spotlight on the economy outlook for boating

Spotlight on the Economy Outlook for Boating

2009 PCC Annual Membership ConferenceSurviving and Thriving in Hard Times

April 16, 2009

Boating Magazine – May 2009

2

Agenda

What is happening in the economy?

How does it impact boating?

What should we expect in the near-term future?

3

Impacts on Boating

4

Perfect Storm Loss of wealth

House values Stock Market

Rising unemployment Loss of credit

5

Case-Schiller Housing Price Index

0

50

100

150

200

250

300

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Jan

-05

Jan

-06

Jan

-07

Jan

-08

Jan

-09

CA-Los Angeles CA-San Diego CA-San Francisco OR-Portland WA-Seattle

Drop from peak as of Jan 2009:

- Los Angeles -39%

- San Diego -41%

- San Francisco -43%

- Portland -18%

- Seattle -20%

6

Dow Jones Industrial Average

Now

Oct 2008

Down ~40% from the peak

7

Staggering Loss of Wealth

Hit by the double whammy of declining home prices and a falling stock market, U.S. households saw their net worth fall by $12.9 trillion since mid 2007, wiping out five years of gains, according to the Federal Reserve.

In the fourth quarter alone, household net worth fell by $5.1 trillion, a record 31% annualized decline.

At the same time that their assets were falling, households were taking on less debt, deleveraging their balance sheets after five years of double-digit growth in debt. In the fourth quarter, households paid off more debt than they took on for the first time since at least 1952.

8

9

Intersection of Greed & Stupidity

Baby Boomers Loss of Wealth 1) The median household with a person between the ages of 45 to 54 saw

its net worth fall by more than 45 percent between 2004 and 2009, from $172,400 in 2004 to just $94,200 in 2009 (all amounts are in 2009 dollars).

2) The situation for early baby boomers is somewhat worse. The median household with a person between the ages of 55 and 64 saw its wealth fall by almost 50 percent from $315,400 in 2004 to $159,800 in 2009.

3) As a result of the plunge in house prices, many baby boomers now have little or no equity in their home. Nearly 30 percent of households headed by someone between the ages of 45

to 54 will need to bring money to their closing (to cover their mortgage and transactions costs) if they were to sell their home.

The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble David Rosnick and Dean Baker; February 2009, Center for Economic and Policy Research

10

Demographics of Boat Owners – Age (NMMA)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

18-30 31-49 50-64 65 plus

Power boat Sail boat

11

12

Employment or Lack Thereof

Change in U.S. Employment After 15 Months:Current Recession vs. 10 Postwar Recessions

13

Washington State Response to RecessionsLoss of Jobs by Month

-8

-6

-4

-2

0

2

4

6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Number of months from prior peak

Pe

rce

nt

los

s o

f n

on

-fa

rm jo

bs

1969 1973 1980 1981 1990 2001 2007

Puget Sound lost 87,000 jobs in 1969 in the Boeing Bust.

14

Oregon State Response to Recessions Loss of Jobs by Month

-8

-6

-4

-2

0

2

4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Number of months from prior peak

Pe

rce

nt

los

s o

f n

on

-fa

rm jo

bs

1969 1973 1980 1981 1990 2001 2007

It took 59 months (~six years) to replace all of the jobs lost in the 1981 recession.

15

California State Response to Recessions Loss of Jobs by Month

-5

-4

-3

-2

-1

0

1

2

3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Number of months from prior peak

Pe

rce

nt

los

s o

f n

on

-fa

rm jo

bs

1969 1973 1980 1981 1990 2001 2007

Very bleak situation.

16

Alaska State Response to Recessions Loss of Jobs by Month

-5

0

5

10

15

20

25

30

35

40

45

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Number of months from prior peak

Pe

rce

nt

los

s o

f n

on

-fa

rm jo

bs

1969 1973 1980 1981 1990 2001 2007

Very little impact due to nature of economy.

17

Comparative Response in This Recession Loss of Jobs by Month

-6

-5

-4

-3

-2

-1

0

1

2

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Number of months from prior peak

Pe

rce

nt

los

s o

f n

on

-fa

rm jo

bs

Alaska Washington Oregon California

18

Lincoln County (OR) Unemployment Rate

19

Worried Consumers

20

Consumer Confidence - Pacific CoastSource: The Conference Board

0

20

40

60

80

100

120

140

160

180

200

1981

-1

1981

-11

1982

-9

1983

-7

1984

-5

1985

-3

1986

-1

1986

-11

1987

-9

1988

-7

1989

-5

1990

-3

1991

-1

1991

-11

1992

-9

1993

-7

1994

-5

1995

-3

1996

-1

1996

-11

1997

-9

1998

-7

1999

-5

2000

-3

2001

-1

2001

-11

2002

-9

2003

-7

2004

-5

2005

-3

2006

-1

2006

-11

2007

-9

2008

-7

Consumer Confidence IndexTM Present Situation Expectations

21

Lowest Levels since 1981.

Problems for the Marine Industry

22

More than half of marine industry is unemployed Tuesday April 7, 2009

CHICAGO, Ill. — The National Marine Manufacturers Association estimates that as of late March, marine industry unemployment was more than 50 percent, NMMA President Thom Dammrich told the Springfield Business Journal for an article published yesterday.

Retail boat sales fell off precipitously in July 2008, Dammrich said.

In the fourth-quarter of 2008, one in three NMMA members furloughed operations for a period of time, and one in 10 closed down a plant entirely, he told the paper.

