Boat depreciation

[ari]

Fascinating article in MBY this month about depreciation.

Couple of interesting nuggets of information.

Azimuts apparently hold their value as well as Princess or Fairline boats. This is according to Med-Sale Uk who are of course Azimut dealers, so no possible bias there.

Also, certain Sunseekers are worth more at a year old than when they are new apparently! This fact is due to a broker in Poole who apparently has a boat listed by its owner at an asking price that is £40,000 more than the LIST (not discounted) price that the boat was new! (No information as to whether this is the basic list price, or whether the list price is for a boat of identical spec and engines as the used ones. Also no information as to whether the boat is seriously for sale or an owner having a "punt", whether it actually got sold, or what price it eventually achieved if it did).

And finally, sportscruisers like Fairline Targa 48's lose 6-8% in the first 12-18 months, and 11.5 - 13.5% in 3-4 years, whereas European flybridge boats lose 9.5 - 11.5% in the first 12 - 18 months, but yet 6 - 9% in 3 - 4 years. (!?)

So therefore according to MBY best to buy a Fairline 48 Targa if you only want it for 18 months, but a European Flybridge boat if 3-4 years. No explanation as to why though.

Oh well, it is the April issue....

 

[tcm]

This was a spectacularly difficult subject.

Firstly, I share your view regarding local/dealer bias - the franchise dealer always asks more, and asking prices for used sunseekers (for exmaple) remain at the lunatic (retail) level.

Secondly, I'm not at all sure that every boat actually "sees" the depreciation. For example, we traded our boat, and someone else also p-exed to buy it. So what was its true open market price? And does it matter that its in the UK, spain, Croatia. Or whether it's Xmas eve, or May? Of course it does.

Far more articles in the boat mags require a serious programme of independently-validated research instead of just speaking with a lot of people with vested interests in a close-knit market and making the reasonable shot at a difficult subject, and I trust we'll see a dramatic change soon, er gulp...

 

[ari]

Hmmm...


"Secondly, I'm not at all sure that every boat actually "sees" the depreciation. For example, we traded our boat, and someone else also p-exed to buy it. So what was its true open market price? "


A very interesting point, if you don't mind me saying so, TCM.

Just imagine, theoretically of course, that you were a builder of flybridge and sports cruiser style boats.

Your boats look a lot like, say for example, established quality brand leaders like Princess and Fairline. You use similar engines, have jazzy interiors to impress the uninitiated first time buyer, and more importantly his wife, but yours are more lightly constructed and more cheaply built, so that they actually cost half as much to make.

But what you did was rather than selling them for half the price, you pitched them at just slightly less than Princess and Fairline levels. So their P & F's 38 footers were £200K say, and yours should be £100K, you charged £190K.

Well, same make of engines (even if you don't put such big ones in, it doesn't matter, your boat is lighter and flatter bottomed so goes just as fast in the brochures and no one ever goes out when it is rough, especially on a sea trial do they?) Yours has the same sort of internal layout. A few nice impressive gizmos. Expensive adverts in the marine press who then test your boats and give the thumbs up (oooh yes, lots of storage and some good handrails).

So you market your XYZ 38 footer for £190K instead of £100K, then with your £90K in hand you are all set to give a bit of discount to first time buyers or very generous part exchange prices for their petrol American B*******s against your £190K list.

How could they refuse? "Look darling, I paid £15K for our B******* last year and we're getting £20K back against this XYZ TURBO MKIII 38 footer, we're boating for free!

Then when Mr. Boater comes back in a year or twos time, his XYZ 38 footer should really only be worth £60K by now, but he's all set to part exchange against your £390K 48 footer (well the big boys are asking £400K for theirs, yours is a bargain in comparison).

Of course the 48 footer cost half as much as it should have to build again, so should really be £200K, so you can afford to give Mr. Boater £200K for his 38 footer as a part exchange price instead of the £60K it is really worth.

So he's giving you £190K in cash plus his boat to upgrade, so his part exchange is standing you at £10K! And look, he's made a profit on his boat again, £10K in a year, he's boating for free here!

You can then put his old 38 footer up for sale at £170K, point to it whenever someone does a report on secondhand boat prices to prove how good your boats residuals are, and best of all, when someone comes along with a £15K B******* you can smile and give them £20K for it in part exchange against the £170K you are asking... (remember the second-hand XYZ 38 footer they are buying stands you in at £10K).

And as long as they all keep moving up through your range you can't lose (and they are bound to come back, no one else will offer them what you will in part exchange, tell the punters that the competition are all snobs who are trying to devalue the XYZ range as it is such hot competition for theirs).

