replace an inferior product.

SCOTT SHOGREN

Owner, Shogren Performance Marine

Do you expect to see positive industry progress in 2012?

We are having a great year — in fact, we are having a record year. That’s the good news. The not-so-good news is the majority of our sales are coming from used, not new boats and we see this trend continuing in performance boating for years to come. Although there is a buyer for every seller, the buyers are buying for a fraction of what a new boat costs, which is holding back new boat sales. We do feel strongly that trailerable boats in the 25- to 29-foot range are going to come back first, and for that reason we have signed up with Checkmate Boats. We also feel more consumers will be looking at outboard-powered sport boats in the single-engine class to keep speed down and enable themselves to have longer warranties with minimal insurance premiums.

How has the dealership business changed in respect to new boats vs. used boats?

We are selling 20 used boats to every one new boat right now.

Do you foresee more people upgrading their current boats or even buying something used to fix up?

We are seeing a trend of people re-rigging and or updating their boats with new dashes, new power, new paint, etc. The reason they are doing this is because they can spend 20, 30 or 40 grand and have a 2002 model look like a 2012, or they can spend 250K to trade up. In order for new boats to sell, they need to be different, not the same with a new model year stamp. Nor-Tech Boats has done the best job of this the past two years and the sales reflect that.

ARTHUR BURR

Vice President, Total Dollar Yacht Insurance

Do you expect to see many changes in the world of high-performance boat insurance?

I believe what you will begin to see in the near future is a consolidation of the market in terms of products. Every few years, a few new insurance companies seem to enter the market, which can be both good and bad. It is good in the short term for the consumer as competition keeps rates down. It can be bad as this new player may enter the market, drive rates down and then depart just as quickly as they entered. This could result in a more established insurance company leaving the performance segment due to a decrease in market share, as they won’t compete against the new carrier who has no experience. This in essence could leave the market in a lurch if all the carriers leave and you end up with no competition, which could result in large rate increases.

Total Dollar has been running its own proprietary insurance programs since 2001 and has been active in the performance segment since the early ’90s. We have seen the rate fluctuations from the extreme highs of the ’90s to extremely low a few years ago. They have come up a little in the last few years, but still sit historically under the average of the last 10 years. More importantly, we continue to put more of our focus on improving the policy and warranting certain things that we feel are of importance in safety and keeping claims down.

What do you think needs to be addressed in regard to safety concerns when it comes to both pleasure and race boats?

Going back to the previous question, one of the warranties we have in our policy is the requirement of using a lanyard or ignition interruption switch. When you have one claim that could have been avoided for an operator falling off of his boat and that vessel proceeding to run someone over, you really don’t have to think very hard about making this a requirement. There have been other similar scenarios of people being ejected or falling from their boat — thankfully no one being injured — but the boat ends up being totaled because it is now in the trees.

Beyond that, safety is always going to be a concern as the power gets bigger and the boats get lighter. We continue to adhere to our guidelines to underwrite the operator or owner of the boat more than necessarily the boat itself. We like to see people making a realistic transition in both size and speed as they continue to enjoy the sport of performance boating. There is sometimes nothing more frustrating than watching someone who has no experience going out and purchasing a boat they don’t know how to handle. As an avid boater myself, it is not really a comfortable feeling knowing that there are people out on the water who really have no business being out there.

The issue for these inexperienced boaters is an industry problem, not just one for the performance side. There are very few places that someone can go and learn the skills they need to jump into a boat whether it goes 10 knots or 150 knots. Thankfully in the performance segment, Tres Martin realized this and went out and put together a school with great results. We would love to see additional professionals like Tres develop similar courses so that even more people can take advantage of these schools. Even avid boaters who have taken Tres Martin’s course have come back and advised that they felt it was well worth the time and cost.

Do you envision a trend toward smaller boats?

With the questions surrounding our economy and where it is going, this is not an easy question to answer. The majority of new boats we have seen are actually on the other extreme, as most are high-powered large catamarans. We’ve also seen a lot of people move to the performance center console with outboards. The price of fuel and engine maintenance coupled with the poor economy has made this a very common call for performance boaters to make this switch. My hope for our market is that our overall economy can stabilize so people will feel better about going out and doing what they enjoy and we can start growing as an industry again.

REGGIE FOUNTAIN

President, Fountain Performance Marine

Do you envision a trend toward smaller boats?

At this time, I see no trend either way, but larger boats are selling better than smaller boats.

Do you foresee more people upgrading their current boats or even buying something used to fix up?

I definitely see more people upgrading their current boats or fixing used boats rather than buying new boats. Today, our service and restoration business is dramatically better than new boat sales.

What event(s) are you most looking forward to in 2012?

A change in the President of the United States of America and the resurgences of a weaker economy.

What do you think needs to be addressed in regard to safety concerns when it comes to both pleasure and race boats?

