The economic hangover

THE marine industry will remember 2009 for all the wrong reasons. The global economic crisis hit the marine sector hard, especially in the US and Europe, where reports of doom and gloom were all too common. Thankfully Australia’s economy seems to have escaped the worst effects of the GFC and, if recent reports are reliable, could be on its way to recovery. Positive reports filtered through after this year’s Melbourne and Adelaide boat shows, and later, the Sydney and Brisbane shows. Many exhibitors, even the usual pessimistic types, put this down to fresh boat show initiatives, increased consumer confidence and, to a lesser extent, the Rudd Government’s cash stimulus.

In early October the International Monetary Fund (IMF) raised its forecast for economic growth in Australia while lowering is estimated rate of unemployment. The IMF’s forecast of 0.7 per cent gross domestic profit (GDP) was lifted from its previous estimate of 0.5 per cent. The jobless rate was forecast at 7 per cent for 2010, which fell well below the Government’s 8.25 per cent estimate made in the May budget.

According to a report in The Australian newspaper, Australia is the only advanced economy expected to grow this year. The IMF estimates the local economy will expand by 2 per cent in 2010, higher than its previous estimate of 1.3 per cent.

“The recent evolution of industrial production, retail sales, and confidence indictors suggests that Australia is on its way to recovery,” the IMF said.

However, the IMF warns the expected recovery could be slow.

“Premature exit from the accommodative monetary and fiscal policies is a particular concern because the policy-induced rebound might be mistaken for the beginning of a strong recovery.”

The Reserve Bank of Australia released a statement in September backing the IMF’s sentiments for a recovery in 2010.

“With considerable economic policy stimulus in train around the world, the global economy is resuming growth,” said Reserve Bank governor Glenn Stevens.

“Growth in China has been very strong, which is having a significant impact on other economies in the region and on the commodity markets.

“Economic conditions in Australia have been stronger than expected, with consumer spending, exports and business investment notable for their resilience.”

However, the Reserve Bank is also predicting Australia will have a drawn-out recovery.

“The effects of economic weakness on the balance sheets of financial institutions will still be coming through for a while. This constitutes one of the main remaining risks to the global expansion. For the recovery to be durable, continued progress in restoring balance sheets is essential,” said Stevens.

The Reserve Bank lifted official interest rates by 25 basis points in early October signalling an end to the stimulus efforts over the past year.

What does all this mean for the Australian marine industry and will these public statements shift the much-needed lift in consumer confidence?

Marine Business contacted a diverse cross section of Australia’s marine industry for their observations from the past year and predictions for the year ahead.

Haines Group director Greg Haines said the second half of ‘09 had been positive and expects growth over the coming year.

“We have noticed a resurgence in the market since the Melbourne Boat Show. I believe that the market is back on track,” said Haines.

“I spoke with an economist in September, 2008, and his take on the economic climate was a decline in the beginning of 2009 and a resurgence at the end of 2009. He also believed that 2010 will be a good year and I tend to agree.”

Haines also reiterated the notion of the mainstream media having a role in driving down consumer confidence, and even business confidence.

“I still feel the general media has a lot to answer for, every time you picked up the paper, or watched the TV news, it was all doom and gloom. At the end, I stopped reading the paper and watching the news. Some of our dealers did the same and they have gone from strength to strength,” said Haines.

John Stav, MD of Melbourne’s JV Marine World, has noticed an upward trend in boat sales in the latter half of the year. Although this trend is not out of the ordinary for this time of the year, Stav feels it is a sign consumer confidence has returned to the market.

“We are gearing up for an increase in sales as the Australian economy recovers and our prediction for 2010 is a long hot summer which will hopefully lead to strong sales growth well into April/May of 2010,” said Stav.

“Our industry has certainly reduced in 2008/2009 and we have seen many retailers and manufacturers either close their doors or come very close to it.

“JV Marine World has had to ensure strict financial plans and budgets have been adhered to. By tightening and streamlining our business procedures and ensuring our overheads remain low, we feel JV Marine World is in the strong position to face whatever 2009/2010 brings.”

Chris Baird, Fusion Electronics GM, said he has seen an increase in sales and has employed new staff to cope with the coming influx.

“We have definitely seen an increase in sales and we are looking forward to a strong 2010. At Fusion we have just employed another two sales reps. We see people wanting to update their existing boats instead of up-grading to a bigger and more expensive boat. Marine entertainment is important for those parents wanting to keep their kids involved in boating with them,” said Baird.

All Marine Spares, a trade only supplier of marine parts, has also noticed a spike in sales over the second half of 2009. Leigh Francis, the company’s MD said business has improved steadily since January and this first quarter to September 30 had been beyond expectations.

“We are quite confident going forward to 2010 that this trend will at least consolidate,” said Francis.

Muir Windlass GM Matthew Johnston had just returned from

Europe, noticing a lift in the local economy while visiting Monaco.

“John [Muir] and I have just been exhibiting at the Monaco Yacht Show and have also been visiting boat yards in Germany, Holland and the UK. From what we’ve seen from the past two weeks overseas, it appears that a slow recovery may be underway and we see that Australia follows a similar pattern,” said Johnston.

With the IMF, Resrve Bank of Australia and the Australian marine industry unanimously predicting an upturn in business entering 2010, what should business do now to ensure rapid growth when the good times return?

Fusion’s Chris Baird said: “Fusion’s decisions to ensure rapid growth going forward is in two main areas: new product development (essential in electronics) and sales staff on the ground (essential for dealer and boat-builder growth).”

JV Marine’s John Stav says the boating industry must be ready for economic improvement and the return in consumer confidence.

“If we miss the opportunity it will cost the industry dearly. By working closely with our manufacturers in regards to production schedules, both retailer and manufacturer have the ability to ramp up production and meet the needs of the market in 2010. There is nothing worse than having customers that want to spend money and an industry which cannot meet the demand.

“Manufacturers need to streamline production and cut costs to meet the new market trend for the complete boat package at $30,000, $40,000 and $50,000 mark. The stronger manufacturers that can produce boats to meet these needs will continue to survive and even experience growth in 2010,” said Stav.

Greg Haines said it’s important not to jump in and employ too many new staff or over invest until there are strong assurances the economy is recovering.

“Once we see the signs, we will invest in R&D for our boat brands as well as increase our marketing in non-traditional ways,” said Haines.

Haines believes the dealers that have traded through these tough times and have supported the Australian manufacturing industry will be rewarded as the economy recovers.

Leigh Francis said marketing and strong stock levels are crucial when the economy bounces back, although he suggests finding experienced staff could be difficult.

“We feel that maintaining good stock levels and a high profile in the media with direct customer contact is the way to under pin our position,” he said.

“The industry as a whole will have to emerge leaner and stronger; the real question is the time frame and whether the skilled workforce will be prepared and or available to re-enter this boom/bust industry. I suspect many will give it a wide berth,” he said.

Fusion’s Chris Baird concluded by saying: “The marine industry will take a number of years to get back to a similar size but will have less players, and as such, hopefully we will see some more solid and profitable operations.

“2010 should be a year where the ‘good’ marine companies work more closely together towards a profitable and solid future. The companies that go back to the basics of good service, good products and reliability will come out the winners,” said Baird.