August 15 2012
Market Report – Have we hit the bottom?
By Andrew Cilla, President Luke Brown Yachts
In my research for this article, I note that many recent reports on the state of the yacht market give the distinct impression that things are improving. Unfortunately, the empirical data that I uncovered tells a different story. The sales numbers for vessels in the size and price range that represent the segment of the market that Luke Brown Yachts operates in does not support the notion that things have gotten better.
Source: Boat International Market Report
Are we at the bottom? I don’t know, but based on my 40 years of business in the yacht industry and studies in economics, I, feel we are close enough to the bottom to feel confident that if one wants to buy - the time is now! In the 33 years I have owned and managed Luke Brown Yachts, I have avoided buying inventory. I never saw the benefit of owning depreciating assets held for resale when we remained profitable with traditional brokerage sales.
For the first time I have chosen to take a different path. Luke Brown Yachts is becoming the dealer for a major yacht builder (soon to be announced) offering vessels from 42 to 126 feet. Furthermore, I am working with a partner to put into production early next year a new line of efficient offshore motoryachts, with the first model being 50’. As they say, timing is everything and time will tell if my forecast is accurate.
While I foresee a recovery in the later model yachts, I doubt it will be significant for older vessels until prices go down further. The production of new boats is down by as much as 75%, yet the number of existing older vessels remains the same. Many models are selling for 40-50% of their past value. Unfortunately, the cost of refitting and maintaining a yacht has not significantly gone down.
It seems to make more sense to enjoy a huge discount on the entire cost of a newer yacht, rather than just on the purchase price, less refit costs and the higher costs associated with maintaining an older yacht. Furthermore, the cost of borrowing money has never been cheaper. $1,000,000 can cost you as little as $40,000 a year. I feel it makes more sense to buy a newer vessel (at a dramatically discounted price) than to purchase a much less expensive, older vessel and be burdened with the non-discounted significantly higher carrying cost.