Lessons on how to drive and take care of (boats) tops my list. At Fountain Performance Boats, we will definitely be offering lessons on how to safely drive and how to adequately service their boats.

RANDY DAVIS

President, Nordic Boats

How can you attract new buyers when so many are being cautious with their spending?

The main thing we can do is keep our brand out there in front of everybody. We’re not going to do as many boat shows as we usually do. I don’t even know if we’ll be going to the Los Angeles Boat Show this year. We’ve really focused on Internet marketing — it’s helped us get our name out across the States, as well as the world. We also open our doors to potential customers by offering in-house factory tours and sales assistance. Buyers today are much more educated about what they want and we welcome their involvement during the boat-building process.

Do you envision a trend toward smaller boats?

I actually do see a trend looking toward medium- or smaller-size boats. Most of the sales we had in the last year have been in the 25- to 28-foot range, and I think that will be a majority of the market for a while. That being said, we just finished tooling a 39-foot V-bottom. Do I wish we would have started a project on a smaller boat? Maybe, but the 39-footer is still a nice addition to our lineup.

What event(s) are you most looking forward to in 2012?

Obviously the poker runs. I’d love to do even more of them, but I don’t think it’s in the cards this year. Obviously we’re looking forward to the Desert Storm Poker Run as it’s in our backyard and there’s going to be even more packed into a full week out in Lake Havasu. I’ll also be going over to Europe to compete in the ski-racing series over there. I’m looking forward to that and trying to break Chuck Stearns’ record. (Stearns won the Catalina Ski Race from Long Beach to Catalina 11 times from 1955 to 1982.)

SCOTT PRICE

Owner, CP Performance

Do you foresee more people upgrading their current boats or even buying something used to fix up?

Absolutely. We’ve never been more enthused about the future. While the economy has hit hard on the new boat market, the flipside of that is boat inventory and price levels are at extreme lows. This has people upgrading to boats they once couldn’t afford as well as those who have decided keeping their boat is their best bet—the latter are making improvements to their boats every day.

Do you envision a trend toward smaller boats?

I’m not sure our current market will trend there as much as I think you will see an evolution of boat builders arise and focus to capitalize on the next generation of boaters. The current boating market is very matured to the point it doesn’t have enough cross section to connect with the younger generation. The ski-boat guys are paying attention, even building bigger boats to satisfy the needs of progression. Most manufacturers aren’t driven by the succession of what will make their boat company strong 10 to 20 years from now and this is opening an opportunity. There are so many great things happening in the automotive engine world — just watch, it’s a matter of time before you see those packages marinized and driving a new segment of the marine market. Affordability and cost of ownership will be key.

Is it difficult to develop innovative products, and can you offer a sneak peek at anything new you have in the works for 2012?

Developing new products is both exciting and rewarding for us. It is an example of our commitment and passion for the industry. The last five years have brought fabulous technological breakthroughs. Whether it’s Mercury Racing’s engine line or GPS gauge and instrument technology, one thing’s for sure, these breakthroughs are creating numerous new needs for the performance segment of the industry. While these products are exciting, there are lots of people with earlier-model boats seeking some of these advancements.

The New Year will bring long-awaited “Performance Packages” from Hardin Marine in the way of bolt-on user-friendly horsepower increases turning 525s into 625s, 700s to 850s and 1075s to 1350s. Another advent of this new technology is boats are running at speeds most thought weren’t possible years ago. These levels have required re-thinking cooling and oiling systems to meet these demands and we’re at the forefront of this. The Miami International Boat Show will unveil just the tip of what is rapidly approaching. The future looks very bright.”

BOB TEAGUE

Owner, Teague Custom Marine

How do you anticipate engine emission regulations affecting the industry in 2012?

Engine emission regulations are already affecting the industry. Currently, all new engines that are less than 500 hp are required to meet the strictest emission standard of 5 or less grams NOX and HC, and are required to be equipped with catalytic converters. Also, at this time, all high-performance engines produced for sale into California are required to be certified and compliant. There are two levels based on horsepower. Engines that produce above 500 hp, but not more than 650 hp, are required to produce no more than 16 grams NOX and HC. Engines that produce 650 hp or more are required to produce no more than 22 grams NOX and HC. CO emissions are also regulated.

The test procedures and certification process is extensive and expensive. At this point, only three high-performance engine manufacturers are certified and approved to sell engines in California. Mercury Marine’s high-performance offerings comply as a result of corporate averaging allowed over the company’s complete product line. Ilmor’s 650- and 725-hp V-10 engines are compliant as standalone engines. At Teague Custom Marine (TCM), the family of engines from 825 to 1365 hp has been certified as CARB compliant as standalone offerings. Canada accepts engines that are CARB compliant for sales into its country.

Boat manufacturers are being required to install carbon canisters and systems to minimize fuel vapor emissions. Fuel tank material is regulated and fuel lines must be certified as low permeation. The regulations apply to new engines regardless of the year of the boat they are being installed in. Engine manufactures and installers share the responsibility for compliance.

