North American Diesel Powerboat Market Perspective

For at least three consecutive years, the U.S. pleasureboat market has been mired in a prolonged slump that has impacted virtually all traditional boat segments from the smallest entry level boats up to large inboard cruisers. Outboard boat retail sales declined 7-8% in 2005, another 5% in 2006 and are on course to decline again in excess of 10% in 2007. Gasoline sterndrive boats declined 2-3% in 2005, another 6% in 2006 and also appear to be headed for a double-digit decline for 2007. Domestic sales of inboard cruisers, both gasoline and diesel, have been on the decline since their peak of 11,800 boats in 2002, primarily from the gas segment. Cruiser sales plunged 13% in 2006 and could be headed toward another double-digit decline this year.

According to statistics published by the National Marine Manufacturers Association (NMMA), U.S. pleasure boat registrations for traditional powered boats totaled 379,000 units in 2006. Broken down, it looks something like this: 200,000 outboard motorboats, 66,000 stern drive boats, 87-88,000 personal watercraft, 6,000 jet drive boats, 13,000 ski and wakeboard boats, and 6,750 gasoline and diesel inboard cruisers. About half of recent U.S. reported registrations for inboard cruisers are believed to be diesel, which is the focus of our report.

During the first three months of 2007, our staff conducted our annual survey of over 200 North American builders of diesel powerboats to determine what changes had occurred between the 2006 market and that for 2005. For 2006, Power Products Marketing estimates total North American diesel powerboat production amounted to about 4,950 boats, which was down about 8% from our revised estimates of 5,375 boats for 2005 but still well-above our estimate of 4,250 boats for 2003 when we last profiled this market. North American production had jumped nearly 15% in 2004 and another 10% in 2005 to a record level, mostly attributable to a surge in export business.

Overseas Exports

According to our analysis, about 23% of all North American-built diesel powerboats were exported in 2006. This compares with 19% in 2005, 13% in 2004 and 12% in 2003. These are mostly going to European customers, many of which are sterndrive configuration. Since 2003, exports have more than doubled in the span of three years and appear will exceed 25% of total builds in 2007. Many of these boats typically have Volvo Penta, Yanmar and MerCruiser propulsion engines.

Analysis By Length

Inboard cruisers sold domestically have suffered the worst in the 31 feet and under category for combined gas and diesel. For diesel, all categories less than 60 feet in length suffered declines in 2006, although the worst hit appeared to be boats between 26-31 feet and 50-60 feet. Boat sales over 60 feet, however, reportedly increased 30%.

Analysis By Propulsion Type

Based upon our analysis, there were about 200 boat builders in North America that produced diesel-propulsion powerboats in 2006. These would include the largest volume builders producing hundreds of boats annually to the smallest custom builders that might only produce one boat a year or every other year.

About 69% of all diesel powerboats produced in North America in 2006 were twin inboard configurations, which has been fairly consistent over the last five years. About 13% of the boats were single inboard, which also has stayed consistent in recent years. About 15% of all 2006 production was stern drive, unchanged from the prior year, with 60% single engine and 40% twin. There were about 20 boats produced that had triple engine configurations, either I/O or inboard, typically high performance/offshore boats. Jet propulsion applications have about a 2% share, based upon our tabulation.

Analysis By Boat Type

We categorized all the diesel powerboats we tracked that were produced in North America during 2006 by boat type and compared them with previous years. According to our analysis, about 28% of the boats were sportfish designation, which include convertibles, compared to 27% in 2005 and 30% in 2004. About 36% of all boats produced in 2006 were sport cruisers, from 30 feet and even less all the way up to nearly 80 feet in length. This compared with 35% in 2005 and 31% in 2004. About 23% of all boats produced in 2003 were motor yachts, between 30 to 80 feet in length, remaining fairly consistent compared to 24% in 2005 and 23% again back in 2004. Another 4% of diesel powerboats produced in North America in 2003 were trawlers, down from 5% in 2005 and 7% in 2004. Many trawlers sold in the U.S. are in fact produced in the Far East and imported into the U.S. for sale. Considerable production has been shifted from Taiwan to China in recent years. About 5% of the boats are a combination of launch/tenders, most of which are large diesel-powered rigid hull inflatables (RHIBs) propelled with either a stern drive or jet drive configuration. This percent has been very consistent at 5-6% over the years.

The remaining group is superyachts or megayachts that comprises just 1% of all production annually and typically source twin engines 1400 horsepower or more each. These custom luxury yachts are 80 feet and over in length and by our count numbered 62 built in the U.S. and Canada during 2006 in which we determined the engines were actually laid. This compares to 56 in 2005 and 43 we counted in 2004. The high water mark was in 2000 during which 80 superyachts were built in North American yards. Thereafter, the market declined steadily until the bottom in 2004. In the future, some of this custom production could be moving to China to save on labor costs.

Major Builders

The top ten diesel powerboat builders in terms of numbers of boats produced in 2003 were Sea Ray, Mainship (including Luhrs and Silverton), U.S. Marine (Meridian, Bayliner and Maxum), S2 (Tiara and Pursuit lines), KCS (Cruisers and Rampage lines), Carver, Regal, Albin, Cabo and Viking. All produced over 100 boats last year and have been consistently in the top ten since at least 2000.

