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May 17, 2011

Strategies of Used Boat Success

Posted by: Jill Casey - 05/17/2011 12:14 PM (Articles, Marine Industry)


Boating Industry
May 2011

Whether it’s helping a buyer make the mental leap from shopping for a used boat to purchasing a new one, or just doing a better job of making money in the pre-owned marketplace, there are numerous strategies that have proven successful.

The specialist

Selling a used boat when demand for used is way up doesn’t require an in-depth knowledge of the pre-owned market and pre-owned buyer, but maximizing the dealership’s margins on those sales does. Conversely, in a market that doesn’t favor used product, it becomes more difficult to make money if your systems and processes aren’t in order.

Dealers that do well in the pre-owned boat market usually designate one, or more, salespeople on the team as pre-owned specialists. They are tasked with understanding that market and its buyers.

John Spader, president of Spader Business Management, draws a parallel between what is happening now in the boating industry with a similar shift in focus the RV industry experienced. Dealers who hadn’t done much used business now have full-time employees that actively seek out and buy used product. They’re tuned in to what’s selling and know where and how to find it.

Part of doing that is developing relationships with local wholesalers. David Parker, president of Parker Business Planning, says he knows dealers who would take a trade on a large yacht or cruiser and end up getting burned on it because it didn’t sell. To remedy that problem, he suggests getting a buy figure from a broker willing to purchase the boat, and if the dealer hasn’t sold it after 30 days, they then turn it over to that person.

“Make it easy for the customer to trade,” Parker says. “But make sure you’ve got a home for the trade if you’re not comfortable with it or you need to get rid of it.”

The art of valuation

Whether your dealership designates a pre-owned specialist or not, it must be able to properly value the used boats brought in. Because that market can be unpredictable at times, staying on top of it is vital.

“Sometimes that book value is double what you should pay for it, and sometimes you can charge double what the book says,” Spader explains. “We’ve seen distressed inventory sell as used because people won’t look at new. [Dealers] want to make sure they’re making good margins. Too many dealers get a great used piece; price it at a 20 to 25 percent margin when maybe they could have gotten 30 or 40 percent. Make sure you maximize it. What could you sell this for?

At the 20 Group meetings his company leads, Spader has asked dealers to value five used boats as part of an exercise in the importance of proper valuation. At one meeting there was a $15,000 difference between one dealer’s valuation and another’s.

“The guy that put the most in said he could sell those boats all day long at that price,” Spader says. “The guy that put the least in was the most scared of it. You’ve got to be tuned into your market. Use books (NADA, etc.) as guidelines, not the Bible. I cringe when I hear dealers say they have a policy of trading/buying or selling X percentage above or below book, especially in this marketplace. I guarantee those dealers are giving up opportunity.

Trade evaluation forms can be helpful with proper valuation, says Parker. They should list all the pertinent information about the trade as well as what comparable boats are being listed for online or in other places. Another valuation strategy he recommends is to have the sales team look at a trade and predict what the boat would sell for in the next 90 days. Find the number that resonates through the group – back it off 25 points – and that’s the value you should place on the boat. If it needs repairs, lower the number so that those can be made and the boat can still be sold to make money.

Finding the right inventory for you

Rather than waiting for a trade to walk through the door, those dealerships that excel at pre-owned boat sales work actively to find and obtain the hottest used boats to sell. That’s certainly a trend that Manheim Specialty auctions have seen recently, according to Karen Braddy, the company’s general manager of Specialty.

“We’ve observed that boat owners are keeping the boat they have longer than they have before,” she says. “They’re not trading up as often as they used to, which is affecting the availability of used product available for resale at dealerships. With production down, trade-ins down and product hard to find for retail resale, dealers are having to find new avenues to locate inventory.

“To meet the growing demands at their dealerships, many dealers have begun gradually adding auctions into their vehicle remarketing channel as a way to stock up on their used boat inventory, just like the car dealers have successfully done for years. The inventory is available; it’s just a matter of finding it and then continually maximizing your opportunities through auctions.”

Knowing where to look is only the first step. Knowing what to look for can be the difference between finding a boat customers will pay a premium for, or buying a unit nobody looks twice at. Knowledge of what is selling, what boaters are looking for in a given area takes much of the guesswork out of this process. Several tools are available to provide this information.

Dominion Marine Media’s Scarcity Reports are a good example. They’re available to dealerships and specific to that dealer’s Metropolitan Statistical Area. Using search records from BoatTrader.com, they display the top 15 boat models in the dealer’s inventory that are most searched for on the site, but least available in the dealer’s marketplace. This provides dealers with guidance on how to price their inventory and what specific models to seek out.

Dominion also can provide information on which brands are searched for most often. And Dominion’s SoldBoats.com website collects a range of data, including sold boats by length. To learn more about the information Dominion offers and how it can be leveraged, read it’s entry in the Business Intelligence white paper within the e-White Paper Library at www.boating-industry.com.

“Business intelligence (through tools such as our Scarcity Reports) is available to dealers now that may not have been available to them in the past,” Ian Atkins, VP & general manager of Dominions Marine Media, says. “Such data can help them identify specific types and makes of boats that their local market is demanding – taking the guesswork and the waste out of floor planning. Just being able to focus more accurately on what their consumers are demanding will position them to be more successful in 2011.”

Narrow the gap

Spader believes customers right now are able to justify buying used boats because they think to themselves, “At least I’m not buying new.” They feel better about the purchase psychologically, although in reality the price of the used boat is so high they often may be better off buying new.

To help with that realization and facilitate the switch from used to new, Parker suggests dealers display the monthly payment amount on all of the boats they sell. He tells the story of a boat show he was at last year where he saw a PWC with a price of $199 a month over 5 years sitting right next to a high-end 20-foot runabout that was $299 per month.

“[It was] financed over 15 years, but the point was, for $100 more per month, I can get a whole boat,” Parker says “For a payment buyer, they’re going to opt for a whole boat rather than a PWC for $100 less. If we start putting payments on everything, new and used, people see that there’s not much difference between the two of them. Slow them down and get them thinking, maybe I’ll take the cash I was paying on the used boat and put it down on a new boat for a relatively low payment.”

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