Only problem comes when they are on their sixth boat, your top of the range 60 footer, which of course they've paid full list price for (but with a fantastic part exchange on their last XYZ, "look darling, the bigger the XYZ we buy, the more profit we make on the last one every time we part exchange up!!".

But you can always put it up for sale on brokerage for them, can't you? Suggest a figure of 10% less than they paid (although the market is very slow at the moment, might take a while but stick to your guns sir!)...

That could never ever happen in the real world though.

Could it!?

 

[Guest]

This is quite possibly the most interesting post I have ever read- or it would be if I had any idea what you were going on about. Boats XYZ- never heard of them are they built near the Patagonian Treacle mines?

The mathamatics were far to complicated I've only got a masters and you lost me after the first 10k profit or was it a loss ? ;-)

 

[ari]

Simple version.

XYZ Boats, cos this is entirely theoretical, d'you see?

So.

Build boat cheap.

Charge loads more than you should cos people can't tell the difference, like double the price.

Use the difference between what you should be charging and what you actually are charging to fund very generous part exchange price every time the punter moves up your range.

As long as people keep trading up then you will have (much)more cash difference than last time they bought, as they are buying bigger (hence more expensive) boats each time.

Use ever larger margins to give them loads back for the last (smaller) one that they bought against the bigger one they are now buying.

Happy punters giving you full list price every time cos you are giving them so much back for the last one they bought from you (my, these boats hold their value well!)

Repeat ad infinitum till they have a whopping boat and you don't make anything bigger so they are left trying to sell boat that cost them twice what it should.

Not your problem cos you don't build anything bigger for them to part exchange up to.

 

[coliholic]

A touch of cynicism here Ari?

On first glance your reasoning seems failry sound, but I think in reality your numbers don't work. Fairline\Princess and your XYZ compnay all have the same, or very similar, costs for their bought in bits - engines, electronics, uphostery, taps, sinks, woodwork etc.Yes there's room to cut costs a bit by using cheaper\inferior products, but not much. OK you can use thinner laminates for your hull, but only a bit, after all you can't go too light or the thing won't hold together. In manufacturing in general, and I'm failry sure that boatbuilding is the same, the largest proportion of costs is the labour cost. So I'm not at all sure that if you're building virtually anywhere in Europe that you can halve production costs of even a lightly built boat. Of course you can save some, but my guess would be 10-20percent tops. But of course that's just my guess and IMHO.

Marketing and sales costs are going to be as high or even higher for your new XYZ company, since they've got to penetrate an educated and knowledgeable market. Lets face it few people buy a brand new boat as their first boat with no knowledge of the market at all. Of course there's the odd one, but most buyers are fairly well clued up as to the cheaper brands v the premium brands and you can't position yourself as a premium brand solely on cost - the perception of a premium brand is exactly that, better quality and you can't get that by cutting corners and putting your price up.

Parralels could be drawn in the car industry. Take the VAG group. No matter how good a Skoda is, it'll always be seen as a Skoda, but the same car marketed as a VW (which it is) attracts a higher price. Ford have their Premium Motors Group too, Aston Martin, Volvo and Jaguar and the latter's a perfect example of a premium name that's being used to mass market a lower cost item whilst trading on the Jaguar name - the new X type is really a Mondeo with a different body, but it's being built in a totally different way to Jaguar's traditional build. Time will tell if the quality suffers and they lose their premium cachet. Fully automated and volume production techniques in the car industry, which bring about substantial cost savings, means that they have to build 1/4 million a year to make it work. I don't see any boatbuilder looking at even 2 percent of those numbers

In the European and UK boat building industry, the volumes are not really there to allow the investment in mass production techniques, especially not if you want to change your models every 3 years or so.

Anyone know how many boats Sunseeker\Sealine\Princess\Fairline\Broom et al build a year? Any published figures anywhere?

I see the logic of your argument in your trade up through the range scenario and see some paraalels with one or two of the manufacturers, but think your trying to stretch the logic too far. Surely boat buyers are not really that naive? Are they?

 

[ari]

Cynical, moi? Surely not...

But of course you are absolutely right, you couldn't start a brand new company and make a boat for half the price of a Fairline or Sunseeker and then charge the same or just under as them, and expect people to buy it. My example was just that, an example and I used big price differences to illustrate the point.