"What it comes down to is that, until the consumer starts feeling more confident about the future," he told the Journal, "they're holding off on some purchases."

23

All 15 Foot+ Powerboat Sales Trend Rolling 12 month year-over-year % change in unit sales

Based on new US boat registrations. Bellwether states are geographically dispersed states representing roughly half of the US boat

market (varies by market segment and time of year).

Decline began in 2006

Down 32%

as of Feb 09

24

25

Brunswick switched from 28 to 14 plants

26

Brunswick Beleaguered boat maker Brunswick Corp. said October 2008 it will cut

1,400 more jobs as the company shuts four plants, including ones in Oregon and Washington, and furloughs workers at three more.

The announcement, which sent the manufacturer's stock to a more than 15-year low -- comes four months after the suburban Chicago company said it would eliminate 1,000 jobs because of the falling demand for recreational boats amid a poor economic environment.

Brunswick said it will permanently close plants in Roseburg, Ore., Arlington, Wash., and Pipestone, Minn., while mothballing a plant in Navassa, N.C. The closures -- the latest in a series since 2006 -- will be completed by the first quarter of 2009. When the cuts are complete, the company will have closed more than 40 percent of the boat plants open three years ago.

27

Brunswick International Sales

28

Olympic Boat Center The ship has sailed for one of the largest boat retailers in the world. Olympic Boat Centers of Redmond went on the auction block in a

California bankruptcy court on Tuesday. In bankruptcy court, boat maker Brunswick bought some of Olympic's

assets. A spokesperson said the company bought back the Bayliner boats on Olympic's lots for $2 million, but not the company itself.

Court documents state Olympic owed lenders more than $47 million. Shareholders blame an industry-wide sales slowdown. When the housing

market crashed, buyers couldn't use their home equity to finance a boat.

In a statement released on Tuesday afternoon, Olympic said Brunswick, which is headquartered in Lake Forest, Illinois, will have the rights to the name Olympic Boat Centers once the sale is complete. And to pay off the debt, all of its inventory will be sent to other dealers around the Northwest as well as in California.

29

Boater’s World Closes Friday March 20, 2009

BELTSVILLE, Md. — Ritz Camera Centers Inc. has court approval to liquidate the bankrupt company's Boater's World stores, according to a report from Bloomberg News.

Ritz should collect $40 million from going-out-of business sales at the 129 stores, company attorney Irving Walker said, noting that the sale was in the best interest of the company's creditors.

"The Boater's World business proved to be a positive contributor to the company's profitability for a number of years, and generated positive cash flow through 2007. In the spring of 2008, however, the price of oil skyrocketed, leading to a sharp rise in the price of gas, and that in turn, with other macroeconomic factors, led to a sharp drop in the sales and profitability of the Boater's World business,'' Ritz said in its bankruptcy filing.

Ritz also expects to close more than half of its 800 camera stores and reorganize the rest, according to Bloomberg.

30

New Paradigm is Less Rosy “Our research indicates that the U.S. boating industry continues to experience a down cycle, as evidenced

by lower sales trends in each of our business segments compared to last year, lower new and used boat sales, and declining boat registrations in key states. ” (West Marine)

31

U.S. Marine Expenditures (NMMA, USBEA)

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

$9,000,000

$10,000,000

$11,000,000

$12,000,000

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Re

al G

DP

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

Re

al M

ari

ne

Ex

pe

nd

itu

res

Real GDP (Millions) Real Marine Expenditures ($1,000s)

Real means adjusted for inflation: arrows represent economic downturns

32

U.S. Marine Expenditures, GDP (% Change; NMMA)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

% C

han

ge

Rea

l M

arin

e E

xp

-4%

-2%

0%

2%

4%

6%

8%

Rea

l G

DP

% C

han

ge

Real GDP (Millions) Real Marine Expenditures ($1,000s)

33

U.S. Marine Expenditures (Gain & Loss: NMMA)

-7.8%

6.0%

-3.0%

-25.9%

-13.2%

-3.1%

5.4%

-1.1%

7.0%

12.6%

8.8%

-0.4%

-35.0% -25.0% -15.0% -5.0% 5.0% 15.0%

average

March 2001-Nov. 2001 (8 months)

1997 Dotcom bust

July 1990-March 1991 (8 months)

Jan. 1980-July 1980 (6 months) & July 1981-Nov. 1982 (16months)

Nov. 1973-March 1975 (16 months)

Loss during event Gain three years after event

34

Marine Expenditures - Pacific (NMMA)

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

$1,0

00s

Washington Oregon California

35

Uncertainty is a troublesome thing!

36

Anti-wealth crusaders

37

For sale: Saddam Hussein's luxury yacht

The sale of the 269-foot Ocean Breeze, built for Saddam Hussein and docked on the French Riviera.

Only $34 million but potential buyers are avoiding the auction.

38

Let’s Count our Blessings

$2.00

$2.20

$2.40

$2.60

$2.80

$3.00

$3.20

$3.40

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2006

$

Motor Gasoline Diesel Fuel

Fuel prices should remain lower.

Construction costs are decreasing.

Remaining businesses in the industry will be stronger.

Consumers will be wiser and not over-borrow.

Government oversight will be more vigilant.

Bottom-line (hopefully) = a more sustainable industry.

39

BST Associates

Questions & Answers

Paul Sorensen

BST Associates

PO Box 82388

Kenmore, WA 98028

bstassoc@seanet.com

(425) 486-7722