Boat deposit

[Hurricane]

I think the bank guarantee has been explained quite well here but there's another very important point.

These are my views

The guarantee worked for me until I visited the factory and saw the massive investment the Princess had in the place. I then made a judgement that the second stage payment wouldnt need a guarantee - mainly because it was only a matter of weeks before the boat was due to be delivered to the dealer - and here's the catch:-

There is no point having a guarantee on a boat from the boat builder once it has been delivered to the dealer (because it doesnt belong to the builder anymore) and I should think that the dealer cant guarantee it himself anyway. You probably want to keep a retention to ensure that the boat is delivered to your satisfaction - again you need to make a judgement - risk the whole value of the boat for the cost of the retention or risk a poor delivery and pay up early.

My view again
Whats the difference between a faulty item prior to handover vs a faulty item after it has been handed over - if you are dealing with a reputable dealer he will honour the warranty if the problem is found before or after handover.

And from experience this is exactly what we did - we bought our Princess 67 from Princess Motor Yacht Sales at Swanwick and they handled all the niggly little things that you get with a new boat. It was an absolute joy to buy a new boat from them.

 

[ontheplane]

God - I am not in a position to even contemplate this for myself, however there seems one simple answer to me......

Pay the manufacturer direct for everything except the dealers "cut" or "profit" with a Bank Guarantee provided by the Manufacturer......

OR

Just buy a blooming stock or 6 month old boat, pay a minimal deposit and balance on collection and do it all quickly!

Why buy a new boat at all? I couldn't live with the stress of having perhaps hundreds of thousands tied up in a business I couldn't know how it was doing and if it was to go bust any time soon.

And PLEASE don't assume just because there is a lot of stuff at the manufacturers and they have a lot of "investment" there they won't go bust - often these companies have MASSIVE debt as well, and if the orders haven't flowed, then they may not be servicing those debts.......

To me the industry needs to change, and the Manufacturers have to now offer a Bank or Government backed insurance that if they or any of their dealers go bust your money is safe, and if enough customers say they won't buy until such a scheme is in place you can bet your bottom dollar it will be very quickly.

 

[rafiki_]

For me this is where BMF needs to start earning its corn. They are the trade body, and should be doing all it can to facilitate straightforward and uncomplicated transactions to the benefit of the industry and consumers.

 

[Observer]

There are others on here far better qualified than me to advise you on this, but here goes anyway - as I understand it, the bank guarantee is essentially an insurance policy provided by the manufacturers bankers against the insolvency of the manufacturer.

Mechanically, a bank guarantee is not insurance. It is a guarantee of performance of a specific obligation (usually a payment obligation) and requires three component contracts: (i) a builder will contract with the buyer to repay the buyer if a certain condition (e.g. delivery of goods) is not satisfied; (ii) the bank separately guarantees to the buyer the builder's performance of that obligation, usually with a simple "on demand" trigger; (iii) the builder counter-indemnifies the bank if the bank is required to honour the guarantee.

 

[David_Jersey]

For me this is where BMF needs to start earning its corn. They are the trade body, and should be doing all it can to facilitate straightforward and uncomplicated transactions to the benefit of the industry and consumers.

You would've thought so, but I guess not in their members interests........

Mechanically, a bank guarantee is not insurance. It is a guarantee of performance of a specific obligation (usually a payment obligation) and requires three component contracts: (i) a builder will contract with the buyer to repay the buyer if a certain condition (e.g. delivery of goods) is not satisfied; (ii) the bank separately guarantees to the buyer the builder's performance of that obligation, usually with a simple "on demand" trigger; (iii) the builder counter-indemnifies the bank if the bank is required to honour the guarantee.

I was thinking that the Guarantee would go from the Customer (via his Bank) to the Builder. After all it is fair enuf that a builder has some certainty that his customer will pay him if he actually builds the boat!

Your bank will make certain that the Guarantee they issued is backed by assets (from you) as they will be the folk paying out cash if you later decide not to.