But, say it were an existing company, already got a name, and instead of building for half the price you were building for say, 2/3rds the price, even 3/4 (cheaper layup methods perhaps or lots more mouldings rather than intricate time consuming carpentry, smaller engines to drive your lighter boat?), tart up old models with a few design changes and a new name rather than clean sheet new models, it all adds up in terms of cost and the finished result looks not dissimilar when it is parked on a nice stand in Earls Court and its going to leave you some pretty good margins to play with come the eager punter with a p/x, especially if it is one of your boats he is trading up from.

Also, re your comparisons with the motor industry. You are of course absolutely right again in what you say, but I'm inclined to think that there is far more knowledge about cars, plus the image difference between a Jaguar X Type and a Ford Mondeo to use your example (which as you say use a lot of common parts) is huge, whereas one big impressive shiny white 40ft boat is much like another big shiny white 40ft boat. They all look good and will all impress you and more importantly your wife (and its her you need the nod from, you just want a nice new bigger boat) when you walk around them. And if one is offering you what you really believe your boat is worth (due to the lovely Laura Ashley curtains your wife put in last year) and everyone else is offering you £10K or 20K less than you are sure it must be worth... Well....

Also, look at the car press and the way they do things. The new Jaguar X Type comes out at what, £25K? and straight away the motoring hacks line up a similar size/price BMW, Mercedes, Volvo, Audi etc and thrash them for a week and report in no uncertain terms as to whether it measures up (this isn't a dig at MBY, I appreciate it must be virtually impossible to line different boats up for a week for a group test).

Also, because of the nature of car enthusiasts (which is 90% of us boys isn't it?), we all want to know if the new Jag is any good or not and will read the reports whether we want or can afford one or not. So there is a huge amount of informed opinion from good sources out there for the would be X Type buyer. The average boat buyer is indeed an enthusiast, but knowledgeable and educated? As much as he can be, yes, but there isn't the same level of source out there. You've only got to look at the differences of opinion on this board. Everyone is an enthusiast, but people have wildly differing opinions on things.

And lets face it, if the salesman in question is offering you the opportunity of a super super deal on your p/x (OK against his list price), or you are trading up in a marque, and your last one "seemed OK, not that we ever went that far of course...." are you really going to take that lower bid from his competitor for yours? Why look too closely, the last one did the job, and residuals were great weren't they, look what you're getting back now you're trading up with the same company....??

But as you say, I'm probably just cynical....!! <G>

 

[Deleted User YDKXO]

Ari, you make some very good points here and I agree with you that the MBY article was basically rubbish. Somebody really ought to do some proper independent research on actual selling prices after discount or brokerage fees rather than list or asking prices. I think this is an issue that the industry prefers not to address because the reality would be rather unpalatable
Boats are expensive and generally bought by people who are successful in their work or business and yet many of those same people who would rigorously analyse the whole life costs of assets in their company seem to ignore all reasoned logic when it comes to buying a boat. Now I know that buying a boat is as much an emotional decision as a rational one but generally were spending our own money rather than our company's so you'd think we'd be even more careful!

 

[ParaHandy]

When I bought my boat (a yacht) I set up a database of asking price, date advertised, year of manufacture, currency, new price (sometimes a guess as not still in business but motorboats might be better?) & who's selling it. And full RPI table from 1976. All on Excel. The calculation takes the new price and depreciates that back to the price when built by the RPI indices and calculates the annual loss/gain in value.

Eg new price for similar boat in 2002 (including "fit-out" addition of radar etc of £10,000) is £100,000 incl vat; therefore depreciated price in 1992 is (136.3/173.3 from RPI tables)*100000=£78,650. If the 1992 boat is currently for sale at £80,000, then it has gained £1,350 in value over inflation.

Using RPI is not too bad although if boat industry published inflation numbers (which they don't - fat chance!) would use those.

The absolute values derived are not awfully useful, but, within the same group of boats you can tell fairly quickly a) those that keep their value, b) those that are out of step with the rest and c) any bias by the selling agent (although not much evidence of that, I have to say). In fact the absolute values I got were better, I think - certainly better researched, than the surveyors opinion of value.

You can also see when the boat plateaus in value. That is, when the rate of loss levels off which, for a yacht, is typically 10-15 yrs of age. Beyond that they tend not to lose much in value. For a motorboat I would imagine that might be the point when the engines might need replacing so characteristics would be different but principles ought to be the same?

I can send you the basic file for fiddling with if not too familiar with excel?