The top five builders together accounted for 44% of all North American 2006 diesel powerboat production, which hasn’t changed much over time. The top ten builders as a group comprised 58% of the total versus 61% in 2005 and 62% in 2004.

Brunswick’s entire Boat Group, which comprises Sea Ray, U.S. Marine, Hatteras, Albemarle and Cabo produced over 1,400 diesel-powered boats in 2006, representing nearly 30% of the total North American production in itself, up from 25% several years ago prior to the Albemarle and Cabo acquisitions.

Propulsion Engine Trends

Of the 4,950 boats produced during 2006, we determined that there were about 8,750 diesel propulsion engines sourced compared to about 9,400 in 2005 and 8,650 engines in 2004 and 7,500 units annually between 2001 and 2003.

According to our calculations, about 7% of all 2005 engines were 200 hp and under, nearly 600 engines. Approximately 22% was between 201 and 349 hp and another 42% was between 350 to 500 hp. About 19% of all engines were between 501 and 1000 hp and the remaining 10%, over 850 engines, was over 1000 hp. These 2006 percents reflect an ongoing shift between the 201-349 hp and 350-500 hp categories as a result of the increased overseas exports, which are typically much smaller I/O boats. Those two categories were 14-15% and 54% respectively back in 2004. The 200 and Under and Over 1000 hp segments each jumped a percent between 2005 and 2006.

Market Shares

If one were to include repower propulsion engines in addition to engines sold into new construction powerboats, Cummins MerCruiser would clearly be the leading supplier of diesel propulsion engines sold into the North American powerboat market, primarily due to its relationship with certain semi-captive Brunswick accounts. Based upon our analysis, the four leading suppliers’ shares for 2006, 2005 and 2004 appear to be as follows:

Total Repower &
New Construction New Construction
2006 2005 2004 2006 2005 2004
CMD 35% 36% 32% 36% 37.5% 33.5%
Yanmar 26 26 29.5 21 21.5 25
Volvo Penta 20 19.5 18.5 23.5 22.5 21.5
Caterpillar 10 10 11.5 10.5 10 11.5

Although CMD gained significant share in 2005, their share fell off slightly in 2006 as they lost share to Yanmar and Volvo Penta at independent builders. Yanmar’s share has dropped since 2005 primarily because of their delay in getting their next generation engines into the market in a timely manner. Volvo Penta has made a major move in the market over the last seven years when their share was about 12% (2000) in new construction. Their new D-series engines have been well received and many are sourced in boats that are in turn exported to Europe. Caterpillar has lost significant share since 2000 when their share was about 26% and they no longer compete below 450 hp, although their dollar volume is healthy because of their focus on larger engines, such as the C32 and C18-series.

These four OEMs continue to dominate the diesel propulsion market up to 1000 hp with over 90% of all engine shipments with MTU and MAN making up most of the balance. Total engine sales for 2006 amounted to 10,850 units with repowers accounting for about 20% of that.

Yanmar is estimated to have slightly less than half of all new repower engines going into North American diesel powerboats. CMD launched a new program back in 2005 that offered remanufactured B- and C-series engines in marine repower applications (210B, 315B, 370B and 430C). Only boats older than 2001 could qualify. This ReCon program has been successful, although reports were the newer electronic engines picked back up back toward the end of 2006.

Emissions

In response to Tier 2 emission regulations that took effect January 2006 for recreational marine diesel engines, engine manufacturers have been phasing in next generation engines with electronic controls and high-pressure common rail fuel injection systems. This impacted engines from .9 to <1.2 liters per cylinder and 1.2 to <2.5 liters per cylinder based upon relative PM and CO established levels. In January 2007, engines from .5 to <.9 liters per cylinder were subsequently phased in. These new engines are quieter, smokeless and more efficient than the older mechanical models and have gradually gained acceptance with the public.

Yanmar announced an agreement with BMW at the end of 2005 to source BMW base engines for a new fully electronic line of high performance 4- and 6-cylinder applications that were introduced after mid-2006. Volvo Penta last year introduced new D-3 and D-4 models to complement its existing lineup that ranges from 110 to 800 hp, all of which are electronically controlled, with common rail and direct fuel injection. CMD has built up an impressive fully-compliant inboard lineup of QSB-, QSC- and QSM-series engines. Caterpillar has introduced a number of new engine models with ACERT technology in recent years for its marine C-series and 3500-series to reduce emissions. MTU also has introduced at least a half dozen new 2000 and 4000 CR-series models over the last two years with common rail fuel injection and ADEC electronic controls. MAN gained considerable market share last year with just a half dozen common rail models in its lineup that were introduced back in 2004 ranging between 800 and 1550 hp.

2007 and 2008 Forecast

Based upon our discussions with boat builders we interviewed during the first quarter of 2007 and more current input from other sources, it appears North American diesel powerboat production, including both inboard and sterndrive segments, has recovered some of late after earlier signs that 2007 would be down in the double digits. Expect diesel inboard to be off in the 6% range this year while diesel sterndrive could be up in the 5% range because of the ongoing emphasis on exports. That would equate to a more modest 4% decline this year overall with overseas exports comprising 25% of 2007 production. Don’t expect production to bottom out until the middle of next year.