October 30 2012
I’ve always felt that the used yacht business was immune to long-term sales volume contractions, because prices adjust overtime (usually about a year) and yacht financing receives much greater scrutiny than real estate and equity investment, such as margin on stocks, bonds and options. In other words, it is difficult to create a bubble in the used yacht business unless there is excessive currency inflation, which we haven’t seen (more on that in a future article). The following chart on the worldwide sales of sail and motor yachts above a half million dollars does indicate that in spite of my belief, there was a decline in used yacht sales of approximately 250 yachts per quarter following the August 2008 Worldwide financial contraction. (See chart 1) In any industry, that is a damaging contraction. We have all certainly felt it. Significantly though, volumes have remained at approximately 400 per quarter since the contraction occurred. Volumes appear to have stabilized, all be it at a much lower level than in the past.
We also know, and I will discuss it in more detail in a later article, that the manufacture of new yachts with the exception of the high end of the market, pretty much came to a halt for a couple of years. The industry was hit very hard and many top builders had to shut down production for periods of time. Unfortunately, several wonderful builders left the market forever.
These facts paint a pretty grim picture for the marine industry as a whole. The story would be even more dramatic, if I had included boats under a half million dollars in my analysis, because this is the highest sales volume segment of our industry.
Overall, the industry has been in a downtrend in sales volume with no indication of that trend reversing as yet.
For another view of the industry, check out this analysis from Boat International magazine, which calculates super yachts by length?
All graphs are quarterly worldwide industry sales volumes for both motor and sailing yachts with the trend smoothed using an annual moving average.
Breaking the industry sales volume down further into four separate market segments, gives us a little more insight into how the industry has performed historically since the 2008 contraction and may give us some insight into where it will head in the near future.
Yachts between one-half million and one million dollars
Show a similar trend to the overall trend. Keep in mind that this is the largest segment by volume and it is, notably, the most financially leveraged. The average volume decline was approximately 150 boats per quarter with the down trend continuing into the fourth quarter of 1012. (See chart 2) This segment has the largest impact on the overall volumes above.
Yachts between one million and five million dollars
Show an average sales volume drop of approximately 60 yachts per quarter. (See chart 3) Average yacht sales in this segment of the market seem to have leveled off at approximately 150 yachts per quarter with the exception of a slight tail off in the annual moving average due to a significant decline in volume in the last quarter of 2011.
Yachts between five million and ten million dollars
Showed a steep decline in volume from the first quarter of 2007 through the first quarter of 2009 and may indicate that buyers and sellers in this segment were better able to anticipate the August 2008 contraction. There is an adage in our industry that wealthy buyers continue to buy even as the economy weakens. The following two charts lend credence to this belief. After the contraction, average sales volumes in this segment have remained essentially flat from quarter to quarter. (See chart 4)
Yachts above ten million dollars
Also dropped rather dramatically during the summer of 2008 indicating that these buyers may also have anticipated the contraction. Following the decline, average sales volumes stabilized and began a steady increase through the first quarter of 2012. Average sales volumes have dropped throughout the remainder of the year, which may indicate that even the very wealthy buyers are becoming more cautious. (See chart 5)
For an additional view of the super yacht segment of the industry based on yacht size rather than sales volumes, check out the August 2012 market analysis from Boat International. http://www.boatinternational.com/market-intelligence/market-reports/reports/august-2012-market-report/
There is strong evidence following the August 2008 contraction that, in addition to volumes declining, the average sales prices also significantly declined. I’ll take a closer look at this in my next article.
In addition to sales prices, I’ll be looking into the following subjects and their effect on our industry in future articles:
The effect of the decline of new build volumes since 2009 on used boat sales, future demand and pricing trends.
Evidence of growing pent up demand from hard core yachtsmen and women.
The effect of many client investors, anticipating higher inflation, moving from paper currency to hard assets such as real estate, equities, corporate bonds, precious metals, industrial commodities, foreign currencies and yes, yachts, which have the added benefit of being movable.
The potential for foreign buyers entering the U.S. yacht market for the first time in several years due largely to the recent two month drop in the value of the U.S. dollar. If this trend continues, it may awaken this group of international buyers.
'Til next time... Jim Wilkey