Impact of Tight Credit Market on Boat Sales

Lenders are tightening credit standards in response to the Covid-19 crisis. Requiring higher credit ratings, larger down payments, etc., and some models are already showing that mortgage credit availability has dropped 25% in the last 2 months.

In terms of boats: in mid-April USAA put a $35k max on all boat loans. “In anticipation of a possible recession…[and] protecting the financial security of members…taking actions to tighten credit.” If/As other big lenders do the same, how will this impact the new boat market? Will even those folks who are still working be steered away from new boat purchases and into keeping their current rigs longer?

And yes, we all know: “just pay cash.” And since most new boat sales involve credit, those few who don’t use it aren’t relevent to the impact on the overall market.

Banks need loans. My guess is at some point banks will lessen their current lending standards. On the boat sale side – Everything is dependent on supply and demand. Once boat builders are back producing at full capacity ( Lund boats were shut down for a month or so but are now back working ) it will depend on if buyers are back to buying boats or not. If sales are slow I expect that the price for boats will drop to try and jump start buying. If sales are good then I don’t see a reason they would lower price.

It will be interesting to see how spending is effected once the whole virus issue is settled down. Sales should be a good indicator on how hard people were effected financially by the situation. My guess is spending on larger $ items ( homes, auto, boats, ect ) is going to be way down. I think spending on smaller $ items will see a good increase. Just my .02 worth. I guess only time will tell.

Money is cheap, so there’s plenty of people willing to loan you some for a 3%+ return and I don’t see that stopping anytime soon on a large scale. The names of the lenders may change, but I don’t think availability will.

I would think that consumer confidence would also play a large part – not just how much cash people have at the moment. If there is still a chance you will again be unemployed, or that construction will dry up again, or whatever – you might not buy that boat. We didn’t spend our covid stimulus bucks even though nothing had changed for us – later on we learned about furloughs.

On the other hand, a lot of people are bad with money…

BigWerm wrote:

Money is cheap, so there’s plenty of people willing to loan you some for a 3%+ return and I don’t see that stopping anytime soon on a large scale. The names of the lenders may change, but I don’t think availability will.

Agreed.

I don’t think finding lenders is going to be an issue for most. Lenders can offer extremely low rates and still rake in hefty profits with a small percentage defaulting given an economic downturn. Those are all factored-in. Banks didn’t get to be the monsters they are without pumping out loans. Sub prime lending has really taken off and is going nowhere. There’s a huge market for people buying things they cannot afford or can barely afford.

Sales and supply may fluctuate in the near future, but I firmly believe that interest rates are going to be held next to nothing for quite a while as a tool to artificially jump start the economy. In an election year AND amid an economic recession from the Covid, there’s a huge push to keep interest rates down for the current administration and the Fed.

Michael C. Winther wrote:

In terms of boats: in mid-April USAA put a $35k max on all boat loans.

Damnit, how am I suppose to get that 100k vexus now?

(Quote) Sales and supply may fluctuate in the near future, but I firmly believe that interest rates are going to be held next to nothing for quite a while as a tool to artificially jump start the economy

Biggest problem with that is that the deficit was going up and interest rates were coming down while the economy was good. Takes away the fed’s biggest weapon to stimulate the economy

Money is cheap, so there’s plenty of people willing to loan you some for a 3%+ return and I don’t see that stopping anytime soon on a large scale. The names of the lenders may change, but I don’t think availability will.

Well, home loans are 3-4%, boat loans are more like 6-7% depending on credit rating. And low-ish interest rates don’t guarantee that the best lenders are willing to loan out money. The ones that might be willing to do so manage risk by charging higher interest rates – avg rates for people with good credit on boat loans are ~6%, change that rate to 10% and see the difference in monthly payments on a high end new boat. That reduces what people can afford pretty dramatically, and also has the potential to cut into sales.