But of course the Builder cannot call on the Guarantee until you fail to meet your obligations NOR until he meets his (of building the boat) - that way your cash is kept away from the dealer / builder (a practical protection), but it would still be possible for a builder to borrow against this Guarantee from his own bankers and if his bankers consider him a good risk (having seen way more info than joe public customer ever will) they will lend the working capital he needs - but none of any of that is the punters risk. Of course if I was a boat builder an unsecured loan from a customer would be preferable.........

Firm goes pop in the meantime = no boat = Guarantee terms not met = your bank not pay under the Guarantee = you not pay (for no boat ). Builders bankers lent him money direct = not your problem.

Alternatively you can argue that you should get your money back. and you may be right, you should. But it's gone. Sorry.

In practical terms having someone looking over the shoulder of the builder at what is going on on the ground and / or the builder having a big incentive to deliver your boat (by getting the large dollop of guaranteed cash actually in) means that if the firm is in difficulties more likely that some other poor b#gger will be left holding the short end of the stick. The irony being that for you it does not actually matter so much (for you No Boat = No money paid out). But that's life / business.

 

[jfm]

There is no point having a guarantee on a boat from the boat builder once it has been delivered to the dealer (because it doesnt belong to the builder anymore)

No, it's perfectly possible for the builder's guarantee of the dealer's performance (delivery of the boat to customer) to survive the builder's transfer of ownership of boat to dealer

and I should think that the dealer cant guarantee it himself anyway

True. To be any use, a g'tee must be issued by someone other than the person you're worried might go bust. No-one can effectively guarantee their own obligations. [/QUOTE]

 

[jfm]

Mechanically, a bank guarantee is not insurance. It is a guarantee of performance of a specific obligation (usually a payment obligation) and requires three component contracts: (i) a builder will contract with the buyer to repay the buyer if a certain condition (e.g. delivery of goods) is not satisfied; (ii) the bank separately guarantees to the buyer the builder's performance of that obligation, usually with a simple "on demand" trigger; (iii) the builder counter-indemnifies the bank if the bank is required to honour the guarantee.

Yup. The indemnity you refer to in item (iii) will of course invariably be structured as a deemed draw on whatever revolving facility the builder has with the bank. Failing that, builder 's indemnity would have to take the form of cash collateralisation

 

[jfm]

Surely if a builder cannot borrow working capital from a bank, against the promise of future contracted revenue assured by a client account deposit, he will also be unable to get his bank to provide a guarantee unless it's secured by equivalent cash (i.e. the deposit goes to secure the guarantee counter-indemnity); which is the same (in effect) as if it was tied up on trust in a client account.

Yup, all agreed. The g'tee will not be offered by bank unless builder already has unutilised credit lines of at least the g'teed amount. So, as you say, the builder could just draw on those lines to build the boat while customer's money is nicely escrowed. The reason it is done with a g'tee is I suspect merely optical: there is fixed fee for g'tee and it's easier to pass that onto customer than it is to work out the interest incurred by builder on drawing his credit line to pay for the working capital in building the boat. Plus, the builder has more conduct/control over customer's cash with the g'tee structure. With an escrow structure there might be awkward terms in the escrow agreement or a PITA escow agent, which could make it less certain the buuilder can get at the cash

 

[benjenbav]

The g'tee will not be offered by bank unless builder already has unutilised credit lines of at least the g'teed amount.

The ability of a builder to offer a guarantee is really a fairly balls-out statement that "I can do this because I have enough money not to need to do it" which ought to be a great marketing tool; particularly inasmuch as its absence on the part of a rival also speaks volumes.

 

[ontheplane]

Yep - with the kinds of sums involved here, I would certainly buy a boat from one supplier/manufacturer who could offer a guarantee rather than one who didn't... even possibly if the boat was a tiny bit more....

