Re: Recession-Boating Industry-Volunteers Needed
Yes, dealers have to pay the bank when they sell a boat, but what they pay is the wholesale price that they acquired the boat for, not the retail price. Since markdown is a function of retail price, the idea that no dealer will use discounting as a way to move inventory simply isn't correct - they do it all the time.
The decision making process is not complicated. If inventory isn't moving, and you need to reduce your debt load, you shed that debt. In better times, you may chose to factor in things like overhead, test rides, etc. In times like these, many dealers will not have that luxury, and will simply make a decision on wholesale price to be paid to the bank, plus interest expense incurred to date. If there is an ability to get rid of the boat at a price that covers those two items, many will do it.
Its also incorrect to assume that having to pay the bank the principal on the loan will affect the dealers cash position. When the buyer takes delivery of the boat, the dealer receives cash and that is used to pay the bank. The net effect, unless the boat has been sold at less the principal owed, is cash neutral at that point in time. Even if the interest expense is not recouped, to an extrememly stressed dealer that is water over the dam. Like the other expenses, the money is already gone and the dealer is just trying to keep from going under by carrying debt that he/she can't service.
While I have no doubt that many business people make bad decisions about debt and inventory, that doesn't mean that all do. Not all will sit around and allow debt to drive them into bankruptcy, instead of moving the inventory, tightening "the belt" and concentrating on other aspects of the business that do make money.
The simple fact of the matter is that there are deals to be found, and dealers that won't budge on price eventually find that out. They end up being the ones who sit on inventory and survive only if they have large cash reserves.