 

[Deleted User YDKXO]

Thats very interesting Parahandy but I think I'm right in saying that inflation in new boat prices (at least motorboat prices)over the past few years has been generally in excess of RPI which is possibly why your depreciation figures look good.
Have you come to any conclusions apart from the levelling off values after 10-15 yrs? Which manufacturers and types of boat fare best or worst?
My impression with motor boats is that this levelling off of values takes place after 5 yrs or so and is very much a function of rising new boat prices

 

[KevB]

"established quality brand leaders like Princess and Fairline" established quality???
established box shifters IMHO

 

[ParaHandy]

Remember all of this related to yachts - never done motor boats. I'm only thinking it might be comparable.

As for wage inflation, well...Beneteau in France have a yield of approx £150k per employee which might suggest that total wages are 15-22% of revenue. I actually think that manufacture of motor boats might be easier than yachts (perhaps wage ratio less) mainly because yacht design has to cope with stress through the deck (mast) and hull. That may be bolx, of course. Anyway, the actual indices that apply to boat building may be more complex than merely wages. That being the case, RPI is as good a place to start as any? I did get some very old yot comics and checked prices and RPI was not that far away over 10 years.

There are many boats which have negative returns! Factory boats (eg Bavaria) have pretty awful returns a) because of currency and b) they make the same boat cheaper now than 5 years ago. In a sense, they murder their own secondhand market. Swedish boats do slightly worse than UK Moody which flies in the face of perceived wisdom.

Most stable prices are from small yards but volume makers like Moody do their customers very well.

Buying a boat is better than stuffing money under the mattress!

Douglas

 

[KevB]

Ari,

Looking at your post I have (rightly or wrongly) assumed that an indication of the quality of a boats build should be based on it's Weight. So having this in mind I looked up the weight of my Italian built Sessa35 (which is actually 34.5ft LOA) and Fairlines nearest equivalant which is a Targa 34 (which is actually 36.3ft LOA) and low and behold the Targa is heavier so maybe weight does imply build quality???

Ah but wait a second the Sessa weighs 5940kg's and the Targa weighs 6100kg's a difference of only 160kg's.
So lets summerise - they are both fitted with the same engines (twin KAD43's) the Targa is nearly 2ft longer but weighs only 160kg's more?? So who is cutting corners? Oh yeah, the Sessa costs about 40k less.

http://www.fairline.com/targa/t34_perf.htm

http://www.sessamarine.com/boats/product.asp?id=104&lang=EN

 

[ari]

Kev,

So what you are saying is that provided XYZ boats stuff a couple of ton of ballast in the hull to make theirs the heaviest, you'll conclude them to be the quality choice and open your wallet!!???

I think there might be a little more to the quality issue than that...

<G>

 

[KevB]

"your boat is lighter and flatter bottomed so goes just as fast in the brochures and no one ever goes out when it is rough, especially on a sea trial do they?) "

"So what you are saying is that provided XYZ boats stuff a couple of ton of ballast in the hull to make theirs the heaviest, you'll conclude them to be the quality choice and open your wallet!!???"


Make up your mind - either they make them thinner therfore lighter then advertise they go as quick as a good old British boat or they make them thinner therfore lighter then add ballast so they weigh the same as a good old British boat.

I am not going to argue mine is better than yours - oh yes I am. I chose to buy something other than Fairline/Pricess because I found something better and cheaper. My boat comes with many things as standard which Fairline charge extra for such as something as basic as an electric toilet with a holding tank which has a maserator. The interior of my boat makes the the new Targa 34 look like an outdated jelly mould. The quality of the build is at least the equivalent of it's British rivals and by the new 'weight = quality' measurment the Sessa lb for lb is much better value for money and better quality. If you don't believe me your welcome to come take a look.

As for adding ballast, you don't really believe they do that do you, cause I was wondering what those 10 bags of cement were for in my bilge!! <G>

Fairline rely on being British for their high cost not because they are the best.

All IMHO of course

<P ID="edit"><FONT SIZE=-1>Edited by KevB on Mon Mar 18 16:39:16 2002 (server time).</FONT></P>

 

[ari]

Um Kev, you didn't get offered a suspiciously high part exchange price for your last boat did you....?? I seem to have touched a nerve!! <BG>

Sorry, my little jokette...

Thing is, I'm not trying to argue that Princess/Fairline are the greatest thing since sliced bread and everything else is rubbish, far from it. I've been on a lot of boats but never a Sessa, and for all I know they are twice as good for half the money in which case your the smart one and the joke is on everyone else!

Also, I wasn't suggesting that British is best, my mythical XYZ company could very very easily be a British one...