Fish To Escape wrote:

(Quote) Sales and supply may fluctuate in the near future, but I firmly believe that interest rates are going to be held next to nothing for quite a while as a tool to artificially jump start the economy

Biggest problem with that is that the deficit was going up and interest rates were coming down while the economy was good. Takes away the fed’s biggest weapon to stimulate the economy

Interest rates do have a floor and provide a false sense of economic growth or recovery. I wouldn’t be shocked to see them slashed even more though. You could see 30 year fixed mortgages under 2%. We refinanced to 2.78% just recently.

Here is the perspective from somebody selling a pretty expensive boat (there are many more expensive then this )

I have had my Lund listed here for a couple months. Not much action which is OK. 2 weeks ago I put it on Walleye Central & Muskie First. Until last Thursday crickets. Since Thursday I have had 3 inquiries. One from Mpls. One from Kansas City and another from Milwaukee. While I don’t expect all three to battle over it there wasn’t any that were scared away by the price. These folks either have the money or think they can get it. Time will tell. They all asked the questions you would expect from a serious potential buyer. Showings have been set up or will be in the near future. Maybe I sell it maybe I don’t.

Anyway, I don’t know that anybody that has a boat paid for that will sell short unless their job goes away and money gets really tight. Those that owe money can only go so low or the lending institution won’t let them sell. New boats? That will depend on the boat company and how well they can support their dealers. Maybe the big boys can defer payments from their dealers, who knows.

I think if there are going to be any deals it will be in the used market in the $10,000 to $20,000 range.

Just my opinion.

I’m just now starting to closely watch boats, as I’ll be in the market for an upgrade after another 6 months or so. First boat I began to follow, a lightly used alumacraft listed at $29k on craigslist. First saw the post within 12 hrs of it being posted. Wasn’t 2 days later and its listing was off the site and I presume it sold. Then on walleye central, of the 19 boats listed at $25-30k, 11 of them now have “sold” in the title. I don’t know how recently they sold, but I assume it hasn’t been long. Doesn’t seem like sales have slowed too much if they have at all in that $ range yet.

Feathers wrote:

You need good credit.

For the sake of boat factory workers and local dealerships, I hope I’m wrong and the economy roars back to life in such a way that consumer confidence is high and access to credit is easy.

Small and traditionally cautious lenders like credit unions will put the brakes on new credit lines fast. Lenders hate uncertainty and what we have now is a massive dose of “how bad will it get” uncertainty. This will especially impact the used boat buyer because their financing tends to come from banks and credit unions, not manufacturer or dealer supplied financing.

The day of reckoning for the boat manufacturers is coming. The manufacturers have become addicted to cheap money in the form of low interest rates that they supply to buyers through their financing arrangements. This is the only thing that has made it possible to sell 60, 70 and even 100k boats to the average consumer. When interest rates finally rise, the hard times will begin for the manufacturers because not only do the have to convince Mr. Walleyeguy to spend $75k on a boat, but they have to convince him to do it at 12% APR. Sure, some guys will sign anything just to have the sparkly new boat, but at some point, the reality of signing up to a $1500+++ per month boat payment will sink in with some.

Grouse

I’ve heard from one boat dealer that they have been extremely busy this spring. Nobody has anything else to do and have cancelled other summer vacations so they are buying boats.

I’m also seeing longer and longer loan terms advertised for boats to make them “affordable”. 10 years has always kind of been the standard when you see a monthly payment advertised. Look closely these days Ive seen several prices advertised where the loans are now 12-15 year terms. I’ve heard a local boat dealer doing 20 year loans on Rangers.

Feathers wrote:

With the price of new boats I don’t think I could ever justify buying new. I got my slightly used 5 year old skeeter for about half the price of a new one. Couldn’t imagine dropping that kind of cheddar on a new boat. Same goes with new truck prices.

This just isn’t a very fair comparison. Trucks get used a lot more than a boat does because 1) you use a truck (or other highway vehicle) daily or almost daily, and 2) most of the time the boat just sits on a trailer.

