In our last newsletter we shared with you our feedback and feelings on the state of the catamaran brokerage market. In summary we felt that over the past 3 months the pendulum had swung from a Seller’s market to a Buyer’s market but that we were seeing a much more unbalanced increase in the number of sellers with an almost corresponding decrease in the number of buyers. There are many comparable signs to what we last saw in the market in mid-2008 just before we saw the first real downturn in the catamaran market ever . Suffice to say, we are not bullish on the market today.
That’s brokerage, so how about the NEW cat market?
Back in 2008 we were the largest NEW catamaran dealer in the world. When Lehman Bros went bankrupt in October 2008 we had 25 new cats on order at that time for delivery over the subsequent 18 months, 15 of which we had ordered for inventory with no pre-assigned buyer. However back in 2008 the market was different. Professional dealers had to order inventory at least 12 months in advance in order to be able to have product to sell to their customers and keep their businesses running properly. Many dealers sold the odd new boat here and there but we were selling a new catamaran every 2 weeks (averaged over a 5 year period) so we needed boats in the pipeline. The market back then before the crash was pretty good but nowhere near as hot as it has been for the past 2 years post-Covid. However there was one huge difference between then and now. Retail Prices!
Before the Great Recession in 2008 manufacturers were increasing their prices around an average of 2% to 3% per year so there was literally no real inflation to be concerned with. When you look at the direction prices of new cats have taken since pre-Covid in early 2020, literally less than 3 years ago, it looks similar to a chart prepared by Nasa, simply straight up! The price for a new cat ordered today to be delivered in the fall of 2023 will be more that 40% higher than that same cat ordered in 2020. There are numerous reasons for those increases, the main one being supplier increases and supply chain shortages but none of them are going to matter now that the flywheel has started to slow down.
We tried to get a feeling for how this market compared with new car sales as new cars also had a 35% increase over the past 3 years. However we discovered one huge difference. The MSRP of cars has only increased by an annual average of 2.5% over the last 3 years. The real increase was caused by new car dealers adding an outrageous “Market Adjustment” to the MSRP…and they got desperate buyers to pay them as there were very few new cars to be had. Now that demand for new cars in crumbling, the dealers have completely dropped their “market adjustment” and are literally begging to sell at MSRP. They are now struggling to even get MSRP because Buyers who have waited patiently remember how they were treated by those same dealers when there was no inventory and the dealers took advantage of the buyers so you know what they say about payback! New car prices are therefore back to where they were in 2020 with the annual 2.5% annual increase factored in.
But this is where the comparison between new boats and new cars ends! New boat prices would need to fall by around 20% to get back to 2020 prices adjusted for an annual 2.5 increase and that is simply not going to happen. Over the past 6 months dealers have started to build up inventory but again, although nowhere near the inventory levels of 2008. Manufacturers are still claiming that their order book is full until 2025 and 2026 and while that might be ‘true’, many of those orders are for unsold dealer inventory and many of the actual sold retail orders are starting to fall out as client’s cancel their orders.
There are therefore new boat slots that are going to open up increasingly over the next 12 months. However much more importantly, there are going to be deals to be had from Buyers who placed an order pre-Covid at pre-Covid prices who can no longer afford their boat but who do not want to lose their deposits and will therefore close on their purchase and immediately try to flip the boat. These boats won’t carry the manufacturer’s warranty with them as warranty is generally not transferable so they will be offered at an even lower price than buying an identical new boat. Manufacturers are renowned for how badly they handle an owner’s warranty claims so many buyers feel the warranty is not worth very much anyway and this will make these deals much more attractive than a new order.
It is important to note that the performance is different in different sectors of the market. For example, charter yacht sales and their programs seem to be holding up much better than private retail sales. Similarly, big cats, those over 70 feet are not being negatively influenced to the same degree either.
The bottom line here is that new boat buyers are going to have even more leverage than brokerage buyers but once again, talk to a broker before you do anything. Ask them to explain to you what is ‘hot’ and what is ‘not’. If you are open to alternatives and not locked into one brand or one particular model, ask them to explain to you where the deals are. Now all manufacturers claim to be sold out for the next 2 years so might not as open to negotiation as those who are looking at cancelled orders. If a manufacturer or a dealer kept the deposit from a cancelled order then they have more wiggle room. There are many, many factors to be considered here so as always, call an expert!