I guess the point I was picking up on was from TCM's comment that often true values (rather than asking prices) of boats are often never realised because of part exchange deals that go on, and that there are certain boats priced very close to Fairline/Princess levels that IMHO etc are nothing like the quality, but as all a large proportion of the boat buying public see is a similar sized boat that looks the same for similar but slightly less money they are led to believe that they must be a similar quality, and there is little informed information out there to disuade people from this viewpoint.

So is this how the builders/distributors sell them for nearly the same amount? And is this how come those dealers always seem to be asking considerably more than independant brokers for two or three year old ones and yet still sell them?

My personal opinion is that possibly in one or two cases MAYBE what is occuring is that boats are being marked much up higher than they should be new, and those mark ups used to fund very generous part exchange deals, the values of which are then written down significantly.

And that there is very little proper information out there with regards to real second hand values rather than MAYBE propped up prices which again MIGHT allow certain dealers to sell people on the deal rather than the boat.

As I say, this wasn't aimed at every builder that isn't Fairline, Princess or Sunseeker, these were mearly used as the "quality" benchmark, nor aimed at any buildr not British.

Rather, it was aimed at those boats you see which you think "how on earth does anyone buy one of those when they could have a Fairline for another £10K". And just maybe the answer is as above...

Just my twopenneth worth...

 

[rog]

May I add another dimension to this extremely intersting thread
Presumably, as such boats are not really mass produced items, there is a particularly large element of direct costs in the total cost of each boat. Accordingly manufacturers will be able to look for a specific profit amount or percentage per boat and will switch manufacturing to those boats that offer the highest profits.
Any idea of what sorta margins are achieved as presumably variations between manufacturers would support Ari's point.
Additionally, any profit orientated manufacturer would realise what's going-on at the competitors and may likely reduce his specification/build quality to that acceptable in the market?

 

[tcm]

Re: yes rog, but ....

altho I think you're right, what in effect happend is thatboat manufacturers balance between those that they can sell (inexpensive ones) and those that make most money (big ones). I've always wondered at cars, for example, when a car with a slightly larger engine and a few more gizmos costs an additional 10 or 20 k. Much more dramatic with boats: 50 foot boatover 400 k, 30 foot boat around 100k. Bet the costs are only double to build the bigger boat. Note that fairline, princess, sunseeker have all moved up market as quickly as possible, dumping their smaller models in the process.

Note also how sealine with slightly dated blobby styling and cheap-fabric interiors can't quite cut it at the higher end, whereas sunseeker have whammed in a load of leather, curly/curvy polished wood, halogen lights plus top totty in the brochure shots all guaranteed to attract plenty of rich but nautically undemanding types. Yes, that means you, messrs Stringfellow, Mansell, Jordan....

 

[KevB]

Horses for courses

A point to note and this is from the experience of a close friend, Sunseeker also offer or have offered to buy back boats at original sale value if your upgrading to another of theirs. So I don't think this upgrade path is confined to the 'lesser expensive' manufacturers.

Altho fairly new to boating I looked long and hard when choosing a new boat, top of my list was either (second hand) a Targa 34/37 or Princess V39/40. The princess was a little out of my price range and the Targa was a little bland and a bit like a Ford Modeo, does the job expected but nothing more and there are millions of the buggers around. So I decided to look at other manufacturers a little less known in the UK.
We saw Sessa at the SBS and really liked it, did a little research and found out they are the BIGGEST (in volume) boat manufacturer in europe.
Italian design fitted out by Riva (I think) so looks the dogs do' do's (IMHO) and quality fitments to boot. So got a brand new 35 ft boat for just under 130k with teak deck, windlass, proper toilet, wet bar, full size fridge, fantastic design, all the excitement that goes with buying something new and warranty all for the price of a 3 year old Targa 34 (and a boat that weighs only 160kg's less than a Targa <G>).

Horses for courses I suppose. I had a choice and decided the hum drum run of the mill Brit boats didn't offer value for money when compared to a european boat.

Having said all this if I was buying a flybridge (which I intend to do next time, maybe) I will be looking very closely at a Phantom 37 but then it will have to compete with an Azimut 39!!!

All IMHO of course and propably complete b******s.

Kevin.

 

[tcm]

Re: another horse

Not sure if their being loads around contributes (good or bad) to depreciation. But agreed eyetie boats seem now better outright value, KevB.

A friend had numerous princess, fairline boats, then an Azimut 42. He took delivery from savona italy, and drove it to spain with no reported problems, other than he dropped some gear down the teak stairs, which they fixed foc. His aircon also seemed very blimmin good too. Bloody freezing, actually.