During 2012, current certified engine manufacturers are finalizing their compliance testing and procedures to meet EPA standards that will go into full effect for the high-performance engines in January of 2013. The EPA and CARB emission standards are similar with a few variances in the test procedures. Current engine manufactures were required to apply for extensions with the EPA a few years ago as part of the approval process.

The result of these ongoing requirements has caused the three engine manufacturers to spend quite a bit of money and time to achieve compliance. As a side benefit, I feel that the overall performance and durability of the engines produced at TCM are comparatively superior as a result. Ilmor and Mercury Marine also have improved products as a result.

The emissions regulations are already limiting boat builders and shops re-powering boats to fewer engine options. Many engine manufacturers have decided to not offer California compliant engines. 2012 will be the year that the remaining engine builders will have to decide if they are going to comply with the EPA requirements. If they do not, they will no longer be able to offer new high-performance engines.

What are your thoughts regarding the effects of E15 on marine engines?

Tests have already been conducted under the guidance of the National Marine Manufacturers Association (NMMA). All indications at this point are that the use of E15 fuel will have a detrimental affect on engine reliability. This is especially true for high-performance engines. Fuel tanks, hoses and seals are also impacted by ethanol in fuel.

Is it difficult to develop innovative products, and do you plan to introduce anything new in 2012?

Our company is always striving to refine the current engine product line while adding more features for integration into the latest electronics. And TCM is constantly developing new stainless-steel rigging components and hardware, including a recently released line of adjustable water pickups for boats with notched bottoms and a new line of ultra heavy-duty sea strainers.

TCM also has developed digital trim indicator kits that can function separately from the engine ECM. This will allow all boats with any engine package to have digital LED indicator panels instead of manual cable-operated indicators. TCM has developed a series of potentiometers and brackets that mount on various trim tabs and planes. New drive package options will be released in 2012 and a new naturally aspirated engine package is in the works.

Finally, TCM has just completed validated upgrade programs performed in conjunction with rebuilds of Mercury Racing engines for 525EFI to 1075SCi. The 525EFI program includes a cylinder head exchange program for newly developed CNC ported heads. The head upgrade program is just part of the Stage IV upgrade of the 600SCi and 700SCi engines. The final product produces in excess of 870 hp on 91-octane gasoline. Also, the Stage IV upgrade for the 850SCi and 1075SCi, which includes the installation of the Whipple 2.9 liter Quad Rotor setup with huge power gains, will be validated by January 2012.

Do you expect to see many changes in the world of high-performance boat insurance?

As some carriers are dropping out of the market, others may look at the opportunity. I feel that some of the carriers are now starting to look at positive factors such as experience, driving record and credit rating to justify providing more affordable rates.

What do you think needs to be addressed in regard to safety concerns when it comes to both pleasure and race boats?

Performance boat design and construction has improved considerably over the last several years. Many of the original-design stepped bottom boats had their quirks, which resulted in undesirable characteristics, especially in turns. Most catamaran builders now offer designs that handle well at all speeds without porpoising or leaning out in turns. In all, boats and construction are better.

Many of the improvements in the offshore world have evolved through boat manufacturers’ involvement and participation in racing. Ultimately, what works well on a racecourse makes a better pleasure boat design.

What needs to be focused on is driver’s ability and attitude. I always say that “I don’t race my pleasure boat and I don’t pleasure my race boats.” The pleasure-boat operator needs to run his/her boat in accordance to the least comfortable person in the boat. In all cases, the boat operator needs to check his/her ego at the dock. Poker runs are not races. Many of the poker run producers are now also offering a “shootout” event separate of the poker run. One of the reasons is to encourage people to run their boats fast in the controlled environment with safety resources in place as opposed to during the less-structured environment of the poker run portion of the event.

Operators must be sober. The Lake Havasu Marine Association developed a Designated Operator program that is sponsored by TCM and Romer Beverage that has made a big difference in the Colorado River area. This program has the support of the various enforcement agencies as well as many participating businesses. Other municipalities throughout the country are inquiring about starting their own similar programs. I encourage them to do so.

While there are several styles, types and classes of races boats, I am focusing on the offshore category. Most of the open-cockpit boats are now running in the GPS bracket classes. Many of these boats could double as a pleasure boat. And because of the experience of most of these racers, I feel confident that they operate these boats in a saner manner if they are part of a poker run. Most of the safety improvements have been focused on the canopied race boats. Over the years, offshore race boats have become safer with systems developed primarily by manufacturers. Many of the improvements have evolved by examining failures of previous systems. There have been construction and design standards suggested by sanctioning organizations, but not enforced. But as a rule, the canopied race boats are safer. The more sophisticated canopied race boats required more sophisticated rescue procedures. While some organizations have done a decent job providing dedicated trained rescue personal and procedures, it is not universal.

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