So if Princesseeker could offer the guarantee but Sunairline couldn't, and the boats were even roughly comparable then I'd just have to go with the co that could offer the guarantee - as you say, even the mere fact that they could offer it would carry huge weight with me for the kinds of sums of money involved here.

Perhaps it's time the BMF or RYA (or both together) could actually set up an insurance policy, and all its members contribute an amount based on previous years turnover for example to indemnify any customer who loses out if a member goes bust?

Certainly in current climate, I'd only buy secondhand, and not a penny would change hands until I got title to the boat - in fact I'd say these days it's almost safer to buy privately than from some dealers! (Not all I hasten to point out!)

 

[David_Jersey]

So if Princesseeker could offer the guarantee but Sunairline couldn't, and the boats were even roughly comparable then I'd just have to go with the co that could offer the guarantee - as you say, even the mere fact that they could offer it would carry huge weight with me for the kinds of sums of money involved here.

I would have thought their would be some first mover advantage, especially if introduced at a boat show.........where the sales pitch could include: "With us your money is 100% safe, with them - who knows? ".

Perhaps it's time the BMF or RYA (or both together) could actually set up an insurance policy, and all its members contribute an amount based on previous years turnover for example to indemnify any customer who loses out if a member goes bust?

Yeah, seems an easy enuf task for the RYA to push for, but I recomend no breath holding.........

Or a joint campaign from MOBO monthly and BigPoshBoat World?

 

[Tranona]

This one has been round many times. Despite the noise made about it, the number of people who have "lost out" from either broker or builder failures is very small - although the consequences for each individual can be pretty severe.

As we have seen, there are already ways available of getting some protection and I am not sure an industry "insurance" scheme would work. Look at from a builder's or dealer's point of view - why should they pay a levy to support the failure of others? It puts their costs up for no benefit to them.

It makes more sense for buyers to pay an insurance premium because it is their money that is at risk. However, not sure how that would work as somebody would have to work out the risk associated with each individual or class of transaction - otherwise how would one assess premiums?

Buyers and sellers are individuals contracting with each other and if they are not prepared to accept the terms of a contract, then they should not engage.

 

[Powersalt]

Wow thanks forum for some really good and effective advice I am going to try the guarantee with the bank route and see what reply I get.

 

[PowerYachtBlog]

if a builder does not give any bank gurantee is not good, but I wonder from my experience why the big names have always a problem giving this up

 

[Powersalt]

There I have it, manufacturer refuses any bank guarantees as they say it defeats the object of their being able to use the capital to build the boat!!!!!!!!!!!!!!!!!!!!

 

[PowerYachtBlog]

that means the builder in question is 1) not well capitalized 2) quite tight with the cash 3) they sold enough boats in the last shows and dont care about this deal 4) may be the dealer is telling a lie if you are negotiating with him
for this builder I hope it is 3
with the current economic climate I would be ready to pull off this deal right on if they dont give a gurantee just explain this to them, and as we say for the ladies down here just say NEXT

 

[ontheplane]

Yep,

I would explain to dealer/manufacturer that if they can't guarantee your money is safe... well you'll secure it yourself by paying it into an escerrow account until the boats completed and ready for handover....

If they don't go with that either then I would walk away - up to you what you do of course...

 

[Observer]

There I have it, manufacturer refuses any bank guarantees as they say it defeats the object of their being able to use the capital to build the boat!!!!!!!!!!!!!!!!!!!!

I'm not all that surprised to hear that and I have some sympathy with the builder's position. Think about a property construction contract - the builder is paid agreed perecentages of the contract sum against agreed milestones or independent valuations.

Of course you can take the deal elsewhere but, if this is the boat you want and you do have confidence in the builder, you may be able to a agree a payment plan that reduces your exposure to an acceptable level by ensuring that the aggregate amount paid from time to time is no more than is reasonably necessary to meet direct costs. The point you can/should make back to them is that you understand their desire/need to use your money to finance the build but you're not willing to finance their overhead or pay their profit before the boat is delivered. May still not work but could be a compromise that works for both sides.