So trucks have a lot faster depreciation than a boat does. That’s why the insurance policy on a truck also goes down as the value does. Whereas a boat insurance policy does not; it stays the same as long as you own it. A used truck makes sense whereas a used boat doesn’t make a whole lotta sense by comparison.

bfishn wrote:

I’ve heard from one boat dealer that they have been extremely busy this spring. Nobody has anything else to do and have cancelled other summer vacations so they are buying boats.

I’m also seeing longer and longer loan terms advertised for boats to make them “affordable”. 10 years has always kind of been the standard when you see a monthly payment advertised. Look closely these days Ive seen several prices advertised where the loans are now 12-15 year terms. I’ve heard a local boat dealer doing 20 year loans on Rangers.

Loans of that length are just insane. Is that motor even going to be running 15 years from now?

Bass Thumb wrote:

<div class=”d4p-bbt-quote-title”>bfishn wrote:</div>
I’ve heard from one boat dealer that they have been extremely busy this spring. Nobody has anything else to do and have cancelled other summer vacations so they are buying boats.

I’m also seeing longer and longer loan terms advertised for boats to make them “affordable”. 10 years has always kind of been the standard when you see a monthly payment advertised. Look closely these days Ive seen several prices advertised where the loans are now 12-15 year terms. I’ve heard a local boat dealer doing 20 year loans on Rangers.

Loans of that length are just insane. Is that motor even going to be running 15 years from now?

Thing I see is a lot of guys are taking those 20 year loans out and they’re selling the boat every year and getting a new one!

As of today we have seen very little change in the finance world for recreational marine loans.

A few posts on RV.net claiming that RV sales are through the roof right now. I would assume that RV lending would be similar to boat lending.

Bass Thumb wrote:

Loans of that length are just insane. Is that motor even going to be running 15 years from now?

I wouldn’t buy a boat where the motor wouldn’t last 20 years. I buy assuming that purchase will be my last boat that I own. My current boat was bought new and is 17 years old. No reason that it shouldn’t last another 17.

SuperDave1959 wrote:

A few posts on RV.net claiming that RV sales are through the roof right now. I would assume that RV lending would be similar to boat lending.

The boat dealerships I’ve talked to in the last few weeks can’t keep boats on the lot. Sales are strong.

Been dealing with a lot of dealers now on new boat and most not willing to budge much on prices and interest seems to be around 5.4 for most places

I started down the path of looking for a family / fishing boat a couple of weeks ago due to working from home and being around all the time now. Well, it seems that is what everyone is doing these days. The used boat market is ridiculously hot right now. So if you want to get rid of or upgrade to new now is the time! All of the boats that I have called on have been sold in a matter of a couple hours.

Nothing to see here folks, please move along. Everything is going to be fine, just fine…

Unless you like Evinrudes, build Evinrudes, or sell Evinrudes.

“Our outboard engines business has been greatly impacted by COVID-19, obliging us to discontinue production of our outboard motors immediately. This business segment had already been facing some challenges and the impact from the current context has forced our hand,” said José Boisjoli, President and CEO of BRP.

I’d prefer to be bullish, and am still hoping something turns things around, but sometimes the bears have their day too.

“Senior loan officers representing 38% of U.S. banks told the Fed they were tightening standards for consumer loans and credit cards during the second quarter, up from 14% of U.S. banks that said that in the first quarter. At the height of the 2007-2009 recession, 67% of banks reported tighter standards – suggesting consumer lending conditions may worsen.””
– Reuters: https://www.reuters.com/article/us-health-coronavirus-credit/did-uncle-sams-virus-aid-help-your-credit-score-dont-count-on-a-loan-idUSKCN24E19U

The house, senate and fed are all colluding to create a fedcoin that removes cash from circulation. Business’ that deal with cash are in for some changes that could impact boat buying by their employees.